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


FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended January 31, 2004


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, NEW YORK 11797
(Address of principal executive offices)

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


Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
------------------- --------------------
Not applicable Not applicable

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $.10 PAR VALUE PER SHARE
(Title of Class)

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


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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

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

[X] Yes [ ] No

The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price as of the last
business day of the registrant's most recently completed second fiscal quarter,
July 31, 2003, was approximately $2,783,399,000.

There were 195,518,341 shares of the registrant's common stock
outstanding on April 7, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on June 15, 2004, are incorporated by reference in Part
III.


-----------------------------------


Comverse, Comverse Technology and Comverse's logos, including Total
Communications and InSight, are trademarks of the Company. Verint(R), Actionable
Intelligence(R), LORONIX(R) are registered trademarks, and Powering Actionable
Intelligence, Intelligent Recording, OpenStorage Portal, RELIANT, STAR-GATE,
ULTRA, SmartSight Universal Database and Verint Systems are trademarks of Verint
Systems Inc., a subsidiary of the Company. Signalware(R) and Ulticom(R) are
registered trademarks of Ulticom, Inc., a subsidiary of the Company.


ii

FORWARD-LOOKING STATEMENTS

Certain statements discussed in Item 1 (Business), Item 3 (Legal Proceedings),
Item 7 (Management's Discussion and Analysis of Financial Condition and Results
of Operations), and elsewhere in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of results to differ materially from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Important risks, uncertainties and other important
factors that could cause actual results to differ materially include, among
others: the successful implementation of Comverse Technology, Inc.'s business
strategy; changes in the demand for the company's products; changes in capital
spending among the company's current and prospective customers; the risks
associated with the sale of large, complex, high capacity systems and with new
product introductions as well as the uncertainty of customer acceptance of these
new or enhanced products from either the company or its competition; risks
associated with rapidly changing technology and the ability of the company to
introduce new products on a timely and cost-effective basis; risks associated
with changes in the competitive or regulatory environment in which the company
operates; risks associated with significant foreign operations and international
sales and investment activities, including fluctuations in foreign currency
exchange rates, interest rates, and valuations of public and private equity; the
volatility of macroeconomic and industry conditions and the international
marketplace; risks associated with the company's ability to retain existing
personnel and recruit and retain qualified personnel; and other risks described
in filings with the Securities and Exchange Commission. These risks and
uncertainties, as well as other factors, are discussed in greater detail at the
end of Item 7 (Management's Discussion and Analysis of Financial Condition and
Results of Operations) of this Form 10-K. The company makes no commitment to
revise or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.


PART I

ITEM 1. BUSINESS.


THE COMPANY

Comverse Technology, Inc. ("CTI" and, together with its subsidiaries,
the "Company"), a New York corporation incorporated in 1984, designs, develops,
manufactures, markets and supports software, systems, and related services for
multimedia communication and information processing applications. The Company's
products are used in a broad range of applications by wireless and wireline
telecommunications network operators and service providers, call centers, and
other government, public and commercial organizations worldwide.

Through its subsidiary Comverse, Inc. ("Comverse"), the Company
provides telecommunications software, systems, and related services to
telecommunications service providers ("TSPs") that enable voice and data
value-added enhanced services and real-time billing of communication services.
These products comprise Comverse's Total Communication portfolio, and address


1

four primary categories: call completion and call management solutions; advanced
messaging solutions for groups, communities and person-to-person communication;
solutions and enablers for the management and delivery of data and content-based
services; and real-time billing and account management solutions for dynamic
service environments. These products are designed to enhance the communication
experience and generate TSP traffic and revenue. Comverse's principal market for
its systems consists of organizations that use the systems to provide services
to the public, often on a subscription or pay-per-usage basis, and includes both
wireless and wireline telecommunications network operators.

Comverse markets its systems throughout the world, with its own
direct sales force and in cooperation with a number of leading international
vendors of telecommunications infrastructure equipment.

More than 400 wireless and wireline TSPs in more than 110 countries,
including the majority of the 20 largest telecom companies in the world, have
selected Comverse's products to provide enhanced telecommunications services to
their customers. Major network operators and service providers using Comverse's
systems include, among others, AT&T (USA), Deutsche Telekom (Germany and other
European countries), KDDI (Japan), MCI WorldCom (USA), O2 (Germany and UK), NTT
(Japan), Orange (several countries), SBC Communications (USA), SFR (France),
Sprint (USA), Telecom Italia (Italy), Telmex (Mexico), Telstra (Australia),
Verizon (USA), and Vodafone (multiple countries).

Through its subsidiary, Verint Systems Inc. ("Verint"), the
Company provides analytic software-based solutions for communications
interception, networked video, and contact centers. Verint's software generates
actionable intelligence through the collection, retention and analysis of
unstructured information contained in voice, fax, video, email, Internet and
data transmissions from voice, video and IP networks. Verint's analytic
solutions are designed to extract critical intelligence and deliver this
intelligence to decision makers for more effective action. The security market
consists primarily of communication interception by law enforcement and other
government agencies and networked video security utilized by government agencies
and public and private organizations for use in airports, public buildings,
correctional facilities and corporate sites. The business intelligence market
consists primarily of solutions for enterprises that rely on contact centers for
voice, email and Internet interactions with their customers. Additionally, an
emerging segment of enterprise business intelligence utilizes digital video
information to allow enterprises and institutions to enhance their operations,
processes and performance. Verint sells its business intelligence solutions to
contact center service bureaus, financial institutions, retailers, utilities,
communication service providers, manufacturers and other enterprises. Verint has
established marketing relationships with a variety of global value-added
resellers and a network of systems integrators including ADT, Avaya, British
Telecom, Nortel and Siemens. Verint also has technological alliances with
leading software and hardware companies including Genesys, Indentix, and Siebel,
which enables Verint to offer complementary solutions to their products.
Verint's products are used by over 1000 organizations in over 50 countries
worldwide. Customers for Verint's Communications Interception Solutions include,
among others, the U.S. Department of Justice, the Toronto Police Service, the
Dutch National Police Agency, and other domestic and foreign law enforcement and
intelligence agencies, as well as communication service and equipment providers,
such as Cingular, Ericsson and Nortel. Customers for Verint's Networked Video
Solutions include the U.S. Department of Defense, the U.S. Capitol, Washington
Dulles International Airport, Home Depot, Target and Tiffany & Co. Customers for
Verint's Contact Center Actionable Intelligence Solutions include, among others,
the Internal Revenue Service, HSBC, JCPenney, SBC, CIBC and Sprint. Verint had
an initial public offering of its common stock in May, 2002, and its common
stock is listed on the NASDAQ National Market System under the symbol "VRNT."
CTI held approximately 61.8% of Verint's outstanding common stock as of January
31, 2004.


2

Through its subsidiary Ulticom, Inc. ("Ulticom"), the Company
provides service enabling signaling software for wireline, wireless and Internet
communications. Ulticom's Signalware family of products are used by equipment
manufacturers, application developers and communication service providers to
deploy revenue generating infrastructure and enhanced services within the
mobility, messaging, payment and location segments. Signalware products are also
embedded in a range of packet softswitching products to interoperate or converge
voice and data networks and facilitate services such as voice-over-IP ("VoIP"),
hosted IP telephony, and virtual private networks. Ulticom had an initial public
offering of its common stock in April, 2000, and its common stock is listed on
the NASDAQ National Market System under the symbol "ULCM." CTI held
approximately 70.2% of Ulticom's outstanding common stock as of January 31,
2004.

The Company markets other telecommunications products and services,
including enhanced wireless roaming services, and automatic call distribution
and messaging systems for telephone answering service bureaus. The Company also
engages in venture capital investment and capital market activities for its own
account.

Throughout this document, references are made to technologies,
features, capabilities, capacities and specifications in conjunction with the
Company's products and technological resources. Such references do not
necessarily apply to all product lines, models and system configurations.

The Company was incorporated in the State of New York in October
1984. Its headquarters are located at 170 Crossways Park Drive, Woodbury, New
York 11797, where its telephone number is (516) 677-7200.

The Company's Internet address is www.cmvt.com. The information
contained on the Company's website is not included as a part of, or incorporated
by reference into, this Annual Report on Form 10-K. The Company makes available,
free of charge, on its Internet website, its annual report on Form 10-K, its
quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments
to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable
after the Company has electronically filed such material with, or furnished it
to, the United States Securities and Exchange Commission.

THE COMPANY'S PRODUCTS

TOTAL COMMUNICATION PORTFOLIO

Comverse is a leading supplier of telecommunication software,
systems, and related services for voice and data value-added enhanced services.
These value-added enhanced services solutions from our Network Systems Division
("CNS"), along with the Company's real-time billing solutions, comprise the
Company's Total Communication portfolio. Comverse's Total Communication
portfolio addresses four primary categories: call completion and call management
solutions (e.g., Call Answering, Who Called Service, and Interactive Voice


3

Response applications); advanced messaging solutions for groups, communities and
person-to-person communication (e.g., Voice Messaging, Short Messaging Service
(SMS), Videomail, Multimedia Messaging Service (MMS), Instant Messaging and
Mobile Email); solutions and enablers for the management and delivery of data
and content-based services (e.g., Video Portal, Presence Server, Personal
Address Book, Mobile Data Gateway, Media Server, Media and Content Adaptation);
and real-time billing and account management for dynamic service environments
(e.g., Prepaid Calling, Real-Time Data Billing, and Converged
Prepaid/Post-paid/Voice/Data Billing).

Comverse's InSight solution, which the Company recently launched, is
a part of Comverse's Total Communication portfolio, providing a single, open,
modular architecture on which a wide variety of multimodal advanced messaging
services can be hosted. Insight is designed to improve network efficiencies and
leverage the built-in synergies between next-generation communication and
infotainment services to increase revenues for wireline and wireless service
providers.

Comverse's principal market for its software, systems, and related
services consists of organizations that use the systems to provide services to
the public, often on a subscription or pay-per-usage basis, and includes both
wireless and wireline telecommunications network operators. With Total
Communication, TSPs benefit from revenue generated by the increase in billable
completed calls, service-related fees, and increased customer loyalty that
results in an overall reduction in churn. Wireless TSPs are almost universally
adding call answering and messaging to their service offerings, often as part of
their basic service package, not only because of these benefits, but also
because wireless call answering and messaging services directly increase
billable airtime by stimulating outbound calls and increase billable
transactions by stimulating person-to-person messaging and information
retrieval.

Comverse's carrier grade Total Communication software, systems, and
related services have been designed and packaged to meet the capacity,
reliability, availability, scalability, maintainability, network and OMAP
(Operations, Maintenance, Administration, and Provisioning) interfaces and
physical requirements of large telecommunications network operators. The systems
are offered in a variety of sizes and configurations and can be clustered for
larger capacity installations. The systems are available with redundancy of
critical components, so that no single failure will interrupt the service.
Comverse's products are available in both centralized and distributed
configurations.

Comverse's systems also incorporate components that are compatible
with the Intelligent Network ("IN") and Advanced Intelligent Network ("AIN")
protocols for Service Control Points and Intelligent Peripherals, permitting
Comverse's network operator customers to develop and deploy services based on
the overall IN architecture.

Comverse's products incorporate both Comverse-developed and
third-party-developed software, and Comverse-designed and third-party hardware,
and are available in an open, modular, IP standards-based system architecture.
The systems support a wide variety of digital telephony and IP interfaces and
signaling systems, allowing them to adapt to a variety of different network
environments and IN/AIN applications, and enable a "universal port" -- a single
port that supports multiple applications and services at any time during a
single call.


4

SECURITY AND BUSINESS INTELLIGENCE

Verint is a leading provider of analytic software-based solutions for
communication interception, digital video security and surveillance, and
enterprise business intelligence. Verint's software generates actionable
intelligence through the collection, retention and analysis of voice, fax,
video, email, Internet and data transmissions from multiple types of
communication networks.

The security and business intelligence market consists primarily of
communication interception by law enforcement and other government agencies and
digital video security utilized by government agencies and public and private
organizations for use in airports, public buildings, correctional facilities and
corporate sites.

Verint's STAR-GATE product line enables communication carriers,
Internet service providers, and communication equipment manufacturers to
overcome the complexities posed by global digital communication and comply with
governmental requirements. STAR-GATE enables communication service providers to
intercept simultaneous communications over a variety of wireline, wireless and
IP networks for delivery to law enforcement and other government agencies.
STAR-GATE's flexibility supports multi-network, multi-vendor switch environments
for a common interface across communication networks and supports switches from
communications equipment manufacturers, such as Alcatel, Ericsson, Lucent,
Nokia, Nortel and Siemens. STAR-GATE also supports interfaces to packet data
networks, such as the Internet and general packet radio services.

Verint's RELIANT product line provides intelligent recording and
analysis solutions for communication interception activities to law enforcement
organizations and other government agencies. The RELIANT software equips law
enforcement agencies with an end-to-end solution for live monitoring of
intercepted target communications and evidence collection management, regardless
of the type of communication or network used. Applications can scale from a
small center for a local police force, to a country-wide center for national law
enforcement agencies. RELIANT products are designed to comply with legal
regulations and can be integrated with communication networks in the country
where the system is utilized. RELIANT collects intercepted communications from
multiple channels and stores them for immediate access, further analysis and
later use as evidence.

Verint's LORONIX digital video security product line provides
intelligent recording and analysis of video for security and surveillance
applications to government agencies and public organizations. The LORONIX
software digitizes, compresses, stores and retrieves video imaging. In addition,
LORONIX products provide live video streaming and camera control over local and
wide area computer networks and the Internet. The LORONIX product line may be
configured to allow customers to perform complete monitoring for security and
management of local and remote sites from a central investigative unit. The use
of digital storage and compression technology makes the LORONIX product line a
more efficient alternative to traditional analog tape storage. The technology
interfaces with access control, motion detection and analysis, facial
recognition, activity and intrusion detection and other technologies for
enhanced security and surveillance.

