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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2003

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934


COMMISSION FILE NUMBER: 0-15502


COMVERSE TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

NEW YORK 13-3238402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

170 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
(Address of principal executive offices) (Zip Code)

(516) 677-7200
(Registrant's telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.


[X] Yes [ ] No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).


[X] Yes [ ] No

The number of shares outstanding of the registrant's common stock,
par value $0.10 per share, as of December 5, 2003 was 192,826,709



Page 1 of 31

TABLE OF CONTENTS
-----------------



Page
----

PART I
FINANCIAL INFORMATION

ITEM 1. Financial Statements.

1. Condensed Consolidated Balance Sheets as
of January 31, 2003 and October 31, 2003 3

2. Condensed Consolidated Statements of Operations
for the Three and Nine Month Periods
Ended October 31, 2002 and October 31, 2003 4

3. Condensed Consolidated Statements of Cash Flows
for the Nine Month Periods Ended
October 31, 2002 and October 31, 2003 5

4. Notes to Condensed Consolidated Financial Statements 6

ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 15

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk. 29

ITEM 4. Controls and Procedures. 29

PART II
OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K. 30

SIGNATURES 31





Page 2 of 31

PART I
Financial Information

ITEM 1. Financial Statements.

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)




JANUARY 31, OCTOBER 31,
2003* 2003
(Unaudited)

ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $1,402,783 $1,293,795
Bank time deposits and short-term investments 406,089 810,149
Accounts receivable, net 212,953 190,329
Inventories 40,015 46,711
Prepaid expenses and other current assets 65,018 57,438
---------- ----------
TOTAL CURRENT ASSETS 2,126,858 2,398,422
PROPERTY AND EQUIPMENT, net 146,380 130,162
OTHER ASSETS 130,421 140,765
---------- ----------
TOTAL ASSETS $2,403,659 $2,669,349
========== ==========


LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 260,810 $ 257,416
Advance payments from customers 53,496 42,849
Other current liabilities 46,045 2,641
---------- ----------
TOTAL CURRENT LIABILITIES 360,351 302,906
CONVERTIBLE DEBENTURES 390,838 544,913
OTHER LIABILITIES 19,230 19,134
---------- ----------
TOTAL LIABILITIES 770,419 866,953
---------- ----------

MINORITY INTEREST 83,548 157,613
---------- ----------


STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value -
authorized, 600,000,000 shares;
issued and outstanding, 187,754,407 and 192,497,229 shares 18,775 19,249
Additional paid-in capital 1,078,720 1,185,914
Retained earnings 445,285 434,971
Accumulated other comprehensive income 6,912 4,649
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 1,549,692 1,644,783
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,403,659 $2,669,349
========== ==========


*The Condensed Consolidated Balance Sheet as of January 31, 2003 has been
summarized from the Company's audited Consolidated Balance Sheet as of that
date.

The accompanying notes are an integral part of these financial statements.



Page 3 of 31

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)



NINE MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2002 2003 2002 2003


Sales $559,873 $562,863 $167,469 $193,843
Cost of sales 255,634 244,366 84,512 82,669
--------- --------- --------- ---------
Gross margin 304,239 318,497 82,957 111,174

Operating expenses:
Research and development, net 178,313 162,102 54,556 53,810
Selling, general and administrative 214,425 188,956 68,414 63,891
Workforce reduction, restructuring
and impairment charges (credits) 53,716 (233) 50,918 -
--------- --------- --------- ---------


Loss from operations (142,215) (32,328) (90,931) (6,527)

Interest and other income, net 47,302 28,108 13,197 4,978
--------- --------- --------- ---------

Loss before income tax provision (94,913) (4,220) (77,734) (1,549)
Income tax provision 4,423 6,094 1,949 1,888
--------- --------- --------- ---------

Net loss $(99,336) $(10,314) $(79,683) $ (3,437)
========= ========= ========= =========

Loss per share:
Basic $ (0.53) $ (0.05) $ (0.43) $ (0.02)
========= ========= ========= =========
Diluted $ (0.53) $ (0.05) $ (0.43) $ (0.02)
========= ========= ========= =========


The accompanying notes are an integral part of these financial statements.



Page 4 of 31

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)



NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
2002 2003

Cash flows from operating activities:
Net cash from operations after adjustment
for non-cash items $ (30,865) $ 48,753
Changes in operating assets and liabilities:
Accounts receivable 95,898 24,302
Inventories 4,239 (6,031)
Prepaid expenses and other current assets 20,146 4,303
Accounts payable and accrued expenses (54,176) (5,182)
Other, net (2,738) (16,187)
------------ ------------
Net cash provided by operating activities 32,504 49,958
------------ ------------

Cash flows from investing activities:
Maturities and sales (purchases) of bank time deposits
and investments, net 124,845 (408,419)
Purchases of property and equipment (21,063) (26,359)
Capitalization of software development costs (10,106) (6,607)
Net assets acquired (27,765) (5,910)
------------ ------------
Net cash provided by (used in) investing activities 65,911 (447,295)
------------ ------------



Cash flows from financing activities:
Net proceeds from issuance of debentures - 412,852
Repurchase of debentures (205,180) (248,156)
Net repayments of bank loans and other debt (3,589) (48,193)
Net proceeds from issuance of common stock 76,569 171,846
------------ ------------
Net cash provided by (used in) financing activities (132,200) 288,349
------------ ------------

Net decrease in cash and cash equivalents (33,785) (108,988)
Cash and cash equivalents, beginning of period 1,361,862 1,402,783
------------ ------------
Cash and cash equivalents, end of period $ 1,328,077 $ 1,293,795
============ ============



The accompanying notes are an integral part of these financial statements.



Page 5 of 31

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


BASIS OF PRESENTATION. Comverse Technology, Inc. ("CTI" and, together
with its subsidiaries, the "Company") is engaged in the design, development,
manufacture, marketing and support of computer and telecommunications systems
and software for multimedia communications and information processing
applications.

The accompanying financial information should be read in conjunction
with the financial statements, including the notes thereto, for the annual
period ended January 31, 2003. The financial information included herein is
unaudited; however, such information reflects all adjustments (consisting solely
of normal recurring adjustments), which are, in the opinion of management,
necessary for a fair statement of results for the interim periods. The results
of operations for the three and nine month periods ended October 31, 2003 are
not necessarily indicative of the results to be expected for the full year.

RECLASSIFICATIONS. Certain prior year amounts have been reclassified
to conform to the presentation in the current year.

STOCK-BASED COMPENSATION. The Company accounts for stock options
under the recognition and measurement principles of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, no stock-based employee compensation cost is
reflected in the condensed consolidated statements of operations for any
periods, as all options granted have an exercise price at least equal to the
market value of the underlying common stock on the date of grant.

The Company estimated the fair value of employee stock options
utilizing the Black-Scholes option valuation model, using appropriate
assumptions, as required under accounting principles generally accepted in the
United States of America. The Black-Scholes model was developed for use in
estimating the fair value of traded options and does not consider the non-traded
nature of employee stock options, vesting and trading restrictions, lack of
transferability or the ability of employees to forfeit the options prior to
expiry. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.