The enterprise business intelligence market consists primarily of
solutions targeting enterprises that rely on contact centers for voice, email
and Internet interactions with their customers.


5

Verint's ULTRA products record and analyze customer interactions to
provide enterprises with business intelligence about their customers and help
monitor and improve the performance of their contact centers. ULTRA products
capture customer interactions from multiple sources, including telephone, email,
Internet or VoIP. Utilizing ULTRA's OpenStorage Portal and Universal Database,
customers can leverage their existing storage infrastructure to store and access
recorded customer interactions using standard file formats. ULTRA products
integrate with leading customer relationship management ("CRM") applications
allowing the delivery of information directly to the user's desktop within
Siebel, PeopleSoft and other CRM solutions. ULTRA also interfaces with popular
desktop software tools, including Microsoft Outlook, Lotus Notes and web
browsers, to enable the user to easily access the data in a familiar computing
environment.

Verint's LORONIX video business intelligence products enable
enterprise customers to monitor and improve their operations through the
analysis of live and recorded digital video. Like the LORONIX digital video
security product, the LORONIX video business intelligence product digitizes,
compresses, stores and retrieves video imaging. While leveraging the technology
of the LORONIX digital security product, the LORONIX enterprise product line
also contains unique software focused on maximizing operational effectiveness
through video analysis. By interfacing with customer databases and software
systems, LORONIX facilitates the user's review of video imaging based on
specific criteria such as employee ID, product barcodes, traffic patterns and
point of sale transaction history.

SERVICE ENABLING SIGNALING SOFTWARE

The Company's Ulticom subsidiary provides service enabling signaling
software for wireline, wireless and Internet communications. Ulticom's
Signalware family of products are used by equipment manufacturers, application
developers and communication service providers to deploy revenue generating
infrastructure and enhanced services within the mobility, messaging, payment and
location segments. Signalware products also are embedded in a range of packet
softswitching products to interoperate or converge voice and data networks and
facilitate services such as VoIP, hosted IP telephony, and virtual private
networks.

Signalware supports a range of applications across multiple networks.
In wireline networks, Signalware has been deployed as part of applications such
as voice messaging, calling name, and 800 number services. Signalware enables
wireless infrastructure applications such as global roaming and emergency-911,
and enhanced services such as text messaging and prepaid calling. Signalware
also enables the deployment of broadband services such as VoIP in wireline,
wireless and cable service provider networks.

Signalware provides signaling system #7 ("SS7"), the globally
accepted signaling standard protocol, which interconnects the complex switching,
database and messaging systems, and manages vital number, routing and billing
information that form the backbone of today's telecommunications networks.
Signalware works with multiple SS7 networks, supports a wide variety of SS7
protocol elements, and enables analog or digital wireline and wireless
transmissions. It provides the functionality needed for call set-up/termination
and call routing/billing. Signalware products also include features that enable
the transition from SS7 signaling to emerging packet signaling standards, as
defined by the Internet Engineering Task Force, such as Signaling Transport
("Sigtran") and Session Initiation Protocol ("SIP"). New solutions include a
Signalware Sigtran Gateway for enabling circuit to packet network
interoperability and Signalware SIP for developing next generation services for
all IP networks.


6

Signalware solutions run on a range of hardware platforms and
operating systems, including Sun Solaris, IBM AIX and Red Hat Linux. These
solutions can be used in single or multiple computing configurations for fault
resiliency and reliability. Signalware customers include equipment
manufacturers, such as Alcatel, Ericsson and Siemens; application developers,
such as Comverse, LogicaCMG and Sonus; and service providers, such as Orange
Personal Communications, Reliance Infocomm, and Telefonica.

OTHER TELECOMMUNICATIONS PRODUCTS AND SERVICES

The Company's other telecommunications products and services are
developed and marketed through subsidiaries in the United States and
internationally. These include enhanced wireless roaming services, and automatic
call distribution and messaging systems for telephone answering service bureaus
and other organizations.

MARKETS, SALES AND MARKETING

Comverse is a leading supplier of telecommunications software,
systems, and related services for voice and data value-added enhanced services.
Comverse's Total Communication software, systems, and related services are
marketed by Comverse throughout the world, with its own direct sales force as
well as local distributors, and in cooperation with a number of leading
international vendors of telecommunications infrastructure equipment.

More than 400 wireless and wireline TSPs in more than 110 countries,
including the majority of the 20 largest telecom companies in the world, have
selected Comverse's products to provide enhanced telecommunications services to
their customers. Major network operators and service providers using Comverse's
systems include, among others, AT&T (USA), Deutsche Telekom (Germany and other
European countries), KDDI (Japan), MCI WorldCom (USA), O2 (Germany and UK), NTT
(Japan), Orange (several countries), SBC Communications (USA), SFR (France),
Sprint (USA), Telecom Italia (Italy), Telmex (Mexico), Telstra (Australia),
Verizon (USA), and Vodafone (multiple countries).

Comverse provides its customers with marketing consultation, seminars
and materials designed to assist them in marketing enhanced telecommunications
services, and also undertakes to play an ongoing supporting role in their
business and market planning processes.

Verint's products are marketed primarily through a combination of its
direct sales force and agents, distributors, value-added resellers and systems
integrators. Verint develops strategic marketing alliances with leading
companies in the industry to expand the coverage and support of its direct sales
force. Verint currently has such relationships with ADT, Avaya, British Telecom,
Nortel and Siemens, among others. In addition, Verint established technological
alliances with leading software and hardware companies including Genesys,
Identix and Siebel, which enables Verint to offer complementary solutions to
their products.

Verint's products are used by over 1000 organizations and are
deployed in over 50 countries, across many industries and markets. Many users of
the products are large corporations or government agencies that operate from
multiple locations and facilities across large geographic areas and sometimes
across several countries. These organizations typically implement Verint's
solutions in stages, with implementation in one or more sites and then gradually
expanding to a full enterprise, networked-based solution.


7

Customers for digital security and surveillance products include the
Mall of America, the U.S. Capitol, the U.S. Department of Defense, the U.S.
Department of Justice, Vancouver International Airport, Washington Dulles
International Airport, the Toronto Police Service, the Dutch National Police
Agency, and other domestic and foreign law enforcement and intelligence
agencies, as well as communication service and equipment providers, such as
Cingular, Ericsson and Nortel. Customers for enterprise business intelligence
products include, among others, Con Edison, FedEx, HSBC, JCPenney, Sprint,
Target and Tiffany & Co.

Ulticom's products are used by approximately 50 customers and are
deployed by more than 300 service providers in more than 100 countries. Ulticom
markets its products and services primarily through a direct sales organization
and through distributors. Customers include network equipment manufacturers such
as Alcatel, Ericsson and Siemens; application developers such as Comverse,
LogicaCMG, and Sonus; and service providers such as Orange Personal
Communications, Reliance Infocomm, and Telefonica.

See "Financial Statements" in Item 15 for information on revenues,
operating profit and total assets of each of the Company's segments.

RESEARCH AND DEVELOPMENT

Because of the continuing technological changes that characterize the
telecommunications and computer industries, the Company's success will depend,
to a considerable extent, upon its ability to continue to develop competitive
products through its research and development efforts. The Company currently
employs more than 1,900 scientists, engineers and technicians in its research
and development efforts, located predominantly in the United States and Israel
with additional offices in France, Germany and Malaysia, with broad experience
in the areas of digital signal processing, computer architecture, telephony, IP,
data networking, multi-processing, databases, real-time software design and
application software design, among others.

A portion of the Company's research and development operations
benefit from financial incentives provided by government agencies to promote
research and development activities performed in Israel. The cost of such
operations is and will continue to be affected by the continued availability of
financial incentives under such programs. During the past fiscal year, the
Company's research and development activities included projects submitted for
partial funding under a program administered by the Office of the Chief
Scientist of the Ministry of Industry and Trade of the State of Israel ("OCS"),
under which reimbursement of a portion of the Company's research and development
expenditures will be made subject to final approval of project budgets. During
the year ended January 31, 2003, Comverse finalized an arrangement with the OCS
under which Comverse no longer would owe royalties to the OCS in return for a
lump sum payment for all past amounts received from the OCS. Under the
arrangement, Comverse began to receive lower amounts from the OCS than it had
historically received, but is not required to pay royalty amounts on such future
grants. Other subsidiaries of CTI were not part of Comverse's arrangement with
the OCS and they continue to owe royalties on their sale of certain products
developed, in part, with funding supplied under such programs. 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
such programs, or to transfer outside of Israel related technology rights, and
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. See "Financial
Statements" in Item 15, "Licenses and Royalties" and "Operations in Israel" in
Item 1 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7.


8

PATENTS AND INTELLECTUAL PROPERTY RIGHTS

The Company holds a number of United States and foreign patents.
While the Company files patent applications periodically, no assurance can be
given that patents will be issued on the basis of such applications or that, if
patents are issued, the claims allowed will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any patents
issued to the Company will not be challenged, invalidated or circumvented or
that the rights granted under the patents will provide significant benefits to
the Company.

In order to safeguard its unpatented proprietary know-how, trade
secrets and technology, the Company relies primarily upon trade secret
protection and non-disclosure provisions in agreements with employees and others
having access to confidential information. There can be no assurance that these
measures will adequately protect the Company from disclosure or misappropriation
of its proprietary information.

The Company and its customers from time to time receive
communications from third parties, including some of the Company's competitors,
alleging infringement by the Company of such parties' patent rights. While such
communications are common in the computer and telecommunications industries and
the Company has in the past been able to obtain any necessary licenses on
commercially reasonable terms, there can be no assurance that the Company would
prevail in any litigation to enjoin the Company from selling certain of its
products on the basis of such alleged infringement, or that the Company would be
able to license any valid patents on reasonable terms.

In January 2000, the Company and Lucent Technologies GRL Corp.
("Lucent") entered into a non-exclusive cross-licensing arrangement covering
current and certain future patents issued to the Company and its affiliates and
a portfolio of current and certain future patents in the area of
telecommunications technology issued to Lucent and its affiliates.


LICENSES AND ROYALTIES

The Company licenses certain technology, know-how and related rights
for use in the manufacture and marketing of its products, and pays royalties to
third-parties under such licenses and under other agreements. The Company
believes that its rights under such licenses and other agreements are sufficient
for the manufacturing and marketing of its products and, in the case of
licenses, extend for periods at least equal to the estimated useful lives of the
related technology and know-how.

DOMESTIC AND INTERNATIONAL SALES AND LONG-LIVED ASSETS

See "Financial Statements" in Item 15 for a breakdown of the domestic
and international sales and long-lived assets for the years ended January 31,
2002, 2003 and 2004, and see "Certain Trends and Uncertainties" in Item 7 for a
description of risks attendant to the Company's foreign operations.


9

BACKLOG

At January 31, 2004, the backlog of the Company amounted to
approximately $400 million compared to approximately $294 million as of January
31, 2003. The Company believes that substantially all of such backlog will be
delivered within the next 12 months.

SERVICE AND SUPPORT

The Company has a strong commitment to provide product service and
support to its customers and emphasizes such commitment in its marketing.
Because of the intensity of use of systems by telecommunications network
operators and other customers of the Company's products, and their low tolerance
for down-time, the Company is required to make a greater commitment to service
and support of systems used by these customers, and such commitment increases
operating costs.

The Company's general warranty policy is to replace or repair any
component that fails during a specified warranty period. Broader warranty and
service coverage is provided in many cases, and is sometimes made available to
customers on a contractual basis for an additional charge.

The Company provides technical assistance from several locations
around the world. Technical support is available for the Company's customers 24
hours-a-day, seven days-a-week.

COMPETITION

The Company faces strong competition in the markets for all of its
products. The market for Total Communication software, systems, and related
services is highly competitive, and includes numerous products offering a broad
range of features and capacities. The primary competitors are suppliers of
turnkey systems and software, and indirect competitors that supply certain
components to systems integrators. Many of Comverse's competitors specialize in
a subset of Comverse's portfolio of products. Direct and/or indirect competitors
include, among others, Alcatel, Boston Communications, Ericsson, Glenayre,
Huawei, IBM, InterVoice, LogicaCMG, Lucent, Motorola, Nokia, Openwave, SS8
Networks, Tecnomen, Telcordia, and Unisys. Competitors of Comverse that
manufacture other telecommunications equipment may derive a competitive
advantage in selling systems to customers that are purchasing or have previously
purchased other compatible equipment from such manufacturers.

Indirect competition is provided by messaging and other enhanced
communication products employed at end-user sites as an alternative to the use
of services available through telecommunications network operators. This
"enterprise based equipment" includes a broad range of products, such as
stand-alone voicemail systems, answering machines, telephone handsets with call
answering and other enhanced services capabilities, products offering "call
processing" services that are supplied with voicemail features or integrated
with other voicemail systems, as well as personal computer modems and add-on
cards and software designed to furnish enhanced communication capabilities.

Comverse believes that competition in the sale of Total Communication
systems is based on a number of factors, the most important of which are product
features and functionality, system capacity and reliability, marketing and
distribution capability and price. Other important competitive factors include
service and support and the capability to integrate systems with a variety of
telecom networks, IP networks and Operation and Support Systems (OSS). Comverse
believes that the range of capabilities provided by, and the ease of use of, its
systems compare favorably with other products currently marketed. Comverse
anticipates that a number of its direct and indirect competitors will introduce
new or improved systems during the next several years.


10

Verint faces strong competition in the markets for its products, both
in the United States and internationally. Verint expects competition to persist
and intensify in the security market, primarily due to increased demand for
homeland defense and security solutions. Verint's primary competitors are
suppliers of security and recording systems and software, and indirect
competitors that supply certain components to systems integrators. In the
business intelligence market, Verint faces competition from organizations
emerging from the traditional call logging or call recording market as well as
software companies that develop and sell products that perform specific
functions for this market. In addition, many of Verint's competitors specialize
in a subset of Verint's portfolio of products and services. Primary competitors
include, among others, ETI, General Electric, JSI Telecom, NICE Systems, Pelco,
Raytheon, Sensormatic, SS8 Networks, Tyco, Honeywell and Witness Systems. Verint
believes it competes principally on the basis of product performance and
functionality, knowledge and experience in the industry, product quality and
reliability, customer service and support, and price.

Verint believes that its success depends primarily on its ability to
provide technologically advanced and cost effective solutions and to continue to
provide its customers with prompt and responsive customer support. Competitors
that manufacture other security-related systems or other recording systems may
derive a competitive advantage in selling to customers that are purchasing or
have previously purchased other compatible equipment from such manufacturers.
Further, Verint expects that competition will increase as other established and
emerging companies enter its markets and as new products, services and
technologies are introduced.

Competitors of Ulticom primarily are internal development
organizations within equipment manufactures and application developers who seek,
in a build-versus-buy decision, to develop substitutes for its products. Ulticom
also competes with a number of companies ranging from SS7 software solution
providers, such as Hughes Software Systems and SS8 Networks, to vendors of
communication and network infrastructure equipment, such as Continuous Computing
Corporation and Hewlett-Packard Company. Ulticom believes it competes
principally on the basis of product performance and functionality, product
quality and reliability, customer service and support, and price.

Many of the Company's present and potential competitors are
considerably larger than the Company, are more established, have a larger
installed base of customers and have greater financial, technical, marketing and
other resources.

MANUFACTURING AND SOURCES OF SUPPLIES

The Company's manufacturing operations consist primarily of final
assembly and testing, involving the application of extensive testing and quality
control procedures to materials, components, subassemblies and systems. The
Company primarily uses third-parties to perform modules and subsystem assembly,
component testing and sheet metal fabrication. Although the Company generally
uses standard parts and components in its products, certain components and
subassemblies are presently available only from a limited number of sources. To
date, the Company has been able to obtain adequate supplies of all components
and subassemblies in a timely manner from existing sources or, when necessary,
from alternative sources or redesign the system to incorporate new modules, when
applicable. However, the inability to obtain sufficient quantities of components
or to locate alternative sources of supply if and as required in the future,
would adversely affect the Company's operations.


11

The Company maintains organization-wide quality assurance procedures,
coordinating the quality control activities of the Company's research and
development, manufacturing and service departments.

CAPITAL MARKET ACTIVITIES

The Company seeks to identify and implement suitable investments, and
engages in portfolio investment and capital market activities, including venture
capital investments directly and indirectly through private equity funds. Both
directly and through a joint venture formed by the Company in partnership with
Quantum Industrial Holdings Ltd., an investment company managed by Soros Fund
Management LLC, the Company invests in venture capital in high technology firms,
and engages in other investment activities. The Company has significantly
reduced its new venture capital investments in recent periods.

OPERATIONS IN ISRAEL

A substantial portion of the Company's research and development,
manufacturing and other operations are located in Israel and, accordingly, may
be affected by economic, political and military conditions in that country.
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
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
materially 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 materially
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 are required to perform annual compulsory military reserve
duty 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.

Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development, and the
International Finance Corporation, and is a signatory to the General Agreement
on Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from the United States, Australia, Canada, and
Japan. These preferences allow Israel to export the products covered by such
programs either duty-free or at reduced tariffs.


12

Israel has entered into free trade agreements with its major trading
partners. Israel and the European Union are parties to a Free Trade Agreement
pursuant to which, subject to rules of origin, Israel's industrial exports to
the European Union are exempt from customs duties and other non-tariff barriers
and import restrictions. Israel also has an agreement with the United States
that established a Free Trade Area eliminating all tariff and certain non-tariff
barriers on most trade between the two countries. Israel has also entered into
an agreement with the European Free Trade Association ("EFTA"), which currently
includes Iceland, Liechtenstein, Norway and Switzerland, that established a
free-trade zone between Israel and EFTA nations exempting manufactured goods and
some agricultural goods and processed foods from customs duties, while reducing
duties on other goods. Israel also has free trade agreements with a number of
other countries, such as Canada, Mexico and various European countries. The end
of the Cold War has also enabled Israel to establish commercial and trade
relations with a number of nations, including Russia and certain countries from
the former Soviet Union, China, India and the nations of Eastern Europe, with
whom Israel had not previously had such relations.

The Company's business is dependent to some extent on trading
relationships between Israel and other countries. Certain of the Company's
products incorporate components imported into Israel from the United States and
other countries and most of the Company's products are sold outside of Israel.
Accordingly, the Company's operations would be adversely affected if trade
between Israel and its current trading partners were interrupted or curtailed.
The sale of products manufactured in Israel has been adversely affected in
certain markets by restrictive laws, policies or practices directed toward
Israel or companies having operations in Israel. The continuation or
exacerbation of conflicts involving Israel and other nations may impede the
Company's ability to sell its products in certain markets.

The Company benefits from various policies of the Government of
Israel, including reduced taxation and special subsidy programs, designed to
stimulate economic activity, particularly the high technology exporting
industry, in that country. As a condition of its receipt of funds for various
research and development projects conducted under programs sponsored by the
Government of Israel, the Company has agreed that products resulting from these
projects may not be manufactured, nor may the technology developed in the
projects be transferred, outside of Israel without government consent.

The results of operations of the Company have been favorably affected
by participation in Israeli government programs related to research and
development, as well as utilization of certain tax incentives and other
incentives available under applicable Israeli laws and regulations, some of
which have been reduced, discontinued or otherwise modified in recent years. In
addition, the Company's ability to obtain benefits under various discretionary
funding programs has declined and may continue to decline. The results of
operations of the Company could be adversely affected if these programs were
further reduced or eliminated and not replaced with equivalent programs or if
its ability to participate in these programs were to be reduced significantly.

EMPLOYEES

At January 31, 2004, the Company employed approximately 4,663
individuals, of whom approximately 80% are scientists, engineers and technicians
engaged in research and development, marketing, support and operations
activities. The Company considers its relationship with its employees to be
good.


13

The Company is not a party to any collective bargaining or other
agreement with any labor organization; however, certain provisions of the
collective bargaining agreements between the Histadrut (General Federation of
Labor in Israel) and the Coordinating Bureau of Economic Organizations
(including the Industrialists' Association) are applicable to the Company's
Israeli employees by order of the Israeli Ministry of Labor. Israeli law
generally requires the payment by employers of severance pay upon the death of
an employee, his or her retirement or upon termination of his or her employment,
and the Company provides for such payment obligations through monthly
contributions to an insurance fund. Israeli employees are required to pay and
employers are required to pay and withhold certain payroll, social security and
health tax payments, in respect of national health insurance and social security
benefits.

The continuing success of the Company will depend, to a considerable
extent, on the contributions of its senior management and key employees, many of
whom would be difficult to replace, and on the Company's ability to attract and
retain qualified employees in all areas of its business. Competition for such
personnel is intense. In order to attract and retain talented personnel, and to
provide incentives for their performance, the Company has emphasized the award
of stock options as an important element of its compensation program, including
options to purchase shares in certain of the Company's subsidiaries, and
provides cash bonuses based on several parameters, including the profitability
of the recipients' respective business units.

ITEM 2. PROPERTIES.

As of January 31, 2004, the Company leased an aggregate of
approximately 2,175,000 square feet of office space and manufacturing and
related facilities for its operations worldwide, including approximately
1,298,000 square feet in Tel Aviv, Israel, approximately 367,000 square feet in
Wakefield, Massachusetts, approximately 44,000 square feet in Long Island, New
York, approximately 85,000 square feet in Mt. Laurel, New Jersey, an aggregate
of approximately 139,000 square feet at various other locations in the United
States and an aggregate of approximately 242,000 square feet at various
locations in Europe, Asia-Pacific, South America, Africa and Canada.
Approximately 139,000 square feet of this space is sub-leased to others. The
aggregate base monthly rent for the facilities under lease as of January 31,
2004, net of sub-lease income, was approximately $2,720,000, and all of such
leases are subject to various pass-throughs and escalation adjustments.

In addition, the Company owns office space and manufacturing and
related facilities of approximately 40,000 square feet in Durango, Colorado,
approximately 29,000 square feet in Bexbach, Germany, and approximately 423,000
square feet of unimproved land in Ra'anana, Israel.

The Company believes that its facilities currently under lease are
more than adequate for its current operations, and may endeavor selectively to
reduce its existing facilities commitments as circumstances may warrant.

ITEM 3. LEGAL PROCEEDINGS.

On March 16, 2004, BellSouth Intellectual Property Corp.
("BellSouth") filed a complaint in the United States District Court for the
Northern District of Georgia against Comverse Technology, Inc. alleging
infringement of Patent Nos. 5,857,013 and 5,764,747, and, on March 17, 2004,
BellSouth amended the complaint to include Comverse Inc., in an action
captioned: BellSouth Intellectual Property Corp. v. Comverse Technology, Inc.
and Comverse, Inc., Civil Action No. 1:04-CV-0739. BellSouth alleges that Patent
Nos. 5,857,013 and 5,764,747 cover certain aspects of some of the Company's
systems, and it seeks, among other relief, monetary damages and injunctive
relief. The Company believes all claims are without merit and will vigorously
defend against these claims.


14

From time to time, the Company is subject to claims in legal
proceedings arising in the normal course of its business. The Company does not
believe that it is currently party to any other pending legal action that could
reasonably be expected to have a material adverse effect on its business,
financial condition and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

At the Company's annual meeting of shareholders held on December 16,
2003, for which proxies were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, the following matters were voted
upon by shareholders:

1. The election of seven directors to serve as the Board of Directors
of the Company until the next annual meeting of shareholders and the election of
their qualified successors.

2. A proposal to amend the Company's 2002 Employee Stock Purchase
Plan to increase from 1,500,000 to 2,500,000 the total number of shares of the
Company's common stock, par value $.10 per share available for purchase by
participating employees.

3. A proposal to adopt and approve the Company's 2004 Management
Incentive Plan.

4. A proposal to ratify the engagement of Deloitte & Touche LLP as
independent auditors of the Company for the year ending January 31, 2004.

The nominees for directors were elected based upon the following
votes:

Nominee Votes For Votes Withheld
- ------- --------- --------------

Kobi Alexander 153,676,447 7,586,634

Raz Alon 158,382,279 2,880,802

Itsik Danziger 158,367,932 2,895,149

John H. Friedman 148,818,475 12,444,606

Ron Hiram 148,817,975 12,445,106

Sam Oolie 148,817,675 12,445,406

William F. Sorin 158,367,932 2,895,149


15

The amendment of the Company's 2002 Employee Stock Purchase Plan was
approved as follows:

127,748,311 Votes for Approval

5,214,258 Votes Against

994,008 Abstentions

The Company's 2004 Management Incentive Plan was approved as follows:

155,313,516 Votes for Approval

4,934,413 Votes Against

1,015,152 Abstentions

The ratification of the engagement of Deloitte & Touche LLP as
independent auditors of the Company for the year ending January 31, 2004 was
approved as follows:

157,803,791 Votes for Approval

2,534,177 Votes Against

925,113 Abstentions



16

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.

The Common Stock of CTI trades on the NASDAQ National Market System
under the symbol CMVT. The following table sets forth the range of closing
prices of the Common Stock as reported on NASDAQ for the past two fiscal years:

YEAR FISCAL QUARTER LOW HIGH

2002 2/1/02 - 4/30/02 $11.68 $20.74
5/1/02 - 7/31/02 $ 7.60 $12.93
8/1/02 - 10/31/02 $ 6.82 $ 9.26
11/1/02 - 1/31/03 $ 7.87 $12.33

2003 2/1/03 - 4/30/03 $ 8.82 $13.33
5/1/03 - 7/31/03 $12.08 $16.64
8/1/03 - 10/31/03 $13.41 $18.04
11/1/03 - 1/31/04 $16.55 $19.95


There were 1,738 holders of record of Common Stock at April 7, 2004.
Such record holders include a number of holders who are nominees for an
undetermined number of beneficial owners. The Company believes that the number
of beneficial owners of the shares of Common Stock outstanding at such date was
approximately 37,500.

The Company has not declared or paid any cash dividends on its equity
securities and currently does not expect to pay any cash dividends in the near
future, but rather intends to retain its earnings to finance the development of
the Company's business. Any future determination as to the declaration and
payment of dividends will be made by the Board of Directors in its discretion,
and will depend upon the Company's earnings, financial condition, capital
requirements and other relevant factors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."


17

ITEM 6. SELECTED FINANCIAL DATA.

The following tables present selected consolidated financial data for the
Company for the years ended January 31, 2000, 2001, 2002, 2003 and 2004. Such
information has been derived from the Company's audited consolidated financial
statements and should be read in conjunction with the Company's consolidated
financial statements and the notes to the consolidated financial statements
included elsewhere in this report. All financial information presented herein
has been retroactively adjusted for the July 2000 acquisition of Loronix
Information Systems, Inc. ("Loronix") to account for the transaction as a
pooling of interests. All per share data has been restated to reflect a
three-for-two stock split effected as a 50% stock dividend to shareholders of
record on March 31, 1999, distributed on April 15, 1999, and a two-for-one stock
split effected as a 100% stock dividend to shareholders of record on March 27,
2000, distributed on April 3, 2000.