The following table illustrates the effect on net loss and loss per
share if the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation for all periods:



Page 6 of 31



THREE MONTHS ENDED
OCTOBER 31,
------------------------------

2002 2003
---- ----
(In thousands)


Net loss, as reported $ (79,683) $ (3,437)

Deduct: Total stock-based employee compensation
expense determined under fair value based method for all
awards, net of related tax effects (35,438) (37,718)
---------- ----------

Pro forma net loss $(115,121) $ (41,155)
========== ==========

Loss per share:

Basic - as reported $ (0.43) $ (0.02)
Basic - pro forma $ (0.61) $ (0.22)

Diluted - as reported $ (0.43) $ (0.02)
Diluted - pro forma $ (0.61) $ (0.22)



NINE MONTHS ENDED
OCTOBER 31,
------------------------------

2002 2003
---- ----
(In thousands)

Net loss, as reported $ (99,336) $ (10,314)

Deduct: Total stock-based employee compensation
expense determined under fair value based method for all
awards, net of related tax effects (112,274) (114,767)
---------- ----------

Pro forma net loss $(211,610) $(125,081)
========== ==========

Loss per share:

Basic - as reported $ (0.53) $ (0.05)
Basic - pro forma $ (1.13) $ (0.66)

Diluted - as reported $ (0.53) $ (0.05)
Diluted - pro forma $ (1.13) $ (0.66)





Page 7 of 31

INVENTORIES. The composition of inventories at January 31, 2003 and
October 31, 2003 is as follows:

JANUARY 31, OCTOBER 31,
2003 2003
(In thousands)

Raw materials $17,111 $19,201
Work in process 12,430 15,278
Finished goods 10,474 12,232
------- -------
$40,015 $46,711
======= =======


RESEARCH AND DEVELOPMENT EXPENSES. A significant portion of the
Company's research and development operations are located in Israel where the
Company derives benefits from participation in programs sponsored by the
Government of Israel for the support of research and development activities
conducted in that country. Certain of the Company's research and development
activities include projects partially funded by the Office of the Chief
Scientist of the Ministry of Industry and Trade of the State of Israel (the
"OCS") under which the funding organization reimburses a portion of the
Company's research and development expenditures under approved project budgets.
Certain of the Company's subsidiaries accrue royalties to the OCS for the sale
of products incorporating technology developed in these projects. Another
subsidiary of the Company is not required to pay royalties on such grants. Under
the terms of the applicable funding agreements, products resulting from projects
funded by the OCS may not be manufactured outside of Israel without government
approval. The amounts reimbursed by the OCS for the three month periods ended
October 31, 2002 and 2003 were $2,379,000 and $1,881,000, respectively, and for
the nine month periods ended October 31, 2002 and 2003 were $8,316,000 and
$6,870,000, respectively.

EARNINGS (LOSS) PER SHARE. The computation of basic earnings (loss)
per share is based on the weighted average number of outstanding common shares.
Diluted earnings per share further assumes the issuance of common shares for all
dilutive potential common shares outstanding. The calculation of loss per share
for the three and nine month periods ended October 31, 2002 and 2003 is as
follows:



THREE MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, 2002 OCTOBER 31, 2003
---------------- ----------------
Net Per Share Net Per Share
Loss Shares Amount Loss Shares Amount
(In thousands, except per share data)


BASIC AND DILUTED EPS
Net loss $(79,683) 187,457 $(0.43) $(3,437) 190,996 $(0.02)
========= ======= ======= ======== ======= =======






Page 8 of 31



NINE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, 2002 OCTOBER 31, 2003
---------------- ----------------
Net Per Share Net Per Share
Loss Shares Amount Loss Shares Amount
(In thousands, except per share data)


BASIC AND DILUTED EPS
Net loss $(99,336) 187,040 $(0.53) $(10,314) 189,397 $(0.05)
========= ======= ======= ========= ======= =======



The diluted loss per share computation for the three and nine month
periods ended October 31, 2003 excludes incremental shares of approximately
6,206,000 and 4,889,000, respectively, and for the three and nine month periods
ended October 31, 2002 excludes incremental shares of approximately 274,000 and
655,000, respectively, related to employee stock options. These shares are
excluded due to their antidilutive effect as a result of the Company's loss
during these periods. The Company's 1.50% Convertible Senior Debentures due
December 2005 (the "Debentures") were not included in the computation of diluted
earnings per share for all periods because the effect of including them would be
antidilutive. In addition, the Company's Zero Yield Puttable Securities due 2023
("ZYPS") were not included in the computation of diluted earnings per share for
all periods. The ZYPS are convertible into shares of the Company's common stock
contingent upon the occurrence of certain events that have not yet occurred. As
such, the contingent conversion feature has not been satisfied and the ZYPS are
not currently considered to be dilutive in accordance with the provisions of
SFAS No. 128, "Earnings per Share."

COMPREHENSIVE INCOME (LOSS). Total comprehensive income (loss) was
$(80,601,000) and $1,993,000 for the three month periods ended October 31, 2002
and 2003, respectively, and $(99,885,000) and $(12,577,000) for the nine month
periods ended October 31, 2002 and 2003, respectively. The elements of
comprehensive income (loss) include net income (loss), unrealized gains/losses
on available for sale securities and foreign currency translation adjustments.

CONVERTIBLE DEBENTURES. In May 2003, the Company issued $420,000,000
aggregate principal amount of its ZYPS, for net proceeds of approximately $412.9
million. The ZYPS are unsecured senior obligations of the Company ranking
equally with all of the Company's existing and future unsecured senior
indebtedness and are senior in right of payment to any of the Company's existing
and future subordinated indebtedness. The ZYPS are convertible, contingent upon
the occurrence of certain events, into shares of the Company's common stock at a
conversion price of $17.97 per share. The ability of the holders to convert the
ZYPS into common stock is subject to certain conditions including, among others,
the closing price of the common stock exceeding 120% of the conversion price
over certain periods and other specified events. The ZYPS mature on May 15,
2023. The Company has the right to redeem the ZYPS for cash at any time on or
after May 15, 2008, at their principal amount. The holders have a series of put
options, pursuant to which they may require the Company to repurchase all or a
portion of the ZYPS on each of May 15 of 2008, 2013, and 2018 and upon the
occurrence of certain events. The ZYPS holders may require the Company to
repurchase the ZYPS at par in the event that the common stock ceases to be
publicly traded and, in certain instances, upon a change in control of the
Company. Upon the occurrence of a change in control, instead of paying the
repurchase price in cash, the Company may, under certain circumstances, pay the
repurchase price in common stock.


Page 9 of 31

In November and December 2000, the Company issued $600,000,000
aggregate principal amount of its Debentures. The Debentures are unsecured
senior obligations of the Company ranking equally with all of the Company's
existing and future unsecured senior indebtedness and are senior in right of
payment to any of the Company's existing and future subordinated indebtedness.
The Debentures are convertible, at the option of the holders, into shares of the
Company's common stock at a conversion price of $116.325 per share, subject to
adjustment in certain events; and are subject to redemption at any time on or
after December 1, 2003, in whole or in part, at the option of the Company, at
redemption prices (expressed as percentages of the principal amount) of 100.375%
if redeemed during the twelve-month period beginning December 1, 2003, and 100%
of the principal amount if redeemed thereafter. The Debenture holders may
require the Company to repurchase the Debentures at par in the event that the
common stock ceases to be publicly traded and, in certain instances, upon a
change in control of the Company. Upon the occurrence of a change in control,
instead of paying the repurchase price in cash, the Company may, under certain
circumstances, pay the repurchase price in common stock. During the three and
nine month periods ended October 31, 2002, the Company acquired, in open market
purchases, $39,180,000 and $205,180,000 of face amount of the Debentures,
respectively, resulting in a pre-tax gain, net of debt issuance costs, of
approximately $7,436,000 and $38,938,000, respectively, included in `Interest
and other income, net' in the condensed consolidated statements of operations.

During the three and nine month periods ended October 31, 2003, the
Company acquired, in open market purchases, $32,917,000 and $265,925,000 of face
amount of the Debentures, respectively, resulting in a pre-tax gain, net of debt
issuance costs, of approximately $1,007,000 and $10,221,000, respectively,
included in `Interest and other income, net' in the condensed consolidated
statements of operations. As of October 31, 2003, the Company had outstanding
Debentures of $124,913,000.

BANK LOAN. In January 2002, Verint Systems Inc. ("Verint"), a
majority-owned subsidiary of CTI, took a bank loan in the amount of $42,000,000.
This loan, which matured in February 2003, bore interest at LIBOR plus 0.55% and
was guaranteed by CTI. During February 2003, Verint repaid the bank loan.