YEAR ENDED JANUARY 31,
------------------------------------------------------------------------------
2000(1) 2001 2002 2003 2004
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Statement of Operations Data:

Sales $909,667 $1,225,058 $1,270,218 $735,889 $765,892

Acquisition expenses 2,016 15,971 - - -

Workforce reduction, restructuring and
impairment charges (credits) - - 63,562 66,714 (2,123)

Income (loss) from operations 172,250 234,624 64,844 (182,741) (30,378)

Net income (loss) 173,147 249,136 54,619 (129,478) (5,386)

Earnings (loss) per share - diluted 1.08 1.39 0.29 (0.69) (0.03)


JANUARY 31,
------------------------------------------------------------------------------
2000(2) 2001 2002 2003 2004
(IN THOUSANDS)
Balance Sheet Data:

Working capital $858,304 $1,860,379 $2,030,250 $1,766,507 $2,141,277

Total assets 1,372,847 2,625,264 2,704,163 2,403,659 2,728,042

Long-term debt, including current portion 308,082 906,723 648,611 439,628 555,941

Stockholders' equity 724,839 1,236,165 1,616,408 1,549,692 1,672,546



(1) Includes the results of Loronix for its fiscal year ended December 31.

(2) Includes amounts for Loronix as of its fiscal year ended December 31.



18

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that are both most important
to the portrayal of a company's financial position and results of operations,
and require management's most difficult, subjective or complex judgments.
Although not all of the Company's critical accounting policies require
management to make difficult, subjective or complex judgments or estimates, the
following policies and estimates are those that the Company deems most critical.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

The Company recognizes revenues in accordance with the provisions of
Statement of Position 97-2, "Software Revenue Recognition", and related
Interpretations. The Company's systems are generally a bundled hardware and
software solution that are shipped together. Revenue is generally recognized at
the time of shipment for sales of systems which do not require significant
customization to be performed by the Company when the following criteria are
met: (1) persuasive evidence of an arrangement exists, (2) delivery has
occurred, (3) the fee is fixed or determinable and (4) collectibility is
probable.

Amounts received from customers pursuant to the terms specified in
contracts but for which revenue has not yet been recognized are recorded as
advance payments from customers.

Post-contract customer support ("PCS") services are sold separately
or as part of a multiple element arrangement, in which case the related PCS
element is determined based upon vendor-specific objective evidence of fair
value, such that the portion of the total fee allocated to PCS services is
generally recognized as revenue ratably over the term of the PCS arrangement.

Revenues from certain development contracts are recognized under the
percentage-of-completion method on the basis of physical completion to date or
using actual costs incurred to total expected costs under the contract.
Revisions in estimates of costs and profits are reflected in the accounting
period in which the facts that require the revision become known. At the time a
loss on a contract is known, the entire amount of the estimated loss is accrued.
Amounts received from customers in excess of revenues earned under the
percentage-of-completion method are recorded as advance payments from customers.

Cost of sales include material costs, subcontractor costs, salary and
related benefits for the operations and service departments, depreciation and
amortization of equipment used in the operations and service departments,
amortization of capitalized software development costs, royalties and license
fee costs, travel costs and an overhead allocation. Research and development
costs include salary and related benefits as well as travel, depreciation and
amortization of research and development equipment, an overhead allocation, as
well as other costs associated with research and development activities.
Selling, general and administrative costs include salary and related benefits,
travel, depreciation and amortization, marketing and promotional materials,
recruiting expenses, professional fees, insurance costs, facility costs, as well
as other costs associated with sales, marketing, finance and administrative
departments.


19

Accounts receivable are generally diversified due to the large number
of commercial and government entities comprising the Company's customer base and
their dispersion across many geographical regions. As of January 31, 2004, there
was no single customer balance that comprised 10% of the overall accounts
receivable balance. The Company is required to estimate the collectibility of
its accounts receivable each accounting period and record a reserve for bad
debts. A considerable amount of judgment is required in assessing the
realization of these receivables, including the current creditworthiness of each
customer, current and historical collection history and the related aging of
past due balances. The Company evaluates specific accounts when it becomes aware
of information indicating that a customer may not be able to meet its financial
obligations due to deterioration of its financial condition, lower credit
ratings or bankruptcy. Reserve requirements are based on the best facts
available and are re-evaluated and adjusted as additional information is
received.

Software development costs are capitalized upon the establishment of
technological feasibility and are amortized over the estimated useful life of
the software, which to date has been four years or less. Amortization begins in
the period in which the related product is available for general release to
customers.



20

RESULTS OF OPERATIONS

HISTORICAL RESULTS

Consolidated results of operations in dollars and as a percentage of
sales for each of the three years in the period ended January 31, 2004 were as
follows:



January 31, January 31, January 31,
2002 % 2003 % 2004 %
---- --- ---- --- ---- ---
(In thousands)

Sales:
Product revenues $1,113,168 87.6% $547,141 74.4% $534,585 69.8%
Service revenues 157,050 12.4% 188,748 25.6% 231,307 30.2%
--------------- --------------- ---------------
1,270,218 100.0% 735,889 100.0% 765,892 100.0%

Cost of sales:
Product costs 384,796 34.6% 184,413 33.7% 181,059 33.9%
Service costs 140,684 89.6% 153,708 81.4% 146,501 63.3%
--------------- --------------- ---------------
525,480 41.4% 338,121 45.9% 327,560 42.8%

Gross margin 744,738 58.6% 397,768 54.1% 438,332 57.2%

Operating expenses:
Research and development, net 293,296 23.1% 232,593 31.6% 216,457 28.3%
Selling, general and administrative 323,036 25.4% 281,202 38.2% 254,376 33.2%
Workforce reduction, restructuring
and impairment charges (credits) 63,562 5.0% 66,714 9.1% (2,123) -0.3%
--------------- --------------- ---------------

Income (loss) from operations 64,844 5.1% (182,741) -24.8% (30,378) -4.0%

Interest and other income (expense), net (6,501) -0.5% 58,902 8.0% 38,958 5.1%
--------------- --------------- ---------------

Income (loss) before income tax provision,
minority interest and equity in the earnings
(losses) of affiliates 58,343 4.6% (123,839) -16.8% 8,580 1.1%

Income tax provision 4,436 0.3% 3,294 0.4% 8,206 1.1%

Minority interest and equity in the
earnings (losses) of affiliates 712 0.1% (2,345) -0.3% (5,760) -0.8%
--------------- --------------- ---------------

Net income (loss) $54,619 4.3% $(129,478) -17.6% $(5,386) -0.7%
=============== =============== ===============


A detailed description of the Company's business segments as well as
additional financial data, can be found in Note 20 to the Consolidated Financial
Statements. The following is a summary of sales and income (loss) from
operations by segment in dollars and as a percentage of sales for each of the
three years in the period ended January 31, 2004:



January 31, January 31, January 31,
2002 % 2003 % 2004 %
---- --- ---- --- ---- ---
(In thousands)

Sales
- -----

CNS $1,080,694 85.1% $542,984 73.8% $529,597 69.1%
Ulticom 58,156 4.6% 29,231 4.0% 38,378 5.0%
Verint 131,235 10.3% 157,775 21.4% 192,744 25.2%
All other 9,966 0.8% 9,602 1.3% 9,983 1.3%
Reconciling items (9,833) -0.8% (3,703) -0.5% (4,810) -0.6%
-------------- -------------- --------------

Consolidated total $1,270,218 100.0% $735,889 100.0% $765,892 100.0%
============== ============== ==============

Income (loss) from operations:
- ------------------------------

CNS $66,105 6.1% $(179,492) -33.1% $(40,913) -7.7%
Ulticom 8,523 14.7% (8,362) -28.6% 2,824 7.4%
Verint (2,533) -1.9% 10,051 6.4% 17,189 8.9%
All other (984) -9.9% (615) -6.4% (1,152) -11.5%
Reconciling items (6,267) 63.7% (4,323) 116.7% (8,326) 173.1%
-------------- -------------- --------------

Consolidated total $64,844 5.1% $(182,741) -24.8% $(30,378) -4.0%
============== ============== ==============


21

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 that has been experiencing a challenging capital
spending environment, although there is some evidence of recent improvement. The
Company's CNS business unit experienced a slight decline in revenue of 2.5% year
over year, although it achieved sequential revenue growth in each quarter
throughout the year, and Ulticom experienced an increase in revenue of 31.3%
year over year. Verint, which services the security and 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. Verint experienced an
increase in revenue of 22.2% year over year. Overall, for the year ended January
31, 2004, the Company experienced year over year revenue growth of 4.1%, with a
substantial majority of sales for the year generated from activities serving the
telecommunications industry. The Company incurred an operating and net loss for
the year.

YEAR ENDED JANUARY 31, 2004 COMPARED TO YEAR ENDED JANUARY 31, 2003

Sales. Sales for the fiscal year ended January 31, 2004 ("fiscal
2003") increased by approximately $30.0 million, or 4%, compared to the fiscal
year ended January 31, 2003 ("fiscal 2002"). This increase is primarily
attributable to an increase in security and business intelligence recording
sales of approximately $35.0 million, primarily as a result of increased
security and surveillance sales, and increased service enabling signaling
software sales of approximately $9.1 million. These increases were partially
offset by a decrease in CNS sales of approximately $13.4 million. The decrease
in CNS sales was due primarily to decreased business in Asia Pacific and the
Americas, only partially offset by increased business in Europe. On a
consolidated basis, service revenues represented approximately 30% and 26% of
sales for fiscal 2003 and fiscal 2002, respectively, and sales to international
customers represented approximately 66% and 65% of sales for fiscal 2003 and
fiscal 2002, respectively.

Cost of Sales. Cost of sales for fiscal 2003 decreased by
approximately $10.6 million, or 3%, compared to fiscal 2002. The decrease in
cost of sales is primarily attributable to decreased personnel-related and
travel costs of approximately $18.1 million and $4.9 million, respectively,
primarily the result of workforce reduction and other cost reduction efforts,
and net decrease in various other costs of approximately $0.1 million, partially
offset by increased royalty expense of approximately $12.5 million, primarily
the result of a prior period credit realized upon a settlement with the OCS.
Gross margins increased to approximately 57.2% in fiscal 2003 from approximately
54.1% in fiscal 2002.

Research and Development, Net. Net research and development expenses
for fiscal 2003 decreased by approximately $16.1 million, or 7%, compared to
fiscal 2002. This decrease is primarily attributable to decreased
personnel-related costs of approximately $17.2 million, 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 fiscal 2003 decreased by approximately $26.8
million, or 10%, compared to fiscal 2002, and as a percentage of sales decreased
to approximately 33.2% in fiscal 2003 from approximately 38.2% in fiscal 2002.
The decrease in the dollar amount of selling, general and administrative
expenses is primarily attributable to lower bad debt expense of approximately
$42.2 million, partially offset by increased personnel-related costs of
approximately $13.6 million, due primarily to an overall increase in sales and
marketing staff, increased headcount at Verint and increased sales commissions,
and net increase in various other costs of approximately $1.8 million.


22

Workforce Reduction, Restructuring and Impairment Charges (Credits).
During the year ended January 31, 2002, the Company committed to and began
implementing a restructuring program 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 the restructuring, the Company changed its
organizational structure and product offerings, resulting in the impairment of
certain assets. In connection with these actions, during fiscal 2002 and fiscal
2003, the Company incurred charges (credits) to operations of approximately
$66.7 million and $(2.1) million, respectively. The fiscal 2002 charge of
approximately $66.7 million is comprised of approximately $26.8 million for
severance and other related costs, approximately $19.4 million for the
elimination of excess facilities and related leasehold improvements and
approximately $20.5 million for the write-off of certain property and equipment,
including a reduction in the value of certain unimproved land in Israel, that
the Company had acquired with a view to the future construction of facilities
for its Israeli operations. The fiscal 2003 net credit of approximately $2.1
million is comprised of a charge of approximately $4.5 million for severance and
other related costs, a credit of approximately $8.0 million for the reversal of
a previously taken charge for the elimination of excess facilities and related
leasehold improvements, primarily as a result of the sublet of a portion of the
excess facilities, and a charge of approximately $1.4 million for the write-off
of certain property and equipment. The Company expects to pay out approximately
$3.1 million for severance and related obligations during the year ended January
31, 2005 and approximately $26.4 million for facilities and related obligations
at various dates through January 2011.

Loss from Operations. Loss from operations for fiscal 2003 decreased
by approximately $152.4 million, or 83%, compared to fiscal 2002, and as a
percentage of sales was approximately (4.0)% in fiscal 2003 compared to
approximately (24.8)% in fiscal 2002. These changes resulted primarily from the
factors described above.

On a business segment basis, loss from operations for CNS for fiscal
2003 decreased by approximately $138.6 million, or 77%, compared to fiscal 2002,
and as a percentage of sales was approximately (7.7)% in fiscal 2003 compared to
approximately (33.1)% in fiscal 2002, as a result of the decrease in workforce
reduction, restructuring and impairment charges (credits) of approximately $66.2
million and the decrease in other costs and expenses of approximately $85.8
million, primarily the result of workforce reduction and other cost reduction
efforts, partially offset by decreased sales of approximately $13.4 million.
Income from operations for Verint for fiscal 2003 increased by approximately
$7.1 million, or 71%, compared to fiscal 2002, and as a percentage of sales
increased to approximately 8.9% in fiscal 2003 from approximately 6.4% in fiscal
2002. Income (loss) from operations for Ulticom for fiscal 2003 increased by
approximately $11.2 million compared to fiscal 2002, and as a percentage of
sales increased to approximately 7.4% in fiscal 2003 from approximately (28.6)%
in fiscal 2002.

Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 2003 decreased by approximately $19.9 million compared
to fiscal 2002. The principal reasons for the decrease are (i) a decrease in the
gain recorded as a result of the Company's repurchases of its 1.50% convertible
senior debentures due December 2005 (the "Debentures") of approximately $29.2
million; (ii) a decrease in foreign currency gains of approximately $22.8
million; (iii) decreased interest and dividend income of approximately $12.7


23

million due primarily to the decline in interest rates partially offset by an
increase in invested assets; and (iv) other decrease of approximately $0.2
million, net. Such items were offset by (i) a decrease in net losses from the
sale and write-down of investments of approximately $40.4 million; and (ii)
decreased interest expense of approximately $4.6 million due primarily to the
Company's repurchases of its Debentures and other debt reduction.

Income Tax Provision. Provision for income taxes increased from
fiscal 2002 to fiscal 2003 by approximately $4.9 million, or 149%, due primarily
to shifts in the underlying mix of pre-tax income by entity and 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.

Minority Interest and Equity in the Earnings (Losses) of Affiliates.
Minority interest and equity in the earnings (losses) of affiliates increased by
approximately $3.4 million as a result of increased minority interest expense of
approximately $5.7 million, primarily attributable to overall increased earnings
at majority-owned subsidiaries, partially offset by a change in equity in the
earnings (losses) of affiliates of approximately $2.3 million.

Net Loss. Net loss decreased by approximately $124.1 million in
fiscal 2003 compared to fiscal 2002, while as a percentage of sales was
approximately (0.7)% in fiscal 2003 compared to approximately (17.6)% in fiscal
2002. These changes resulted primarily from the factors described above.

YEAR ENDED JANUARY 31, 2003 COMPARED TO YEAR ENDED JANUARY 31, 2002

Sales. Sales for fiscal 2002 decreased by approximately $534.3
million, or 42%, compared to the fiscal year ended January 31, 2002 ("fiscal
2001"). The decrease in sales is primarily attributable to a decrease in CNS
sales of approximately $537.7 million. Such decrease in CNS sales is
attributable to all geographic regions, with sales by region as a percentage of
total sales remaining fairly consistent between periods. In addition, security
and business intelligence recording sales increased by approximately $26.5
million and service enabling signaling software sales decreased by approximately
$28.9 million, respectively. On a consolidated basis, service revenues
represented approximately 26% and 12% of sales for fiscal 2002 and fiscal 2001,
respectively, and sales to international customers represented approximately 65%
and 70% of sales for fiscal 2002 and fiscal 2001, respectively.

Cost of Sales. Cost of sales for fiscal 2002 decreased by
approximately $187.4 million, or 36%, compared to fiscal 2001. The decrease in
cost of sales is primarily attributable to decreased materials and overhead
costs of approximately $146.6 million, due primarily to the decrease in sales,
decreased royalty expense of approximately $20.5 million, decreased
personnel-related costs of approximately $8.0 million and decreased travel costs
of approximately $7.0 million, partially offset by a charge of approximately
$5.9 million pertaining to the write-down of the value of certain inventory and
the write-off of certain prepaid licenses for which there is no estimable future
use. Gross margins decreased from approximately 58.6% in fiscal 2001 to
approximately 54.1% in fiscal 2002.

Research and Development, Net. Net research and development expenses
for fiscal 2002 decreased by approximately $60.7 million, or 21%, compared to
fiscal 2001, primarily due to workforce reduction and other cost reduction
efforts and a reduction of research and development projects.


24

Selling, General and Administrative. Selling, general and
administrative expenses for fiscal 2002 decreased by approximately $41.8
million, or 13%, compared to fiscal 2001, and as a percentage of sales increased
from approximately 25.4% in fiscal 2001 to approximately 38.2% in fiscal 2002.
The decrease in the dollar amount of the expense was primarily due to workforce
reduction and other cost reduction efforts.

Workforce Reduction, Restructuring and Impairment Charges. During
fiscal 2001 the Company committed to and began implementing a restructuring
program 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 the restructuring, the Company changed its organizational structure and
product offerings, resulting in the impairment of certain assets. In connection
with these actions, during fiscal 2001 and fiscal 2002, the Company incurred
charges to operations of approximately $63.6 million and $66.7 million,
respectively. The fiscal 2001 charge of approximately $63.6 million is comprised
of approximately $27.7 million for severance and other related costs,
approximately $24.4 million for the elimination of excess facilities and related
leasehold improvements, approximately $4.6 million for the write-off of certain
property and equipment and approximately $4.0 million and $2.9 million for the
write-off of certain inventory and capitalized software, respectively, that
became impaired as a result of the change in the Company's product offerings.
The fiscal 2002 charge of approximately $66.7 million is comprised of
approximately $26.8 million for severance and other related costs, approximately
$19.4 million for the elimination of excess facilities and related leasehold
improvements and approximately $20.5 million for the write-off of certain
property and equipment, including a reduction in the value of certain unimproved
land in Israel, that the Company had acquired with a view to the future
construction of facilities for its Israeli operations.

Income (Loss) from Operations. Income (loss) from operations for
fiscal 2002 decreased by approximately $247.6 million compared to fiscal 2001,
and as a percentage of sales was approximately (24.8)% in fiscal 2002 compared
to approximately 5.1% in fiscal 2001. These changes resulted primarily from the
factors described above.

On a business segment basis, income (loss) from operations for CNS
for fiscal 2002 decreased by approximately $245.6 million compared to fiscal
2001, and as a percentage of sales was approximately (33.1)% in fiscal 2002
compared to approximately 6.1% in fiscal 2001, as a result of decreased sales of
approximately $537.7 million, partially offset by the decrease in other costs
and expenses of approximately $292.1 million, primarily the result of workforce
reduction and other cost reduction efforts and decreased sales. Income (loss)
from operations for Verint for fiscal 2002 increased by approximately $12.6
million compared to fiscal 2001, and as a percentage of sales increased to
approximately 6.4% in fiscal 2002 from approximately (1.9)% in fiscal 2001.
Income (loss) from operations for Ulticom for fiscal 2002 decreased by
approximately $16.9 million compared to fiscal 2001, and as a percentage of
sales was approximately (28.6)% in fiscal 2002 compared to approximately 14.7%
in fiscal 2001.

Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 2002 increased by approximately $65.4 million compared
to fiscal 2001. The principal reasons for the increase are (i) decreased
interest expense of approximately $6.8 million due to the redemption of the
Company's $300.0 million 4.5% convertible debentures in June 2001, as well as


25

the Company's repurchases of its Debentures during fiscal 2002; (ii) a gain of
approximately $39.4 million recorded as a result of the Company's repurchases of
its Debentures during fiscal 2002; (iii) change in foreign currency gains/losses
of approximately $48.5 million due primarily to the strengthening of the Euro
during fiscal 2002; and (iv) other changes of approximately $1.3 million, net.
Such items were offset by (i) decreased interest and dividend income of
approximately $26.0 million due primarily to the decline in interest rates
during fiscal 2002; and (ii) an increase in net losses from the sale and
write-down of investments of approximately $4.6 million.

Income Tax Provision. Provision for income taxes decreased from
fiscal 2001 to fiscal 2002 by approximately $1.1 million, or 26%, due primarily
to the overall decrease in pre-tax income coupled with shifts in the underlying
mix by entity and 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.

Minority Interest and Equity in the Earnings (Losses) of Affiliates.
Minority interest and equity in the earnings (losses) of affiliates decreased by
approximately $3.1 million as a result of increased minority interest expense of
approximately $0.9 million, primarily attributable to overall increased earnings
at majority-owned subsidiaries, and a change in equity in the earnings (losses)
of affiliates of approximately $2.2 million.

Net Income (Loss). Net income (loss) decreased by approximately
$184.1 million in fiscal 2002 compared to fiscal 2001, while as a percentage of
sales was approximately 4.3% in fiscal 2001 compared to approximately (17.6)% in
fiscal 2002. The decrease resulted primarily from the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital at January 31, 2004 and 2003 was
approximately $2,141.3 million and $1,766.5 million, respectively. At January
31, 2004 and 2003, the Company had total cash and cash equivalents, bank time
deposits and short-term investments of approximately $2,198.5 million and
$1,808.9 million, respectively.

Operations for fiscal 2003, fiscal 2002 and fiscal 2001, after
adjustment for non-cash items, provided (used) cash of approximately $80.3
million, $(34.1) million and $130.6 million, respectively. During such years,
other changes in operating assets and liabilities provided cash of approximately
$48.3 million, $130.9 million and $11.6 million, respectively. This resulted in
net cash provided by operating activities of approximately $128.6 million, $96.8
million and $142.2 million during fiscal 2003, fiscal 2002 and fiscal 2001,
respectively.

Investing activities for fiscal 2003, fiscal 2002 and fiscal 2001
provided (used) cash of approximately $(310.6) million, $35.9 million and
$(122.4) million, respectively. These amounts include (i) net maturities and
sales (purchases) of bank time deposits and investments of approximately
$(261.6) million, $114.5 million and $(44.8) million, respectively; (ii)
purchases of property and equipment of approximately $(35.3) million, $(34.1)
million and $(54.6) million, respectively; (iii) capitalization of software
development costs of approximately $(7.8) million, $(13.4) million and $(23.0)
million, respectively; and (iv) net assets acquired as a result of acquisitions
of approximately $(5.9) million and $(31.1) million in fiscal 2003 and fiscal
2002, respectively.


26

Financing activities for fiscal 2003, fiscal 2002 and fiscal 2001
provided (used) cash of approximately $310.2 million, $(91.8) million and $67.0
million, respectively. These amounts include (i) net proceeds from the issuance
of the Company's Zero Yield Puttable Securities due 2023 ("ZYPS") of
approximately $412.8 million during fiscal 2003; (ii) the partial repurchase of
the Company's Debentures of approximately $(253.3) million and $(169.8) million
during fiscal 2003 and fiscal 2002, respectively; (iii) proceeds from the
issuance of common stock in connection with the exercise of stock options and
employee stock purchase plan of approximately $61.3 million, $12.4 million and
$28.8 million, respectively; (iv) net proceeds from the issuance of common stock
of subsidiaries in connection with public offerings and the exercise of stock
options and employee stock purchase plans of approximately $129.0 million and
$68.7 million in fiscal 2003 and fiscal 2002, respectively; (v) net proceeds
from and (repayment of) bank loan of $(42.0) million and $42.0 million in fiscal
2003 and fiscal 2001, respectively; and (vi) other, net of approximately $2.4
million, $(3.1) million and $(3.8) million in fiscal 2003, fiscal 2002 and
fiscal 2001, respectively.

In May 2003, the Company issued $420.0 million aggregate principal
amount of its ZYPS, for net proceeds of approximately $412.8 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 fiscal 2002 and 2003, the Company acquired, in open market
purchases, approximately $209.2 million and $266.1 million of face amount of the
Debentures, respectively, for approximately $169.8 million and $253.3 million in
cash, respectively, resulting in pre-tax gains, net of debt issuance costs, of
approximately $39.4 million and $10.2 million, respectively, included in
`Interest and other income (expense), net' in the Consolidated Statements of
Operations.

As of January 31, 2004, the Company had outstanding Debentures of
approximately $124.7 million. During February 2004, the Company acquired, in
open market purchases, approximately $30.5 million of face amount of the
Debentures, for approximately $30.0 million in cash, resulting in a pre-tax
gain, net of debt issuance costs, of approximately $0.2 million.


27

In January 2002, Verint took a bank loan in the amount of $42.0
million. The 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.

In May 2002, Verint issued 4,500,000 shares of its common stock in an
initial public offering. Proceeds from the offering, based on the offering price
of $16.00 per share, totaled approximately $65.4 million, net of offering
expenses. The Company recorded a gain of approximately $48.1 million during the
year ended January 31, 2003, which was recorded as an increase in stockholders'
equity as a result of the issuance.

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 Networks Inc.'s ("Smartsight") former
shareholders in connection with its acquisition. The proceeds of the offering
were approximately $122.2 million, net of offering expenses. 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. As of January 31,
2004, the Company's ownership interest in Verint was approximately 61.8%.

On March 31, 2004, Verint acquired certain assets and assumed certain
liabilities relating to ECtel Ltd.'s ("ECtel") communication interception
business for approximately $35,000,000 in cash. The acquisition is expected to
provide Verint with additional communication interception capabilities for the
mass collection and analysis of voice and data communications. These
technologies will be integrated into Verint's existing product offerings. In
addition, some of ECtel's existing customers are new customers in new countries
for Verint in the Asia Pacific and Latin America regions.

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.

In February 2002, Verint acquired the digital video recording
business of Lanex, LLC ("Lanex"). The Lanex business provides digital video
recording solutions for security and surveillance applications primarily to
North American banks. The purchase price consisted of approximately $9.5 million
in cash and a $2.2 million non-interest bearing note, guaranteed by CTI, and
convertible in whole or in part, into shares of Verint's common stock at a
conversion price of $16.06 per share. The note matured and was converted into
shares of Verint common stock on February 1, 2004.

In June 2002, the Company acquired Odigo, Inc. ("Odigo"), a
privately-held provider of instant messaging and presence management solutions
to service providers. The purchase price was approximately $20.1 million in
cash. Prior to the acquisition, the Company was a strategic partner with Odigo,
holding an equity position which it previously acquired for approximately $3
million.

The ability of the Company's Israeli subsidiaries to pay dividends is
governed by Israeli law, which provides that cash dividends may be paid by an
Israeli corporation only out of retained earnings as determined for statutory
purposes in Israeli currency. In the event of a devaluation of the Israeli
currency against the dollar, the amount in dollars available for payment of cash
dividends out of prior years' earnings will decrease accordingly. Cash dividends


28

paid by an Israeli corporation to United States resident corporate parents are
subject to the Convention for the Avoidance of Double Taxation between Israel
and the United States. Under the terms of the Convention, such dividends are
subject to taxation by both Israel and the United States and, in the case of
Israel, such dividends out of income derived in respect of a period for which an
Israeli company is entitled to the reduced tax rate applicable to an Approved
Enterprise are generally subject to withholding of Israeli income tax at source
at a rate of 15%. The Israeli company is also subject to additional Israeli
taxes in respect of such dividends, generally equal to the tax benefits
previously granted in respect of the underlying income by virtue of the Approved
Enterprise status.