ACQUISITION. In May 2003, Verint acquired all of the issued and
outstanding shares of Smartsight Networks Inc. ("Smartsight"), a Canadian
corporation that develops IP-based video edge devices and software for wireless
video transmission. The purchase price consisted of approximately $7,144,000 in
cash and 149,731 shares of Verint common stock, valued at approximately
$3,063,000, or $20.46 per share. In connection with this acquisition, Verint
incurred transaction costs, consisting primarily of professional fees amounting
to approximately $263,000. The acquisition was accounted for using the purchase
method. The results of operations of Smartsight have been included in the
Company's results of operations from May 1, 2003. A summary of the purchase
price allocation as well as pro forma results of operations have not been
presented as the effect of the acquisition is not deemed material to the
Company's consolidated financial position or results of operations.

ISSUANCE OF SUBSIDIARY STOCK. In June 2003, Verint completed a public
offering of 5,750,000 shares of its common stock at a price of $23.00 per share.
The shares offered included 149,731 shares issued to Smartsight's former
shareholders in connection with its acquisition. CTI was not a selling
stockholder in the offering. The proceeds of the offering were approximately
$122.2 million, net of offering expenses. As a result of the offering, the
Company's ownership interest in Verint was reduced to approximately 62.9%
following completion of the offering. The Company recorded a gain of
approximately $62.9 million, which was recorded as an increase in stockholders'
equity as a result of the issuance.


Page 10 of 31

WORKFORCE REDUCTION, RESTRUCTURING AND IMPAIRMENT CHARGES. During the
years ended January 31, 2002 and 2003 and the nine months ended October 31,
2003, the Company took steps to better align its cost structure with the
business environment and to improve the efficiency of its operations via
reductions in workforce, restructuring of operations and the write-off of
impaired assets. In connection with these actions, the Company took charges to
operations primarily pertaining to severance and other related costs, the
elimination of excess facilities and related leasehold improvements and the
write-off of certain property and equipment.

As of October 31, 2003, the Company had an accrual of approximately
$36,702,000 relating to workforce reduction and restructuring. A roll-forward of
the workforce reduction and restructuring accrual from January 31, 2003 is as
follows:



WORKFORCE
ACCRUAL REDUCTION, ACCRUAL
BALANCE AT RESTRUCTURING BALANCE AT
JANUARY 31, & IMPAIRMENT CASH NON-CASH OCTOBER 31,
2003 CHARGES (CREDITS) PAYMENTS CHARGES 2003
---- ----------------- -------- ------- ----
(IN THOUSANDS)


Severance and related $ 9,367 $1,395 $ 8,563 $ - $ 2,199
Facilities and related 40,454 (1,874) 4,077 - 34,503
Property and equipment - 246 - 246 -
-------- -------- -------- -------- --------
Total $49,821 $ (233) $12,640 $ 246 $36,702
======== ======== ======== ======== ========



Severance and related costs consist primarily of severance payments
to terminated employees, fringe related costs associated with severance
payments, other termination costs and legal and consulting costs. The balance of
these severance and related costs is expected to be paid by July 2004.

Facilities and related costs consist primarily of contractually
obligated lease liabilities and operating expenses related to facilities to be
vacated primarily in the United States and Israel as a result of the
restructuring. The balance of these facilities and related costs is expected to
be paid at various dates through January 2011.

Property and equipment costs consist primarily of the write-down of
various assets to their current estimable fair value.



Page 11 of 31

BUSINESS SEGMENT INFORMATION. The Company's reporting segments are as
follows:

Enhanced Services Solutions Products ("ESS"). Enable
telecommunications service providers to offer a variety of revenue and traffic
generating services accessible to large numbers of simultaneous users. These
services include a broad range of messaging, information distribution and
personal communications services, such as voicemail and other call completion
services, visual voicemail and complementary services for unreachable
subscribers, short messaging services, mobile email, multimedia messaging,
unified messaging, mobile data gateway, value-added services for roamers,
wireless information and entertainment services, wireless instant messaging,
prepaid wireless calling services, real time data billing, converged prepaid and
postpaid wireless billing services and other components and applications.

Service Enabling Signaling Software Products. Interconnect the
complex circuit switching, database and messaging systems and manage vital
number, routing and billing information that form the backbone of today's public
telecommunications networks. These products also are embedded in a range of
packet softswitching products to interoperate or converge voice and data
networks and facilitate services such as voice over the Internet and Internet
offload. This segment represents the Company's Ulticom, Inc. subsidiary.

Security and Business Intelligence Recording Products. Provides
analytic solutions for communications interception, digital video security and
surveillance, and enterprise business intelligence. The software generates
actionable intelligence through the collection, retention and analysis of voice,
fax, video, email, Internet and data transmissions from multiple types of
communications networks. This segment represents the Company's Verint
subsidiary.

All Other. Includes other miscellaneous operations.






Page 12 of 31

The table below presents information about sales, income (loss) from
operations and segment assets as of and for the three and nine month periods
ended October 31, 2002 and 2003:



Service Security and
Enhanced Enabling Business
Services Signaling Intelligence
Solutions Software Recording All Reconciling Consolidated
Products Products Products Other Items Totals
--------- -------- ---------- ----- ----- ------
(In thousands)


THREE MONTHS ENDED OCTOBER 31, 2002:

Sales $ 117,212 $ 7,764 $ 40,671 $ 2,437 $ (615) $ 167,469

Income (loss) from
operations $ (93,607) $ (537) $ 2,717 $ 393 $ 103 $ (90,931)

THREE MONTHS ENDED OCTOBER 31, 2003:

Sales $ 134,470 $ 9,691 $ 49,012 $ 2,136 $ (1,466) $ 193,843

Income (loss) from
operations $ (8,454) $ 661 $ 4,456 $ (628) $ (2,562) $ (6,527)

NINE MONTHS ENDED OCTOBER 31, 2002:

Sales $ 418,983 $ 20,964 $ 115,458 $ 7,318 $ (2,850) $ 559,873

Income (loss) from
operations $ (137,543) $ (8,164) $ 7,024 $ (542) $ (2,990) $ (142,215)

NINE MONTHS ENDED OCTOBER 31, 2003:

Sales $ 390,747 $ 28,254 $ 140,319 $ 7,053 $ (3,510) $ 562,863

Income (loss) from
operations $ (39,272) $ 1,893 $ 12,088 $ (1,080) $ (5,957) $ (32,328)

TOTAL ASSETS:

October 31, 2002 $ 1,025,965 $ 235,069 $ 199,596 $ 34,839 $ 943,982 $ 2,439,451

October 31, 2003 $ 863,738 $ 241,376 $ 323,923 $ 33,185 $ 1,207,127 $ 2,669,349



Reconciling items consist of the following:

Sales - elimination of intersegment revenues.

Income (loss) from operations - elimination of intersegment operating
income and corporate operations.

Total Assets - elimination of intersegment receivables and unallocated
corporate assets.


Page 13 of 31

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS. In August 2001, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 establishes accounting standards for
recognition and measurement of a liability for an asset retirement obligation
and the associated asset retirement cost. SFAS No. 143 applies to legal
obligations associated with the retirement of a tangible long-lived asset that
result from the acquisition, construction, development and/or normal operation
of a long-lived asset. This Statement is effective for fiscal years beginning
after June 15, 2002. The adoption of SFAS No. 143 did not have a material effect
on the Company's condensed consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 did not have a material effect on the Company's
condensed consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how to classify and measure certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003.
The adoption of SFAS No. 150 did not have a material effect on the Company's
condensed consolidated financial statements.






Page 14 of 31

ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.

RESULTS OF OPERATIONS

INTRODUCTION

As explained in greater detail in "Certain Trends and Uncertainties",
the Company's two business units serving telecommunications markets are
operating within an industry experiencing a challenging capital spending
environment. Despite these conditions, both business units achieved year over
year revenue growth during the three month period ended October 31, 2003.
Verint, which services the security and enterprise business intelligence
markets, achieved record revenue and net income based, in part, on increased
sales due to heightened awareness surrounding homeland defense and security
related initiatives in the United States and abroad. Overall, for the three
month period ended October 31, 2003, the Company experienced sequential and year
over year sales increases of 3% and 16%, respectively, with a substantial
majority of sales for the period generated from activities serving the
telecommunications industry. Nevertheless, the Company still incurred an
operating and net loss for the period.