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, on both a consolidated and individual
business segment basis.

CERTAIN TRENDS AND UNCERTAINTIES

The Company derives the majority of its revenue from the
telecommunications industry, which is experiencing a challenging capital
spending environment. While there is some evidence that the capital spending
environment has improved, the spending by the Company's customers remains
uncertain. The Company's operating results and financial condition have been
adversely affected by declines in technology purchases and capital expenditures
by telecommunications service providers ("TSP"), and the Company's operating
results and financial condition will be adversely affected in the event
deterioration in capital expenditures by TSPs resumes. 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.


29

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.


In May 2003, the Company issued $420,000,000 aggregate principal
amount of zero yield puttable securities ("ZYPS"). The ZYPS are convertible into
shares of the Company's common stock at a conversion price of $17.97 per share,
which would result in the issuance of an aggregate of approximately 23.4 million
shares, subject to adjustment upon the occurrence of specified events. 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


30

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. The Company may not have enough cash or
have the ability to access enough cash to pay the ZYPS. If the threshold for
conversion of the ZYPS is achieved it will result in dilution of the Company's
earnings per share. If the ZYPS are converted into the Company's shares it will
result in a dilution of existing stockholders.

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.


31

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
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 security and 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


32

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.

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.


33

During the period between the evaluation and purchase of a system,
customers may defer or scale down proposed orders of the Company's products for,
among other reasons: (i) changes in budgets and purchasing priorities; (ii)
reduced need to upgrade existing systems; (iii) deferrals in anticipation of
enhancements or new products; (iv) introduction of products by the Company's
competitors; and (v) lower prices offered by the Company's competitors.

Geopolitical, economic and military conditions could directly affect
the Company's operations. The outbreak of severe acute respiratory syndrome
("SARS") curtailed travel to and from certain countries (primarily in the
Asia-Pacific region). 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.

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 materially 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
materially 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.


34

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. Certain of the Company's subsidiaries (not
including Comverse) currently pay 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 are 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 January 31, 2004, such subsidiaries of the
Company received approximately $53.8 million in cumulative grants from the OCS
and recorded approximately $21.7 million in cumulative royalties to the OCS.
During the year ended January 31, 2003, Comverse finalized 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.


35

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.

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

36

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
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


37

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.

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 Company's operating results have fluctuated in the past and may
do so in the future. 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, which at times is unrelated to the operating
performance of a company. 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.

The Company's board of directors' ability to designate and issue up
to 2,500,000 shares of preferred stock and to issue additional shares of common
stock could adversely affect the voting power of the holders of common stock,
and could have the effect of making it more difficult for a person to acquire,
or could discourage a person from seeking to acquire, control of the Company. If
this occurs, investors could lose the opportunity to receive a premium on the
sale of their shares in a change of control transaction.


38

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

As part of our ongoing business, we do not participate in
transactions that generate relationships with unconsolidated entities or
financial partnerships, such as entities often referred to as structured finance
or special purpose entities ("SPEs"), which would have been established for the
purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As of January 31, 2004, we were not involved in any
unconsolidated SPE transactions.

The Company has obtained bank guaranties primarily for the
performance of certain obligations under contracts with customers as well as for
the guarantee of certain payment obligations. These guaranties, which aggregated
approximately $39.6 million at January 31, 2004, are generally to be released by
the Company's performance of specified contract milestones, which are scheduled
to be completed primarily during 2004.

The Company is exposed to market risk from changes in foreign
currency exchange rates and may, from time to time, use foreign currency
exchange contracts and other derivative instruments to reduce its exposure to
the risk that the eventual net cash inflows and outflows resulting from the sale
of its products in foreign currency, primarily the Euro, will be adversely
affected by changes in exchange rates. The objective of these contracts is to
neutralize the impact of foreign currency exchange rate movements on the
Company's operating results. These instruments are not designated as hedges and
the change in fair value is included in income currently. As of January 31,
2004, the Company had approximately $31.7 million of notional amount of foreign
exchange forward contracts to sell Euros with an original maturity of three
months. The fair value of these contracts as of January 31, 2004 of
approximately $(0.2) million is included in `Interest and other income
(expense), net' in the Consolidated Statements of Operations.

The impact that our aggregate contractual obligations as of January
31, 2004 are expected to have on our liquidity and cash flow in future periods
is as follows:



PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------------------
LESS THAN MORE THAN
TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
----- ------ --------- --------- -------
(IN THOUSANDS)


Long-term debt obligations (1) $555,492 $ - $134,097 $ 470 $420,925
Operating lease obligations 103,946 31,391 39,404 17,344 15,807
Purchase obligations (2) 28,897 28,897 - - -
Other long-term liabilities 4,726 - 4,726 - -
--------------- --------------- --------------- --------------- ---------------

Total $693,061 $60,288 $178,227 $17,814 $436,732
--------------- --------------- --------------- --------------- ---------------


(1) Includes (as > 5 Years) $420.0 million aggregate principal amount of the
Company's ZYPS, which mature on May 15, 2023. 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
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.


39

(2) Purchase obligations include agreements to purchase goods or services that
are enforceable and legally binding on the Company and that specify all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Purchase obligations exclude agreements that are cancelable without
penalty.

In 1997, a subsidiary of CTI and Quantum Industrial Holdings Ltd.
organized two new companies to make investments, including investments in high
technology ventures. Each participant committed a total of $37.5 million to the
capital of the new companies, for use as suitable investment opportunities are
identified. Quantum Industrial Holdings Ltd. is a member of the Quantum Group of
Funds managed by Soros Fund Management LLC and affiliated management companies.
As of January 31, 2004, the Company had invested approximately $26.4 million
related to these ventures. In addition, the Company has committed approximately
$17.4 million to various funds, ventures and companies which may be called at
the option of the investee.

The Company licenses certain technology, "know-how" and related
rights for use in the manufacture and marketing of its products, and pays
royalties to third parties, typically ranging up to 6% of net sales of the
related products, under such licenses and under other agreements entered into in
connection with research and development financing, including 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 in varying amounts based upon the revenues attributed to the
various components of such products. Royalties due to the OCS in respect of
research and development projects are required to be paid until the OCS has
received total royalties up to the amounts received by the Company under the
approved project budgets, plus interest in certain circumstances. As of January
31, 2004, such subsidiaries had received approximately $53.8 million in
cumulative grants from the OCS, and have recorded approximately $21.7 million in
cumulative royalties to the OCS.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("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 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


40

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
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 the classification and measurement of 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 consolidated financial statements.

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. Forward-looking statements are
often identified by future or conditional words such as "will," "plans,"
"expects," "intends," "believes," "seeks," "estimates," or "anticipates" or by
variations of such words or by similar expressions.

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.

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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to market risk from changes in foreign
currency exchange rates, interest rates and equity trading prices, which could
impact its results of operations and financial condition. The Company manages
its exposure to these market risks through its regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial
instruments.


41

The Company operates internationally and is therefore exposed to
potentially adverse movements in foreign currency rate changes. The primary
currencies that the Company is exposed to are the Euro and the Israeli Shekel.
The Company may, from time to time, use foreign currency exchange contracts and
other derivative instruments to reduce its exposure to the risk that the
eventual net cash inflows and outflows resulting from the sale of its products
in foreign currency, primarily the Euro, will be adversely affected by changes
in exchange rates. The objective of these contracts is to neutralize the impact
of foreign currency exchange rate movements on the Company's operating results.
As of January 31, 2004, the Company had approximately $31.7 million of notional
amount of foreign exchange forward contracts to sell Euros with a fair value of
approximately $(0.2) million with an original maturity of three months. Neither
a 10% increase nor decrease from current exchange rates would have a material
effect on the Company's consolidated financial statements.

Various financial instruments held by the Company are sensitive to
changes in interest rates. Interest rate changes would result in gains or losses
in the market value of the Company's investments in debt securities due to
differences between the market interest rates and rates at the date of purchase
of these financial instruments. Neither a 10% increase nor decrease from current
interest rates would have a material effect on the Company's consolidated
financial statements.

Equity investments held by the Company are subject to equity price
risks. Neither a 10% increase nor decrease in equity prices would have a
material effect on the Company's consolidated financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial information required by Item 8 is included elsewhere in
this report.

See Part IV, Item 15.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

(a) The Company's management evaluated, with the participation of
the Company's principal executive and principal financial officers, the
effectiveness 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, as
amended (the "Exchange Act")), as of January 31, 2004. Based on their
evaluation, the Company's principal executive and principal financial officers
concluded that the Company's disclosure controls and procedures were effective
as of January 31, 2004.

(b) There has been no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the Company's fiscal quarter ended January
31, 2004, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.



42

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information required by this item is incorporated herein by reference
to the information in the Company's Notice of Annual Meeting of Shareholders and
Proxy Statement relating to the Annual Meeting of Shareholders to be held on
June 15, 2004 (the "Proxy Statement") under the captions "Codes of Business
Conduct and Ethics", "Background of Directors and Executive Officers", "Audit
Committee", and "Section 16(a) Beneficial Ownership Reporting Compliance".

ITEM 11. EXECUTIVE COMPENSATION.

Information required by this Item is incorporated by reference to
"Executive Compensation" and "Compensation of Directors" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

Information required by this Item is incorporated by reference to
"Security Ownership of Management and Principal Shareholders" and "Equity
Compensation Plan Information" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information required by this Item is incorporated by reference to
"Certain Relationships and Related Transactions" in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Information required by this Item is incorporated by reference to
"Independent Accounting Firm Fees" and "Policy for Audit, Audit Related and
Non-Audit Services" in the Proxy Statement.



43

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.



(a) Documents filed as part of this report. Page(s)
-------------------------------------- -------


(1) Financial Statements.

Index to Consolidated Financial Statements F-1

Independent Auditors' Report F-2

Consolidated Balance Sheets as of
January 31, 2003 and 2004 F-3

Consolidated Statements of Operations
for the Years Ended
January 31, 2002, 2003 and 2004 F-4

Consolidated Statements of Stockholders' Equity
for the Years Ended
January 31, 2002, 2003 and 2004 F-5

Consolidated Statements of Cash Flows
for the Years Ended
January 31, 2002, 2003 and 2004 F-6

Notes to Consolidated Financial Statements F-7

(2) Financial Statement Schedules.
-----------------------------

None.

(3) Exhibits.
--------
The Index of Exhibits commences on the following
page. Exhibits numbered 10.1 through 10.4 and
10.6 through 10.11 comprise material compensatory
plans and arrangements of the registrant.

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

During the fourth quarter of 2003, the Company filed two reports on
Form 8-K:

(1) Report on Form 8-K dated December 3, 2003

Item 12. Results of Operations and Financial Condition:
This report attached the Company's press release dated
December 3, 2003, announcing the financial results for the
fiscal quarter ended October 31, 2003.


44

(2) Report on Form 8-K dated January 16, 2004

Item 5. Other Events:

This report announced the time and date of the Company's 2004 Annual
Meeting of Shareholders and informed shareholders of revised deadlines
pursuant to Rule 14a-5 f of the Securities Exchange Act of 1934, as
amended.

(c) Index of Exhibits

Exhibits
No. Description
- --- -----------

3 Articles of Incorporation and By-Laws:

3.1* Certificate of Incorporation. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1987.)

3.2* Certificate of Amendment of Certificate of Incorporation
effective February 26, 1993. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1992.)

3.3* Certificate of Amendment of Certificate of Incorporation
effective January 12, 1995. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1994.)

3.4* Certificate of Amendment of Certificate of Incorporation
dated October 18, 1999. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended January 31, 2000.)

3.5* Certificate of Amendment of Certificate of Incorporation
dated September 19, 2000. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended January 31, 2001.)

3.6* By-Laws, as amended. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended January 31, 2003.)



45

4 Instruments defining the rights of security holders including
indentures:

4.1* Specimen stock certificate. (Incorporated by reference to
the Registrant's Annual Report on Form 10-K under the
Securities Exchange Act of 1934 for the year ended December
31, 1992.)

4.2* Indenture dated as of November 22, 2000 from Comverse
Technology, Inc. to The Chase Manhattan Bank, Trustee.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-3 under the Securities Act of 1933,
Registration No. 333-55526.)

4.3* Specimen 1 1/2% Convertible Senior Debenture Due 2005.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-3 under the Securities Act of 1933,
Registration No. 333-55526.)

4.4* Indenture dated as of May 7, 2003 from Comverse Technology,
Inc., to JPMorgan Chase Bank, Trustee. (Incorporated by
reference to the Registrant's Registration Statement on Form
S-3 under the Securities Act of 1933, Registration No.
333-106391.)

4.5* Specimen Zero Yield Puttable Securities Due May 15, 2023.
(Incorporated by reference to the Registrant's Registration
Statement on Form S-3 under the Securities Act of 1933,
Registration No. 333-106391.)

10 Material contracts:

10.1* Form of Stock Option Agreement pertaining to shares of
certain subsidiaries of Comverse Technology, Inc.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1993.)

10.2* Form of Incentive Stock Option Agreement. (Incorporated by
reference to the Registrant's Registration Statement on Form
S-1 under the Securities Act of 1933, Registration No.
33-9147.)

10.3* Form of Stock Option Agreement for options other than
Incentive Stock Options. (Incorporated by reference to the
Registrant's Annual Report on Form 10-K under the Securities
Exchange Act of 1934 for the year ended December 31, 1987.)

10.4** Form of Restricted Stock Agreement.

10.5* Form of Indemnity Agreement between Comverse Technology,
Inc. and its Officers and Directors. (Incorporated by
reference to the Registrant's Annual Report on Form 10-K
under the Securities Exchange Act of 1934 for the year ended
January 31, 2003.)