NINE MONTH AND THREE MONTH PERIODS ENDED OCTOBER 31, 2003
COMPARED TO NINE MONTH AND THREE MONTH PERIODS ENDED OCTOBER 31, 2002

Sales. Sales for the nine month period ended October 31, 2003
increased by approximately $3.0 million, or 1%, compared to the nine month
period ended October 31, 2002. This increase is primarily attributable to an
increase in sales of security and business intelligence recording products,
which increased by approximately $24.9 million, primarily as a result of
increased digital security and surveillance sales, and sales of service enabling
signaling software products, which increased by approximately $7.3 million.
These increases were largely offset by a decrease in sales of ESS products of
approximately $28.2 million. Sales for the three month period ended October 31,
2003 increased by approximately $26.4 million, or 16%, compared to the three
month period ended October 31, 2002. This increase is attributable to an
increase in sales in the Company's three primary business units. Sales of ESS
products increased by approximately $17.3 million largely as a result of
increased European business, sales of security and business intelligence
recording products increased by approximately $8.3 million, primarily as a
result of increased digital security and surveillance sales, and sales of
service enabling signaling software products increased by approximately $1.9
million. On a consolidated basis, sales to customers in North America
represented approximately 34% and 35% of total sales for the nine month periods
ended October 31, 2003 and 2002, respectively, and approximately 30% and 33% of
total sales for the three month periods ended October 31, 2003 and 2002,
respectively.

Cost of Sales. Cost of sales for the nine month period ended October
31, 2003 decreased by approximately $11.3 million, or 4%, compared to the nine
month period ended October 31, 2002. The decrease in cost of sales is primarily
attributable to decreased personnel-related and travel costs of approximately
$17.6 million and $4.3 million, respectively, primarily the result of cost
reduction efforts, partially offset by increased royalty expense of
approximately $9.0 million, primarily the result of a prior period credit
realized upon a settlement with the OCS, and net increase in various other costs
of approximately $1.6 million. Gross margins for the nine month period ended


Page 15 of 31

October 31, 2003 increased to approximately 56.6% from approximately 54.3% in
the corresponding 2002 period. Cost of sales for the three month period ended
October 31, 2003 decreased by approximately $1.8 million, or 2%, compared to the
three month period ended October 31, 2002. The decrease in cost of sales is
primarily attributable to decreased personnel-related costs of approximately
$3.9 million, primarily the result of cost reduction efforts, partially offset
by increased royalty expense of approximately $3.6 million, primarily the result
of a prior period credit realized upon a settlement with the OCS, and net
decrease in various other costs of approximately $1.5 million. Gross margins for
the three month period ended October 31, 2003 increased to approximately 57.4%
from approximately 49.5% in the corresponding 2002 period.

Research and Development, Net. Net research and development expenses
for the nine month and three month periods ended October 31, 2003 decreased by
approximately $16.2 million, or 9%, and $0.7 million, or 1%, respectively,
compared to the nine month and three month periods ended October 31, 2002. The
decrease in net research and development expenses is primarily attributable to
decreased personnel-related costs of approximately $16.4 million and $2.0
million for the nine and three month periods, respectively, which is primarily
the result of workforce reduction and other cost reduction efforts and a
reduction of research and development projects.

Selling, General and Administrative. Selling, general and
administrative expenses for the nine month and three month periods ended October
31, 2003 decreased by approximately $25.5 million, or 12%, and $4.5 million, or
7%, respectively, compared to the nine month and three month periods ended
October 31, 2002, and as a percentage of sales for the nine month and three
month periods ended October 31, 2003, decreased to approximately 33.6% and 33.0%
from approximately 38.3% and 40.9% in the corresponding 2002 periods. The
decrease in the dollar amount of selling, general and administrative expenses
for the nine month and three month periods is primarily due to lower bad debt
expense of approximately $38.4 million and $11.5 million, respectively,
partially offset by increased personnel-related costs of approximately $9.3
million and $6.5 million, respectively, due primarily to an overall increase in
sales and marketing staff, increased sales commissions due to higher sales
bookings and increased headcount at Verint and net increase in various other
costs of approximately $3.6 million and $0.5 million, respectively.

Workforce reduction, restructuring and impairment charges (credits).
In order to better align its cost structure with the business environment and
improve the efficiency of its operations, the Company took steps to reduce its
workforce, restructure its operations and write-off impaired assets during the
nine and three month periods ended October 31, 2002, and incurred charges of
approximately $53.7 million and $50.9, respectively, primarily pertaining to
severance and other related costs, the elimination of excess facilities and
related leasehold improvements and the write-off of certain property and
equipment. During the nine month period ended October 31, 2003, the Company
recorded a net credit of approximately $0.2 million for the reversal of a
previously taken restructuring charge.

Interest and Other Income, Net. Interest and other income, net, for
the nine month and three month periods ended October 31, 2003 decreased by
approximately $19.2 million and $8.2 million, respectively, compared to the nine
month and three month periods ended October 31, 2002. The principal reasons for
the decrease in the nine month and three month periods are (i) a decrease in the
gain recorded as a result of the Company's repurchases of its Debentures of


Page 16 of 31

approximately $28.7 million and $6.4 million, respectively; (ii) a decrease in
foreign currency gains of approximately $14.8 million during the nine month
period; (iii) decreased interest and dividend income of approximately $10.9
million and $3.0 million, respectively, due primarily to the decline in interest
rates partially offset by an increase in invested assets; (iv) an increase of
approximately $4.1 million and $1.3 million, respectively, in the minority
interest; and (v) an increase in net losses from the sale and write-down of
investments of approximately $1.7 million during the three month period. Such
items were offset by (i) a decrease in net losses from the sale and write-down
of investments of approximately $32.3 million during the nine month period; (ii)
decreased interest expense of approximately $4.7 million and $0.8 million,
respectively, due primarily to the Company's repurchases of its Debentures and
other debt reduction; (iii) an increase in the equity in affiliates of
approximately $2.0 million for each of the nine and three month periods; (iv) an
increase in foreign currency gains of approximately $0.8 million during the
three month period; and (v) other increases of approximately $0.3 million and
$0.6 million, respectively.

Income Tax Provision. Provision for income taxes for the nine month
and three month periods ended October 31, 2003 increased (decreased) by
approximately $1.7 million, or 38%, and $(0.1) million, or (3)%, respectively,
compared to the nine month and three month periods ended October 31, 2002, due
primarily to shifts in the underlying mix of pre-tax income by tax jurisdiction.
The Company's overall rate of tax is reduced significantly by the existence of
net operating loss carryforwards for Federal income tax purposes in the United
States, as well as the tax benefits associated with qualified activities of
certain of its Israeli subsidiaries, which are entitled to favorable income tax
rates under a program of the Israeli Government for "Approved Enterprise"
investments in that country.

Net Loss. Net loss for the nine month and three month periods ended
October 31, 2003 decreased by approximately $89.0 million and $76.2 million,
respectively, compared to the nine month and three month periods ended October
31, 2002, while as a percentage of sales was approximately (1.8)% and (17.7)% in
the nine month periods ended October 31, 2003 and 2002, respectively, and
approximately (1.8)% and (47.6)% in the three month periods ended October 31,
2003 and 2002, respectively. These variances resulted primarily from the factors
described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital at October 31, 2003 and January 31,
2003 was approximately $2,095.5 million and $1,766.5 million, respectively. At
October 31, 2003 and January 31, 2003, the Company had total cash and cash
equivalents, bank time deposits and short-term investments of approximately
$2,103.9 million and $1,808.9 million, respectively.

Operations for the nine month periods ended October 31, 2003 and
2002, after adjustment for non-cash items, provided (used) cash of approximately
$48.8 million and $(30.9) million, respectively. During such periods, other
changes in operating assets and liabilities provided cash of approximately $1.2
million and $63.4 million, respectively. This resulted in net cash provided by
operating activities of approximately $50.0 million and $32.5 million,
respectively.


Page 17 of 31

Investing activities for the nine month periods ended October 31,
2003 and 2002 provided (used) cash of approximately $(447.3) million and $65.9
million, respectively. These amounts include (i) net maturities and sales
(purchases) of bank time deposits and investments of approximately $(408.4)
million and $124.8 million, respectively; (ii) purchases of property and
equipment of approximately $(26.4) million and $(21.1) million, respectively;
(iii) capitalization of software development costs of approximately $(6.6)
million and $(10.1) million, respectively; and (iv) net assets acquired as a
result of acquisitions of approximately $(5.9) million and $(27.8) million,
respectively.

Financing activities for the nine month periods ended October 31,
2003 and 2002 provided (used) cash of approximately $288.3 million and $(132.2)
million, respectively. These amounts include (i) net proceeds from the issuance
of ZYPS of approximately $412.9 million during the nine months ended October 31,
2003; (ii) the repurchase of Debentures of approximately $(248.2) million and
$(205.2) million, respectively; (iii) net repayments of bank loans and other
debt of approximately $(48.2) million and $(3.6) million, respectively; and (iv)
net proceeds from the issuance of common stock in connection with Verint stock
offerings and the exercise of stock options and employee stock purchase plans of
approximately $171.8 million and $76.6 million, respectively.

In May 2003, the Company issued $420,000,000 aggregate principal
amount of its ZYPS, for net proceeds of approximately $412.9 million. The ZYPS
are unsecured senior obligations of the Company ranking equally with all of the
Company's existing and future unsecured senior indebtedness and are senior in
right of payment to any of the Company's existing and future subordinated
indebtedness. The ZYPS are convertible, contingent upon the occurrence of
certain events, into shares of the Company's common stock at a conversion price
of $17.97 per share. The ability of the holders to convert the ZYPS into common
stock is subject to certain conditions including, among others, the closing
price of the common stock exceeding 120% of the conversion price over certain
periods and other specified events. The ZYPS mature on May 15, 2023. The Company
has the right to redeem the ZYPS for cash at any time on or after May 15, 2008,
at their principal amount. The holders have a series of put options, pursuant to
which they may require the Company to repurchase all or a portion of the ZYPS on
each of May 15 of 2008, 2013, and 2018 and upon the occurrence of certain
events. The ZYPS holders may require the Company to repurchase the ZYPS at par
in the event that the common stock ceases to be publicly traded and, in certain
instances, upon a change in control of the Company. Upon the occurrence of a
change in control, instead of paying the repurchase price in cash, the Company
may, under certain circumstances, pay the repurchase price in common stock.

During the nine month period ended October 31, 2003, the Company
acquired, in open market purchases, approximately $265.9 million of face amount
of the Debentures, resulting in a pre-tax gain, net of debt issuance costs, of
approximately $10.2 million included in `Interest and other income, net' in the
condensed consolidated statements of operations. As of October 31, 2003, the
Company had outstanding Debentures of approximately $124.9 million.

During February 2003, Verint repaid a bank loan in the amount of
$42.0 million.

In May 2003, Verint acquired all of the issued and outstanding shares
of Smartsight, a Canadian corporation that develops IP-based video edge devices
and software for wireless video transmission. The purchase price consisted of
approximately $7.1 million in cash and 149,731 shares of Verint common stock,
valued at approximately $3.1 million, or $20.46 per share, plus transaction
costs of approximately $0.3 million.


Page 18 of 31

In June 2003, Verint completed a public offering of 5,750,000 shares
of its common stock at a price of $23.00 per share. The shares offered included
149,731 shares issued to Smartsight's former shareholders in connection with its
acquisition. CTI was not a selling stockholder in the offering. The proceeds of
the offering were approximately $122.2 million, net of offering expenses. As a
result of the offering, the Company's ownership interest in Verint was reduced
to approximately 62.9% following completion of the offering. The Company
recorded a gain of approximately $62.9 million, which was recorded as an
increase in stockholders' equity as a result of the issuance.

The Company's liquidity and capital resources have not been, and are
not anticipated to be, materially affected by restrictions pertaining to the
ability of its foreign subsidiaries to pay dividends or by withholding taxes
associated with any such dividend payments.

The Company regularly examines opportunities for strategic
acquisitions of other companies or lines of business and anticipates that it may
from time to time issue additional debt and/or equity securities either as
direct consideration for such acquisitions or to raise additional funds to be
used (in whole or in part) in payment for acquired securities or assets. The
issuance of such securities could be expected to have a dilutive impact on the
Company's shareholders, and there can be no assurance as to whether or when any
acquired business would contribute positive operating results commensurate with
the associated investment.

The Company believes that its existing working capital, together with
funds generated from operations, will be sufficient to provide for its planned
operations for the foreseeable future.

CERTAIN TRENDS AND UNCERTAINTIES

The Company derives the majority of its revenue from the
telecommunications industry, which is experiencing a challenging capital
spending environment. The Company's operating results and financial condition
have been, and will continue to be, adversely affected by declines in technology
purchases and capital expenditures by telecommunications service providers
("TSP"). Consequently, the Company's operating results may deteriorate in future
periods if such conditions exist. For these reasons and the risk factors
outlined below, it has been and continues to be very difficult for the Company
to accurately forecast future revenues and operating results.

The Company's business is particularly dependent on the strength of
the telecommunications industry. The telecommunications industry, including the
Company, have been negatively affected by, among other factors, the high costs
and large debt positions incurred by some TSPs to expand capacity and enable the
provision of future services (and the corresponding risks associated with the
development, marketing and adoption of these services as discussed below),
including the cost of acquisitions of licenses to provide broadband services and
reductions in TSPs' actual and projected revenues and deterioration in their
actual and projected operating results. Accordingly, TSPs, including the
Company's customers, have significantly reduced their actual and planned
expenditures to expand or replace equipment and delayed and reduced the
deployment of services. A number of TSPs, including certain customers of the
Company, also have indicated the existence of conditions of excess capacity in
certain markets.


Page 19 of 31

In addition, certain TSPs have delayed the planned introduction of
new services, such as broadband mobile telephone services, that would be
supported by certain of the Company's products. Certain of the Company's
customers also have implemented changes in procurement practices and procedures,
including limitations on purchases in anticipation of estimated future capacity
requirements, and in the management and use of their networks, that have reduced
the Company's sales, which also has made it very difficult for the Company to
project future sales. The continuation and/or exacerbation of these negative
trends will have an adverse effect on the Company's future results.

In addition to loss of revenue, weakness in the telecommunications
industry has affected and will continue to affect the Company's business by
increasing the risks of credit or business failures of suppliers, customers or
distributors, by customer requirements for vendor financing and longer payment
terms, by delays and defaults in customer or distributor payments, and by price
reductions instituted by competitors to retain or acquire market share.

The Company's current plan of operations is predicated in part on a
recovery in capital expenditures by its customers. In the absence of such
improvement, the Company would experience deterioration in its operating
results, and may determine to modify its plan for future operations accordingly,
which may include, among other things, additional reductions in its workforce.

The Company intends to continue to make significant investments in
its business, and to examine opportunities for growth through acquisitions and
strategic investments. These activities may involve significant expenditures and
obligations that cannot readily be curtailed or reduced if anticipated demand
for the associated products does not materialize or is delayed. The impact of
these decisions on future financial results cannot be predicted with assurance,
and the Company's commitment to growth may increase its vulnerability to
downturns in its markets, technology changes and shifts in competitive
conditions. The Company also may not be able to identify future suitable merger
or acquisition candidates, and even if the Company does identify suitable
candidates, it may not be able to make these transactions on commercially
acceptable terms, or at all. If the Company does make acquisitions, it may not
be able to successfully incorporate the personnel, operations and customers of
these companies into the Company's business. In addition, the Company may fail
to achieve the anticipated synergies from the combined businesses, including
marketing, product integration, distribution, product development and other
synergies. The integration process may further strain the Company's existing
financial and managerial controls and reporting systems and procedures. This may
result in the diversion of management and financial resources from the Company's
core business objectives. In addition, an acquisition or merger may require the
Company to utilize cash reserves, incur debt or issue equity securities, which
may result in a dilution of existing stockholders, and the Company may be
negatively impacted by the assumption of liabilities of the merged or acquired
company. Due to rapidly changing market conditions, the Company may find the
value of its acquired technologies and related intangible assets, such as
goodwill as recorded in the Company's financial statements, to be impaired,
resulting in charges to operations. The Company may also fail to retain the
acquired or merged companies' key employees and customers.