10.6* 1997 Employee Stock Purchase Plan, as amended. (Incorporated
by reference to the Definitive Proxy Materials for the
Registrant's Annual meeting of Shareholders held June 15,
2001.)

10.7* 2004 Management Incentive Plan. (Incorporated by reference
to the Definitive Proxy Materials for the Registrant's
Annual Meeting of Shareholders held December 16, 2003.)


46

10.8* 2002 Employee Stock Purchase Plan, as amended. (Incorporated
by reference to the Definitive Proxy Materials for the
Registrant's Annual Meeting of Shareholders held December
16, 2003.)

10.9* 1997 Stock Incentive Compensation Plan. (Incorporated by
reference to the Definitive Proxy Materials for the
Registrant's Annual Meeting of Shareholders held January 13,
1998.)

10.10* 1999 Stock Incentive Compensation Plan. (Incorporated by
reference to the Definitive Proxy Materials for the
Registrant's Annual Meeting of Shareholders held October 8,
1999.)

10.11* 2000 Stock Incentive Compensation Plan. (Incorporated by
reference to the Definitive Proxy Materials for the
Registrant's Annual Meeting of Shareholders held September
15, 2000.)

10.12* 2001 Stock Incentive Compensation Plan. (Incorporated by
reference to the Definitive Proxy Materials for the
Registrant's Annual Meeting of Shareholders held June 15,
2001.)

10.13* Lease dated November 5, 1990 between Boston Technology, Inc.
and Wakefield Park Limited Partnership ("Lease").
(Incorporated by reference to the Annual Report of Boston
Technology, Inc. on Form 10-K under the Securities Exchange
Act of 1934 for the year ended January 31, 1991.)

10.14* First Amendment to Lease dated as of March 31, 1993 between
Boston Technology, Inc. and WBAM Limited Partnership.
(Incorporated by reference to the Quarterly Report of Boston
Technology, Inc. on Form 10-Q under the Securities Exchange
Act of 1934 for the quarter ended October 31, 1993.)

10.15* Second Amendment to Lease dated as of August 31, 1994
between Boston Technology, Inc. and WBAM Limited
Partnership. (Incorporated by reference to the Annual Report
of Boston Technology, Inc. on Form 10-K under the Securities
Exchange Act of 1934 for the year ended January 31, 1995.)

10.16* Third Amendment to Lease dated as of June 7, 1996 between
Boston Technology, Inc. and WBAM Limited Partnership.
(Incorporated by reference to the Annual Report of Boston
Technology, Inc. on Form 10-K under the Securities Exchange
Act of 1934 for the year ended January 31, 1997.)

10.17* Fourth Amendment to Lease dated as of December 21, 1998
between Wakefield 100 LLC and Comverse Technology, Inc.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K under the Securities Exchange Act of 1934 for
the year ended January 31, 2003.)

10.18* Fifth Amendment to Lease dated as of September 5, 2002
between SC Wakefield 200, Inc. and Comverse Technology, Inc.
(Incorporated by reference to the Registrant's Annual Report
on Form 10-K under the Securities Exchange Act of 1934 for
the year ended January 31, 2003.)

21.1** Subsidiaries of Registrant.

23.1** Consent of Deloitte & Touche LLP.

24.1 Powers of Attorney (see signature page to this report.)


47

31.1** Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

31.2** Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

32*** Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

- ------------------

* Incorporated by reference.

** Filed herewith.

*** This exhibit is being "furnished" pursuant to Item 601(b)(32) of SEC
Regulation S-K and are not deemed "filed" with the Securities and Exchange
Commission and are not incorporated by reference in any filing of the
Company under the Securities Act of 1933 or the Securities Exchange Act of
1934.




48

SIGNATURES
----------

Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)


April 14, 2004 By: /s/ Kobi Alexander
----------------------------------------
Kobi Alexander, Chief Executive Officer

Kobi Alexander
Chairman and CEO
Principal Executive Officer

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kobi Alexander and David Kreinberg and
each of them, jointly and severally, his attorneys-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any and all
amendments to this Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each said attorneys-in-fact
or his substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

/s/ Kobi Alexander April 14, 2004
- ----------------------------------
Kobi Alexander,
Chairman and CEO, Director

/s/ David Kreinberg April 14, 2004
- ----------------------------------
David Kreinberg,
Executive Vice President and CFO

/s/ Raz Alon April 14, 2004
- ----------------------------------
Raz Alon, Director

/s/ Itsik Danziger April 14, 2004
- ----------------------------------
Itsik Danziger, Director

/s/ John H. Friedman April 14, 2004
- ----------------------------------
John H. Friedman, Director

/s/ Ron Hiram April 14, 2004
- ----------------------------------
Ron Hiram, Director

/s/ Sam Oolie April 14, 2004
- ----------------------------------
Sam Oolie, Director

/s/ William F. Sorin April 14, 2004
- ----------------------------------
William F. Sorin, Director



49

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

PAGE

Independent Auditors' Report F-2

Consolidated Balance Sheets as of January 31, 2003 and 2004 F-3

Consolidated Statements of Operations for the
Years Ended January 31, 2002, 2003 and 2004 F-4

Consolidated Statements of Stockholders' Equity for the
Years Ended January 31, 2002, 2003 and 2004 F-5

Consolidated Statements of Cash Flows for the
Years Ended January 31, 2002, 2003 and 2004 F-6

Notes to Consolidated Financial Statements F-7




F-1

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Comverse Technology, Inc.
Woodbury, New York

We have audited the accompanying consolidated balance sheets of Comverse
Technology, Inc. and subsidiaries (the "Company") as of January 31, 2003 and
2004, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended January
31, 2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Comverse Technology, Inc. and
subsidiaries as of January 31, 2003 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2004, in conformity with accounting principles generally accepted in
the United States of America.


/S/ Deloitte & Touche LLP

New York, New York
March 31, 2004



F-2



COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2003 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------

2003 2004
---- ----

ASSETS
- ------

CURRENT ASSETS:
Cash and cash equivalents $ 1,402,783 $ 1,530,995
Bank time deposits 20,000 888
Short-term investments 386,089 666,616
Accounts receivable, net 212,953 158,236
Inventories 40,015 54,751
Prepaid expenses and other current assets 65,018 50,798
-------------- --------------
TOTAL CURRENT ASSETS 2,126,858 2,462,284
PROPERTY AND EQUIPMENT, net 146,380 125,023
OTHER ASSETS 130,421 140,735
-------------- --------------
TOTAL ASSETS $ 2,403,659 $ 2,728,042
============== ==============

- ------------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2004
- ------------------------------------ ---- ----

CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 260,810 $ 229,296
Bank loans and other debt 46,045 2,649
Advance payments from customers 53,496 89,062
-------------- --------------
TOTAL CURRENT LIABILITIES 360,351 321,007
CONVERTIBLE DEBT 390,838 544,723
LIABILITY FOR SEVERANCE PAY 9,778 12,324
OTHER LIABILITIES 9,452 15,964
-------------- --------------
TOTAL LIABILITIES 770,419 894,018
-------------- --------------

MINORITY INTEREST 83,548 161,478
-------------- --------------

COMMITMENTS AND CONTINGENCIES (Note 21)

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value - authorized, 2,500,000
shares; issued, none
Common stock, $0.10 par value -
authorized, 600,000,000 shares;
issued and outstanding, 187,754,407 and 194,549,886 shares 18,775 19,454
Additional paid-in capital 1,078,720 1,210,547
Unearned stock compensation - (6,707)
Retained earnings 445,285 439,899
Accumulated other comprehensive income 6,912 9,353
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 1,549,692 1,672,546
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,403,659 $ 2,728,042
============== ==============


See notes to consolidated financial statements.


F-3



COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------

JANUARY 31, JANUARY 31, JANUARY 31,
2002 2003 2004
---- ---- ----

Sales:
Product revenues $1,113,168 $ 547,141 $ 534,585
Service revenues 157,050 188,748 231,307
----------- ----------- -----------
1,270,218 735,889 765,892
----------- ----------- -----------

Cost of sales:
Product costs 384,796 184,413 181,059
Service costs 140,684 153,708 146,501
----------- ----------- -----------
525,480 338,121 327,560
----------- ----------- -----------


Gross margin 744,738 397,768 438,332

Operating expenses:
Research and development, net 293,296 232,593 216,457
Selling, general and administrative 323,036 281,202 254,376
Workforce reduction, restructuring
and impairment charges (credits) 63,562 66,714 (2,123)
----------- ----------- -----------

Income (loss) from operations 64,844 (182,741) (30,378)

Interest and other income (expense), net (6,501) 58,902 38,958
----------- ----------- -----------

Income (loss) before income tax provision, minority
interest and equity in the earnings (losses) of affiliates 58,343 (123,839) 8,580

Income tax provision 4,436 3,294 8,206

Minority interest and equity in the earnings (losses)
of affiliates 712 (2,345) (5,760)
----------- ----------- -----------

Net income (loss) $ 54,619 $ (129,478) $ (5,386)
=========== =========== ===========

Earnings (loss) per share:
Basic $ 0.30 $ (0.69) $ (0.03)
=========== =========== ===========
Diluted $ 0.29 $ (0.69) $ (0.03)
=========== =========== ===========

See notes to consolidated financial statements.


F-4

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
- ---------------------------------



Accumulated Other
Comprehensive Income
Common Stock -------------------- Total
------------ Additional Unearned Unrealized Cumulative Stock-
Number of Par Paid-in Stock Retained Gains Translation holders'
Shares Value Capital Compensation Earnings (Losses) Adjustment Equity
------ ----- ------- ------------ -------- -------- ---------- ------

BALANCE, FEBRUARY 1, 2001 168,643,623 $ 16,864 $ 692,014 $ - $ 520,144 $ 7,526 $ (383) $ 1,236,165

Comprehensive income:
Net income 54,619
Unrealized loss on available-for-sale
securities (3,227)
Translation adjustment 872
Total comprehensive income 52,264
Warrant exercises 1,792,932 179 (179) -
Common stock issued for employee
stock purchase plan 394,866 39 12,401 12,440
Exercise of stock options 1,463,467 148 16,196 16,344
Conversion of debentures 13,953,462 1,395 294,801 296,196
Tax benefit of dispositions of stock
options 2,999 2,999
- ------------------------------------------------------------------------------------------------------------------------------------


BALANCE, JANUARY 31, 2002 186,248,350 18,625 1,018,232 - 574,763 4,299 489 1,616,408

Comprehensive loss:
Net loss (129,478)
Unrealized gain on available-for-sale
securities 827
Translation adjustment 1,297
Total comprehensive loss (127,354)
Common stock issued for employee
stock purchase plan 975,396 97 8,097 8,194
Exercise of stock options 530,661 53 4,121 4,174
Issuance of subsidiary shares 47,996 47,996
Tax benefit of dispositions of stock
options 274 274
- ------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2003 187,754,407 18,775 1,078,720 - 445,285 5,126 1,786 1,549,692

Comprehensive loss:
Net loss (5,386)
Unrealized loss on available-for-sale
securities (53)
Translation adjustment 2,494
Total comprehensive loss (2,945)
Common stock issued for employee
stock purchase plan 711,138 71 6,012 6,083
Common stock issued for restricted
stock grant 314,300 31 5,218 (5,249) -
Exercise of stock options 5,770,041 577 54,610 55,187
Issuance of subsidiary shares 64,616 (1,672) 62,944
Tax benefit of dispositions of stock
options 1,371 1,371
Amortization of unearned stock
compensation 214 214
- ------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2004 194,549,886 $ 19,454 $ 1,210,547 $ (6,707) $ 439,899 $ 5,073 $ 4,280 $ 1,672,546
=========== ======== =========== ========= ========= ======= ======= ===========


See notes to consolidated financial statements.

F-5



COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
(IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------

JANUARY 31, JANUARY 31, JANUARY 31,
2002 2003 2004
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 54,619 $ (129,478) $ (5,386)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 63,824 67,355 71,771
Minority interest 667 1,570 7,246
Operating asset write-downs and impairments 11,530 26,445 6,684
Changes in operating assets and liabilities:
Accounts receivable, net (12,611) 161,737 56,395
Inventories 55,775 13,446 (14,071)
Prepaid expenses and other current assets (2,172) 19,728 11,123
Accounts payable and accrued expenses 33,481 (74,856) (33,302)
Advance payments from customers (82,599) 13,822 35,565
Liability for severance pay 1,848 (426) 2,407
Other, net 17,823 (2,497) (9,812)
-------------- -------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 142,185 96,846 128,620
-------------- -------------- --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and sales (purchases) of bank time deposits
and investments, net (44,762) 114,471 (261,582)
Purchase of property and equipment (54,634) (34,092) (35,352)
Capitalization of software development costs (23,027) (13,391) (7,759)
Net assets acquired - (31,130) (5,910)
-------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (122,423) 35,858 (310,603)
-------------- -------------- --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of convertible debt - - 412,766
Repurchase of convertible debt - (169,788) (253,254)
Proceeds from issuance of common stock in connection
with exercise of stock options and
employee stock purchase plan 28,784 12,368 61,270
Net proceeds from issuance of common stock of subsidiaries - 68,695 129,032
Proceeds from bank loan 42,000 - -
Repayment of bank loan - - (42,000)
Other, net (3,789) (3,058) 2,381
-------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 66,995 (91,783) 310,195
-------------- -------------- --------------

NET INCREASE IN CASH AND CASH EQUIVALENTS 86,757 40,921 128,212
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,275,105 1,361,862 1,402,783
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,361,862 $ 1,402,783 $ 1,530,995
============== ============== ==============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 16,240 $ 10,458 $ 4,512
============== ============== ==============
Cash paid during the year for income taxes $ 8,379 $ 11,682 $ 10,503
============== ============== ==============


See notes to consolidated financial statements.