Page 20 of 31

The Company has made, and in the future, may continue to make
strategic investments in other companies. These investments have been made in,
and future investments will likely be made in, immature businesses with unproven
track records and technologies. Such investments have a high degree of risk,
with the possibility that the Company may lose the total amount of its
investments. The Company may not be able to identify suitable investment
candidates, and, even if it does, the Company may not be able to make those
investments on acceptable terms, or at all. In addition, even if the Company
makes investments, it may not gain strategic benefits from those investments.

The Company's products involve sophisticated hardware and software
technology that performs critical functions to highly demanding standards. There
can be no assurance that the Company's current or future products will not
develop operational problems, which could have a material adverse effect on the
Company. The Company offers complex products that may contain undetected defects
or errors, particularly when first introduced or as new versions are released.
The Company may not discover such defects or errors until after a product has
been released and used by the customer. Significant costs may be incurred to
correct undetected defects or errors in the Company's products and these defects
or errors could result in future lost sales. In addition, defects or errors in
the Company's products may result in product liability claims, which could cause
adverse publicity and impair their market acceptance.

The telecommunications industry is subject to rapid technological
change. The introduction of new technologies in the telecommunications market,
including the delay in the adoption of such new technologies, and new
alternatives for the delivery of services are having, and can be expected to
continue to have, a profound effect on competitive conditions in the market and
the success of market participants, including the Company. In addition, some of
the Company's products, such as call answering, have experienced declines in
usage resulting from, among other factors, the introduction of new technologies
and the adoption and increased use of existing technologies, which may include
enhanced areas of coverage for mobile telephones and Caller ID type services.
The Company's continued success will depend on its ability to correctly
anticipate technological trends in its industries, to react quickly and
effectively to such trends and to enhance its existing products and to introduce
new products on a timely and cost-effective basis. As a result, the life cycle
of the Company's products is difficult to estimate. The Company's new product
offerings may not enter the market in a timely manner for their acceptance. New
product offerings may not properly integrate into existing platforms, and the
failure of these offerings to be accepted by the market could have a material
adverse effect on the Company's business, results of operations, and financial
condition. The Company's sales and operating results may be adversely affected
in the event customers delay purchases of existing products as they await the
Company's new product offerings.

Changing industry and market conditions may dictate strategic
decisions to restructure some business units and discontinue others.
Discontinuing a business unit or product line may result in the Company
recording accrued liabilities for special charges, such as costs associated with
a reduction in workforce. These strategic decisions could result in changes to
determinations regarding a product's useful life and the recoverability of the
carrying basis of certain assets.

The Company has made and continues to make significant investments in
the areas of sales and marketing, and research and development. The Company's
research and development activities, which may be delayed and behind schedule,
include ongoing significant investment in the development of additional features
and functionality for its existing and new product offerings. The success of


Page 21 of 31

these initiatives will be dependent upon, among other things, the emergence of a
market for these types of products and their acceptance by existing and new
customers. The Company's business may be adversely affected by its failure to
correctly anticipate the emergence of a market demand for certain products or
services, and changes in the evolution of market opportunities. If a sufficient
market does not emerge for new or enhanced product offerings developed by the
Company, if the Company is late in introducing new product offerings, or if the
Company is not successful in marketing such products, the Company's continued
growth could be adversely affected and its investment in those products may be
lost.

The Company relies on a limited number of suppliers and manufacturers
for specific components and may not be able to find alternate manufacturers that
meet its requirements and existing or alternative sources may not be available
on favorable terms and conditions. Thus, if there is a shortage of supply for
these components, the Company may experience an interruption in its product
supply. In addition, loss of third party software licensing could materially and
adversely affect the Company's business, financial condition and results of
operations.

The telecommunications industry continues to undergo significant
change as a result of deregulation and privatization worldwide, reducing
restrictions on competition in the industry. Unforeseen changes in the
regulatory environment also may have an impact on the Company's revenues and/or
costs in any given part of the world. The worldwide ESS system industry is
already highly competitive and the Company expects competition to intensify. The
Company believes that existing competitors will continue to present substantial
competition, and that other companies, many with considerably greater financial,
marketing and sales resources than the Company, may enter the ESS system
markets. Moreover, as the Company enters into new markets as a result of its own
research and development efforts or acquisitions, it is likely to encounter new
competitors.

The market for the Company's digital security and surveillance and
enterprise business intelligence products in the past has been affected by
weakness in general economic conditions, delays or reductions in customers'
information technology spending and uncertainties relating to government
expenditure programs. The Company's business generated from government contracts
may be adversely affected if: (i) the Company's reputation or relationship with
government agencies is impaired, (ii) the Company is suspended or otherwise
prohibited from contracting with a domestic or foreign government or any
significant law enforcement agency, (iii) levels of government expenditures and
authorizations for law enforcement and security related programs decrease,
remain constant or shift to programs in areas where the Company does not provide
products and services, (iv) the Company is prevented from entering into new
government contracts or extending existing government contracts based on
violations or suspected violations of laws or regulations, including those
related to procurement, (v) the Company is not granted security clearances
required to sell products to domestic or foreign governments or such security
clearances are revoked, or (vi) there is a change in government procurement
procedures. Competitive conditions in this sector also have been affected by the
increasing use by certain potential customers of their own internal development
resources rather than outside vendors to provide certain technical solutions. In
addition, a number of established government contractors, particularly
developers and integrators of technology products, have taken steps to redirect
their marketing strategies and product plans in reaction to cut-backs in their
traditional areas of focus, resulting in an increase in the number of
competitors and the range of products offered in response to particular requests
for proposals.


Page 22 of 31

A subsidiary of the Company, Verint Technology Inc. ("Verint
Technology"), which sells and supports its communications interception solutions
to various U.S. government agencies, is required by the National Industrial
Security Program to maintain facility security clearances and to be insulated
from foreign ownership, control or influence. The Company, Verint, Verint
Technology and the Department of Defense entered into a proxy agreement, under
which Verint, among other requirements, appointed three U.S. citizens holding
the requisite security clearances to exercise all prerogatives of ownership of
Verint Technology (including, without limitation, oversight of Verint
Technology's security arrangements) as holders of proxies to vote Verint
Technology stock. The proxy agreement may be terminated and Verint Technology's
facility security clearances may be revoked in the event of a breach of the
proxy agreement, or if it is determined by the Department of Defense that
termination is in the national interest. If Verint Technology's facility
security clearance is revoked, sales to U.S. government agencies will be
adversely affected and may adversely affect sales to other international
government agencies. In addition, concerns about the security of Verint, its
personnel or its products may have a material adverse affect on Verint's
business, financial condition and results of operations, including a negative
impact on sales to U.S. and international government agencies.

The Company has historically derived a significant portion of its
sales and operating profit from contracts for large system installations with
major customers. The Company continues to emphasize large capacity systems in
its product development and marketing strategies. Contracts for large
installations typically involve a lengthy and complex bidding and selection
process, and the ability of the Company to obtain particular contracts is
inherently difficult to predict. The timing and scope of these opportunities and
the pricing and margins associated with any eventual contract award are
difficult to forecast, and may vary substantially from transaction to
transaction. The Company's future operating results may accordingly exhibit a
higher degree of volatility than the operating results of other companies in its
industries that have adopted different strategies, and also may be more volatile
than the Company has experienced in prior periods. The degree of dependence by
the Company on large system orders, and the investment required to enable the
Company to perform such orders, without assurance of continuing order flow from
the same customers and predictability of gross margins on any future orders,
increase the risk associated with its business. Because a significant proportion
of the Company's sales of these large system installations occur in the late
stages of a quarter, a delay, cancellation or other factor resulting in the
postponement or cancellation of such sales may cause the Company to miss its
financial projections, which may not be discernible until the end of a financial
reporting period. The Company's gross margins also may be adversely affected by
increases in material or labor costs, obsolescence charges, price competition
and changes in channels of distribution or in the mix of products sold.

Geopolitical, economic and military conditions could directly affect
the Company's operations. The outbreak of severe acute respiratory syndrome
("SARS") earlier this year curtailed travel to and from certain countries
(primarily in the Asia-Pacific region). Continued or additional restrictions on
travel to and from these and other regions on account of additional incidents of
SARS could have a material adverse effect on the Company's business, results of
operations, and financial condition. The continued threat of terrorism and
heightened security and military action in response to this threat, or any
future acts of terrorism, may cause disruptions to the Company's business. To
the extent that such disruptions result in delays or cancellations of customer
orders, or the manufacture or shipment of the Company's products, the Company's
business, operating results and financial condition could be materially and
adversely affected. More recently, the U.S. military involvement in overseas
operations including, for example, the war with Iraq, could have a material
adverse effect on the Company's business, results of operations, and financial
condition.


Page 23 of 31

Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors, and the
continued state of hostility, varying in degree and intensity, has led to
security and economic problems for Israel. Since October 2000, there has been a
significant increase in violence, primarily in the West Bank and Gaza Strip, and
more recently Israel has experienced terrorist incidents within its borders.
During this period, peace negotiations between Israel and representatives of the
Palestinian Authority have been sporadic and currently are suspended. The
Company could be adversely affected by hostilities involving Israel, the
interruption or curtailment of trade between Israel and its trading partners, or
a significant downturn in the economic or financial condition of Israel. In
addition, the sale of products manufactured in Israel may be adversely affected
in certain countries by restrictive laws, policies or practices directed toward
Israel or companies having operations in Israel. The continuation or
exacerbation of violence in Israel or the outbreak of violent conflicts
involving Israel may impede the Company's ability to sell its products or
otherwise adversely affect the Company. In addition, many of the Company's
Israeli employees in Israel are required to perform annual compulsory military
service in Israel and are subject to being called to active duty at any time
under emergency circumstances. The absence of these employees may have an
adverse effect upon the Company's operations.

The Company's costs of operations have at times been affected by
changes in the cost of its operations in Israel, resulting from changes in the
value of the Israeli shekel relative to the United States dollar, which for
certain periods had a negative impact, and from difficulties in attracting and
retaining qualified scientific, engineering and technical personnel in Israel,
where the availability of such personnel has at times been severely limited.
Changes in these cost factors have from time to time been significant and
difficult to predict, and could in the future have a material adverse effect on
the Company's results of operations.

The Company's historical operating results reflect substantial
benefits received from programs sponsored by the Israeli government for the
support of research and development, as well as tax moratoriums and favorable
tax rates associated with investments in approved projects ("Approved
Enterprises") in Israel. Some of these programs and tax benefits have ceased and
others may not be continued in the future and the availability of such benefits
to the Company may be affected by a number of factors, including budgetary
constraints resulting from adverse economic conditions, government policies and
the Company's ability to satisfy eligibility criteria.

The Israeli government has reduced the benefits available under some
of these programs in recent years, and Israeli government authorities have
indicated that the government may further reduce or eliminate some of these
benefits in the future. The Company has regularly participated in a conditional
grant program administered by the Office of the Chief Scientist of the Ministry
of Industry and Trade of the State of Israel ("OCS") under which it has received
significant benefits through reimbursement of up to 50% of qualified research
and development expenditures. Verint currently pays royalties, of between 3% and
5% (or 6% under certain circumstances) of associated product revenues (including
service and other related revenues) to the Government of Israel for repayment of
benefits received under this program. Such royalty payments by Verint are


Page 24 of 31

currently required to be made until the government has been reimbursed the
amounts received by the Company, which is linked to the U.S. dollar, plus, for
amounts received under projects approved by the OCS after January 1, 1999,
interest on such amount at a rate equal to the 12-month LIBOR rate in effect on
January 1 of the year in which approval is obtained. As of October 31, 2003,
Verint received approximately $51 million in cumulative grants from the OCS and
recorded approximately $21 million in cumulative royalties to the OCS. During
fiscal 2001, Comverse entered into an arrangement with the OCS whereby Comverse
agreed to pay a lump sum royalty amount for all past amounts received from the
OCS. In addition, Comverse began to receive lower amounts from the OCS than it
had historically received, but will not have to pay royalty amounts on such
grants. The amount of reimbursement received by the Company under this program
has been reduced significantly, and the Company does not expect to receive
significant reimbursement under this program in the future. In addition,
permission from the Government of Israel is required for the Company to
manufacture outside of Israel products resulting from research and development
activities funded under these programs, or to transfer outside of Israel related
technology rights. In order to obtain such permission, the Company may be
required to increase the royalties to the applicable funding agencies and/or
repay certain amounts received as reimbursement of research and development
costs. The continued reduction in the benefits received by the Company under the
program, or the termination of its eligibility to receive these benefits at all
in the future, could adversely affect the Company's operating results.

The Company's overall effective tax rate benefits from the tax
moratorium provided by the Government of Israel for Approved Enterprises
undertaken in that country. The Company's effective tax rate may increase in the
future due to, among other factors, the increased proportion of its taxable
income associated with activities in higher tax jurisdictions, and by the
relative ages of the Company's eligible investments in Israel. The tax
moratorium on income from the Company's Approved Enterprise investments made
prior to 1997 is four years, whereas subsequent Approved Enterprise projects are
eligible for a moratorium of only two years. Reduced tax rates apply in each
case for certain periods thereafter. To be eligible for these tax benefits, the
Company must continue to meet conditions, including making specified investments
in fixed assets and financing a percentage of investments with share capital. If
the Company fails to meet such conditions in the future, the tax benefits would
be canceled and the Company could be required to refund the tax benefits already
received. Israeli authorities have indicated that additional limitations on the
tax benefits associated with Approved Enterprise projects may be imposed for
certain categories of taxpayers, which would include the Company. If further
changes in the law or government policies regarding those programs were to
result in their termination or adverse modification, or if the Company were to
become unable to participate in, or take advantage of, those programs, the cost
of the Company's operations in Israel would increase and there could be a
material adverse effect on the Company's results of operations and financial
condition.

The Company's success is dependent on recruiting and retaining key
management and highly skilled technical, managerial, sales, and marketing
personnel. The market for highly skilled personnel remains very competitive
despite the current economic conditions. The Company's ability to attract and
retain employees also may be affected by recent cost control actions, including
reductions in the Company's workforce and the associated reorganization of
operations.


Page 25 of 31

Certain of the Company's products are often used by customers to
compile and analyze highly sensitive or confidential information and data. The
Company may come into contact with such information or data when it performs
support or maintenance functions for its customers. While it has internal
policies, procedures and training for employees in connection with performing
these functions, even the perception that any of its employees has improperly
handled sensitive or confidential information and data of a customer could harm
its reputation and could inhibit market acceptance of its products.

The occurrence or perception of security breaches within the Company
could harm the Company's business, financial condition and operating results.
While the Company implements sophisticated security measures, third parties may
attempt to breach the Company's security through computer viruses, electronic
break-ins and other disruptions. If successful, confidential information,
including passwords, financial information, or other personal information may be
improperly obtained and the Company may be subject to lawsuits and other
liability. Even if the Company is not held liable, a security breach could harm
the Company's reputation, and even the perception of security risks, whether or
not valid, could inhibit market acceptance of the Company's products.

The Company currently derives a significant portion of its total
sales from customers outside of the United States. International transactions
involve particular risks, including political decisions affecting tariffs and
trade conditions, rapid and unforeseen changes in economic conditions in
individual countries, turbulence in foreign currency and credit markets, and
increased costs resulting from lack of proximity to the customer. The Company is
required to obtain export licenses and other authorizations from applicable
governmental authorities for certain countries within which it conducts
business. The failure to receive any required license or authorization would
hinder the Company's ability to sell its products and could adversely affect the
Company's business, results of operations and financial condition. In addition,
legal uncertainties regarding liability, compliance with local laws and
regulations, labor laws, employee benefits, currency restrictions, difficulty in
accounts receivable collection, longer collection periods and other requirements
may have a negative impact on the Company's operating results.

Volatility in international currency exchange rates may have a
significant impact on the Company's operating results. The Company has, and
anticipates that it will continue to receive, contracts denominated in foreign
currencies, particularly the euro. As a result of the unpredictable timing of
purchase orders and payments under such contracts and other factors, it is often
not practicable for the Company to effectively hedge the risk of significant
changes in currency rates during the contract period. The Company may experience
risk associated with the failure to hedge the exchange rate risks associated
with contracts denominated in foreign currencies and its operating results have
been negatively impacted for certain periods and may continue to be affected to
a material extent by the impact of currency fluctuations. Operating results may
also be affected by the cost of such hedging activities that the Company does
undertake.

While the Company generally requires employees, independent
contractors and consultants to execute non-competition and confidentiality
agreements, the Company's intellectual property or proprietary rights could be
infringed or misappropriated, which could result in expensive and protracted
litigation. The Company relies on a combination of patent, copyright, trade


Page 26 of 31

secret and trademark law to protect its technology. Despite the Company's
efforts to protect its intellectual property and proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use its
products or technology. Effectively policing the unauthorized use of the
Company's products is time-consuming and costly, and there can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technology, particularly in foreign countries where in many instances the local
laws or legal systems do not offer the same level of protection as in the United
States.

If others claim that the Company's products infringe their
intellectual property rights, the Company may be forced to seek expensive
licenses, reengineer its products, engage in expensive and time-consuming
litigation or stop marketing its products. The Company attempts to avoid
infringing known proprietary rights of third parties in its product development
efforts. The Company does not regularly conduct comprehensive patent searches to
determine whether the technology used in its products infringes patents held by
third parties, however. There are many issued patents as well as patent
applications in the fields in which the Company is engaged. Because patent
applications in the United States are not publicly disclosed until the patent is
issued, applications may have been filed which relate to the Company's software
and products. If the Company were to discover that its products violated or
potentially violated third-party proprietary rights, it might not be able to
obtain licenses to continue offering those products without substantial
reengineering. Any reengineering effort may not be successful, nor can the
Company be certain that any licenses would be available on commercially
reasonable terms.

Substantial litigation regarding intellectual property rights exists
in technology related industries, and the Company expects that its products may
be increasingly subject to third-party infringement claims as the number of
competitors in its industry segments grows and the functionality of software
products in different industry segments overlaps. In addition, the Company has
agreed to indemnify certain customers in certain situations should it be
determined that its products infringe on the proprietary rights of third
parties. Any third-party infringement claims could be time consuming to defend,
result in costly litigation, divert management's attention and resources, cause
product and service delays or require the Company to enter into royalty or
licensing agreements. Any royalty or licensing arrangements, if required, may
not be available on terms acceptable to the Company, if at all. A successful
claim of infringement against the Company and its failure or inability to
license the infringed or similar technology could have a material adverse effect
on its business, financial condition and results of operations.

The Company holds a large proportion of its net assets in cash
equivalents and short-term investments, including a variety of public and
private debt and equity instruments, and has made significant venture capital
investments, both directly and through private investment funds. Such
investments subject the Company to the risks inherent in the capital markets
generally, and to the performance of other businesses over which it has no
direct control. Given the relatively high proportion of the Company's liquid
assets relative to its overall size, the results of its operations are
materially affected by the results of the Company's capital management and
investment activities and the risks associated with those activities. Declines
in the public equity markets have caused, and may be expected to continue to
cause, the Company to experience realized and unrealized investment losses. In
addition, reduction in prevailing interest rates due to economic conditions or
government policies has had and may continue to have an adverse impact on the
Company's results of operations.


Page 27 of 31

The severe decline in the public trading prices of equity securities,
particularly in the technology and telecommunications sectors, and corresponding
decline in values of privately-held companies and venture capital funds in which
the Company has invested, have, and may continue to have, an adverse impact on
the Company's financial results. The Company has in the past benefited from the
long-term rise in the public trading price of its shares in various ways,
including its ability to use equity incentive arrangements as a means of
attracting and retaining the highly qualified employees necessary for the growth
of its business and its ability to raise capital on relatively attractive
conditions. The decline in the price of the Company's shares, and the overall
decline in equity prices generally, and in the shares of technology companies in
particular, can be expected to make it more difficult for the Company to
significantly rely on equity incentive arrangements as a means to recruit and
retain talented employees.

The trading price of the Company's shares has been affected by the
factors disclosed herein as well as prevailing economic and financial trends and
conditions in the public securities markets. Share prices of companies in
technology-related industries, such as the Company, tend to exhibit a high
degree of volatility. The announcement of financial results that fall short of
the results anticipated by the public markets could have an immediate and
significant negative effect on the trading price of the Company's shares in any
given period. Such shortfalls may result from events that are beyond the
Company's immediate control, can be unpredictable and, since a significant
proportion of the Company's sales during each fiscal quarter tend to occur in
the latter stages of the quarter, may not be discernible until the end of a
financial reporting period. These factors may contribute to the volatility of
the trading value of its shares regardless of the Company's long-term prospects.
The trading price of the Company's shares may also be affected by developments,
including reported financial results and fluctuations in trading prices of the
shares of other publicly-held companies in the telecommunications equipment
industry in general, and the Company's business segments in particular, which
may not have any direct relationship with the Company's business or prospects.

FORWARD-LOOKING STATEMENTS

From time to time, the Company makes forward-looking statements.
Forward-looking statements include financial projections, statements of plans
and objectives for future operations, statements of future economic performance,
and statements of assumptions relating thereto.

The Company may include forward-looking statements in its periodic
reports to the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K,
in its annual report to shareholders, in its proxy statements, in its press
releases, in other written materials, and in statements made by employees to
analysts, investors, representatives of the media, and others.

By their very nature, forward-looking statements are subject to
uncertainties, both general and specific, and risks exist that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. Actual results may differ materially due to a variety of factors,
including without limitation those discussed under "Certain Trends and
Uncertainties" and elsewhere in this report. Investors and others should
carefully consider these and other uncertainties and events, whether or not the
statements are described as forward-looking.


Page 28 of 31

Forward-looking statements made by the Company are intended to apply
only at the time they are made, unless explicitly stated to the contrary.
Moreover, whether or not stated in connection with a forward-looking statement,
the Company undertakes no obligation to correct or update a forward-looking
statement should the Company later become aware that it is not likely to be
achieved. If the Company were in any particular instance to update or correct a
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.


ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

Refer to Item 7A in the Company's Annual Report on Form 10-K for a
discussion about the Company's exposure to market risks.


ITEM 4. Controls and Procedures.

As of the end of the period covered by this report, the Company
conducted an evaluation, under the supervision and with the participation of the
principal executive officer and principal financial officer, of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. There was no change in the Company's internal
control over financial reporting during the Company's most recently completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.





Page 29 of 31

PART II
Other Information

ITEM 6. Exhibits and Reports on Form 8-K.

(a) Exhibit Index.
-------------

31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*

31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*

32 Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(b) of the Exchange
Act and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*

*These exhibits are being "furnished" with this periodic report and are not
deemed "filed" with the Securities and Exchange Commission and are not
incorporated by reference in any filing of Comverse Technology, Inc. under the
Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation by
reference language in any such filings.

(b) Reports on Form 8-K.
-------------------

During the third quarter of 2003, the Company furnished a report on Form 8-K
dated September 8, 2003, regarding the announcement of the Company's financial
results for the fiscal quarter ended July 31, 2003.






Page 30 of 31

SIGNATURES
----------

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


COMVERSE TECHNOLOGY, INC.


Dated: December 11, 2003 /s/ Kobi Alexander
-----------------------------
Kobi Alexander
Chairman of the Board
and Chief Executive Officer


Dated: December 11, 2003 /s/ David Kreinberg
-----------------------------
David Kreinberg
Executive Vice President
and Chief Financial Officer




Page 31 of 31