F-6

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
- --------------------------------------------------------------------------------

1. ORGANIZATION AND BUSINESS

Comverse Technology, Inc. ("CTI" and, together with its subsidiaries,
the "Company") was organized as a New York corporation in October 1984.
The Company is engaged in the design, development, manufacture,
marketing and support of special purpose computer and
telecommunications systems and software for multimedia communications
and information processing applications.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of CTI and its wholly-owned and majority-owned
subsidiaries. All material intercompany balances and transactions have
been eliminated.

CASH, CASH EQUIVALENTS AND BANK TIME DEPOSITS - The Company considers
all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents. Bank deposits with
maturities in excess of three months are classified as bank time
deposits.

SHORT-TERM INVESTMENTS - The Company classifies all of its short-term
investments as available-for-sale, accounted for at fair value, with
resulting unrealized gains or losses reported as a separate component
of stockholders' equity.

INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method.

PROPERTY AND EQUIPMENT, NET - Property and equipment are carried at
cost less accumulated depreciation and amortization. The Company
depreciates its property and equipment primarily on a straight-line
basis over periods generally ranging from three to seven years.
Leasehold improvements are amortized over the shorter of their
estimated useful lives or the related lease term. The cost of
maintenance and repairs is charged to operations as incurred.
Significant renewals and improvements are capitalized.

INCOME TAXES - The Company accounts for income taxes using the asset
and liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities, and are measured
using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.

REVENUE AND EXPENSE RECOGNITION - The Company recognizes revenues in
accordance with the provisions of Statement of Position 97-2, "Software
Revenue Recognition", and related Interpretations. The Company's
systems are generally a bundled hardware and software solution that are
shipped together. Revenue is generally recognized at the time of
shipment for sales of systems which do not require significant
customization to be performed by the Company when the following
criteria are met: (1) persuasive evidence of an arrangement exists, (2)
delivery has occurred, (3) the fee is fixed or determinable and (4)
collectibility is probable.

Amounts received from customers pursuant to the terms specified in
contracts but for which revenue has not yet been recognized are
recorded as advance payments from customers.


F-7

Post-contract customer support ("PCS") services are sold separately or
as part of a multiple element arrangement, in which case the related
PCS element is determined based upon vendor-specific objective evidence
of fair value, such that the portion of the total fee allocated to PCS
services is generally recognized as revenue ratably over the term of
the PCS arrangement.

Revenues from certain development contracts are recognized under the
percentage-of-completion method on the basis of physical completion to
date or using actual costs incurred to total expected costs under the
contract. Revisions in estimates of costs and profits are reflected in
the accounting period in which the facts that require the revision
become known. At the time a loss on a contract is known, the entire
amount of the estimated loss is accrued. Amounts received from
customers in excess of revenues earned under the
percentage-of-completion method are recorded as advance payments from
customers. Related contract costs include all direct material and labor
costs and those indirect costs related to contract performance, and are
included in `Cost of sales' in the Consolidated Statements of
Operations.

Expenses incurred in connection with research and development
activities, other than certain software development costs that are
capitalized, and selling, general and administrative expenses are
charged to operations as incurred.

SOFTWARE DEVELOPMENT COSTS - Software development costs are capitalized
upon the establishment of technological feasibility and are amortized
over the estimated useful life of the software, which to date has been
four years or less. Amortization begins in the period in which the
related product is available for general release to customers.
Amortization expense amounted to approximately $9,129,000, $12,594,000
and $15,149,000 for the years ended January 31, 2002, 2003 and 2004,
respectively.

FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSACTION GAINS AND LOSSES -
The United States dollar (the "dollar") is the functional currency of
the major portion of the Company's foreign operations. Most of the
Company's sales, and materials purchased for manufacturing, are
denominated in or linked to the dollar. Certain operating costs,
principally salaries, of foreign operations are denominated in local
currencies. In those instances where a foreign subsidiary has a
functional currency other than the dollar, the Company records any
necessary foreign currency translation adjustment, reflected in
stockholders' equity, at the end of each reporting period.

DERIVATIVE FINANCIAL INSTRUMENTS - The Company is exposed to market
risk from changes in foreign currency exchange rates and may, from time
to time, use foreign currency exchange contracts and other derivative
instruments to reduce its exposure to the risk that the eventual net
cash inflows and outflows resulting from the sale of its products in
foreign currency, primarily the Euro, will be adversely affected by
changes in exchange rates. The objective of these contracts is to
neutralize the impact of foreign currency exchange rate movements on
the Company's operating results. These instruments are not designated
as hedges and the change in fair value is included in income currently.
As of January 31, 2004, the Company had approximately $31,668,000 of
notional amount of foreign exchange forward contracts to sell Euros
with an original maturity of three months. The fair value of these
contracts as of January 31, 2004 of approximately $(183,000) is
included in `Interest and other income (expense), net' in the
Consolidated Statements of Operations. As of January 31, 2003, the
Company had no outstanding foreign exchange contracts.

GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill represents the excess
of the purchase price over the fair value of net assets acquired. Other
intangible assets include identifiable acquired software and
technology, trade name and non-compete agreements. In accordance with
the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets", goodwill and certain
intangible assets are no longer amortized, but rather are reviewed for
impairment on at least an annual basis. The Company has performed these
reviews and deemed there to be no such impairment as of January 31,
2003 and 2004. Other intangible assets with finite lives are amortized
using the straight-line method over their estimated useful lives,
generally not exceeding six years.


F-8

OTHER ASSETS - Licenses of patent rights and acquired "know-how" are
recorded at cost and amortized using the straight-line method over the
estimated useful lives of the related technology, generally not
exceeding four years. Debt issue costs are amortized using the
effective interest method over the term of the related debt.

LONG-LIVED ASSETS - The Company reviews for the impairment of
long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future undiscounted
cash flows expected to result from the use of the asset and proceeds
from its eventual disposition are less than its carrying amount.
Impairment is measured at fair value. In connection with its
restructuring plan, during the years ended January 31, 2002, 2003 and
2004, the Company identified certain impairment losses that are
included in `Workforce reduction, restructuring and impairment charges
(credits)' in the Consolidated Statements of Operations. Refer to Note
9 for details.

CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
expose the Company to concentration of credit risk, consist primarily
of cash investments and accounts receivable. The Company places its
cash investments with high-credit quality financial institutions and
currently invests primarily in money market funds placed with major
banks and financial institutions, bank time deposits, corporate
commercial paper, corporate and municipal short-term notes, corporate
medium-term notes, mortgage and asset backed securities, U.S.
government and U.S. government corporation and agency obligations,
mutual funds, trusts and closed-end funds investing in the like and
common and preferred stock. Accounts receivable are generally
diversified due to the number of commercial and government entities
comprising the Company's customer base and their dispersion across many
geographical regions. As of January 31, 2003 and 2004, there was no
single customer balance that comprised 10% of the overall accounts
receivable balance. The Company believes no significant concentration
of credit risk exists with respect to these cash investments and
accounts receivable.

The roll forward of the allowance for doubtful accounts is as follows:



YEARS ENDED JANUARY 31,
--------------------------------------
2002 2003 2004
-------- -------- --------
(IN THOUSANDS)


Balance at beginning of period $23,755 $41,955 $56,759
Charges to costs and expenses 21,126 45,300 12,014
Recoveries - - (12,200)
Deductions (3,076) (30,559) (9,072)
Other 150 63 2,457
-------- -------- --------
Balance at end of period $41,955 $56,759 $49,958
======== ======== ========



BANK LOANS - In January 2002, a majority-owned subsidiary of CTI,
Verint Systems Inc. ("Verint") took a bank loan in the amount of
$42,000,000. The 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.

ISSUANCE OF SUBSIDIARY STOCK - Sales of stock by subsidiaries are
accounted for as capital transactions with the adjustment to additional
paid-in capital. No gain or loss is recognized on these transactions.


F-9

STOCK-BASED COMPENSATION - At January 31, 2004, the Company had in
place the Comverse Stock Incentive Plans, as fully described in Note
14. The Company accounts for its option grants under the recognition
and measurement principles of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, no stock-based employee compensation cost
for stock options is reflected in net income (loss) for any periods, as
all options granted under the plan had an exercise price at least equal
to the market value of the underlying common stock on the date of
grant. During the year ended January 31, 2004, the Company and one of
its subsidiaries granted shares of restricted stock to certain key
employees. For the years ended January 31, 2002, 2003 and 2004,
respectively, stock-based employee compensation expense of
approximately $0, $0 and $214,000 is included in `Selling, general and
administrative' expenses in the Consolidated Statements of Operations.

The Company estimated the fair value of employee stock options
utilizing the Black-Scholes option valuation model, using the
assumptions as described in Note 14, 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 income (loss) and
earnings (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation for all periods:



YEAR ENDED JANUARY 31,
----------------------
2002 2003 2004
---- ---- ----
(IN THOUSANDS)


Net income (loss), as reported $ 54,619 $(129,478) $ (5,386)

Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects (181,837) (149,782) (122,537)
---------- ---------- ----------

Pro forma net loss $(127,218) $(279,260) $(127,923)
========== ========== ==========

Earnings (loss) per share:

Basic - as reported $ 0.30 $(0.69) $(0.03)
Basic - pro forma $(0.71) $(1.49) $(0.67)

Diluted - as reported $ 0.29 $(0.69) $(0.03)
Diluted - pro forma $(0.71) $(1.49) $(0.67)





F-10

PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

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

3. RESEARCH AND DEVELOPMENT

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. During the year ended January 31, 2003, one of the
Company's subsidiaries finalized an agreement with the OCS whereby the
subsidiary agreed to pay a lump sum royalty of approximately $26
million for all past amounts received from the OCS. The amount and
timing of the payments to the OCS under this agreement were
approximately $3 million in March 2002 and approximately $23 million in
June 2002. In addition, this subsidiary began to receive lower amounts
from the OCS than it had historically received, but is not required to
pay royalties on such future 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 years ended January 31, 2002,
2003 and 2004 were approximately $9,980,000, $10,540,000 and
$10,013,000, respectively.

4. SHORT-TERM INVESTMENTS

The Company classifies all of its short-term investments as
available-for-sale securities. The following is a summary of
available-for-sale securities as of January 31, 2004:



GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------------------
(IN THOUSANDS)


Corporate debt securities $35,573 $1,054 $ - $36,627
U.S. Government corporation
and agency bonds 309,531 - 1,649 307,882
------------ --------- --------- -----------
Total debt securities 345,104 1,054 1,649 344,509
------------ --------- --------- -----------

Common stock and
closed-end funds 27,038 4,951 - 31,989
Mutual funds and trust (1) 286,057 196 - 286,253
Preferred stock 3,518 347 - 3,865
------------- ----------- --------- -----------
Total equity securities 316,613 5,494 - 322,107
------------- ---------- --------- -----------

$661,717 $6,548 $1,649 $666,616
============= ========== ========= ===========


(1) Investing in all or some of U.S. Government and U.S. Government corporation
and agency obligations, corporate debt securities and commercial paper and
asset-backed securities.


F-11

The following is a summary of available-for-sale securities as of
January 31, 2003:



GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------------------
(IN THOUSANDS)


Corporate debt securities $ 35,508 $ 1,942 $ - $ 37,450
Mortgage and asset-backed
securities 12,797 - 315 12,482
U.S. Government corporation
and agency bonds 210,308 155 - 210,463
---------- ---------- ---------- ----------
Total debt securities 258,613 2,097 315 260,395
---------- ---------- ---------- ----------

Common stock and
closed-end funds 14,032 3,925 - 17,957
Mutual funds (1) 104,751 173 883 104,041
Preferred stock 3,567 191 62 3,696
---------- ---------- ---------- ----------
Total equity securities 122,350 4,289 945 125,694
---------- ---------- ---------- ----------

$ 380,963 $ 6,386 $ 1,260 $ 386,089
========== ========== ========== ==========



(1) Investing in all or some of U.S. Government and U.S. Government corporation
and agency obligations, corporate debt securities and commercial paper and
asset-backed securities.

During the year ended January 31, 2004, the gross realized gains on sales of
securities totaled approximately $5,439,000, and the gross realized losses
totaled approximately $1,558,000. During the year ended January 31, 2003, the
gross realized gains on sales of securities totaled approximately $3,588,000,
and the gross realized losses totaled approximately $13,644,000. During the year
ended January 31, 2002, the gross realized gains on sales of securities totaled
approximately $25,252,000, and the gross realized losses totaled approximately
$18,855,000. The basis on which cost is generally determined in computing
realized gain or loss is by the first-in, first-out method.

The cost and estimated fair value of debt securities at January 31, 2004, by
contractual maturity, are as follows:

ESTIMATED
COST FAIR VALUE
------------ ------------
(IN THOUSANDS)

Due in one year or less $ 29,829 $ 30,150
Due after one year through three years 312,932 311,476
Due after three years 2,343 2,883
------------ ------------

$ 345,104 $ 344,509
============= =============


F-12

5. INVENTORIES

Inventories consist of:



JANUARY 31,
-----------
2003 2004
---- ----
(IN THOUSANDS)

Raw materials $ 17,111 $ 23,157
Work in process 12,430 12,802
Finished goods 10,474 18,792
------------- -------------

$ 40,015 $ 54,751
============= =============


6. PROPERTY AND EQUIPMENT, NET

Property and equipment consist of:


JANUARY 31,
-----------
2003 2004
---- ----
(IN THOUSANDS)

Fixtures and equipment $ 289,140 $ 300,946
Land and buildings 22,105 22,765
Software 32,042 33,670
Transportation vehicles 1,300 1,293
Leasehold improvements 13,313 14,604
-------------- --------------
357,900 373,278
Less accumulated depreciation
and amortization (211,520) (248,255)
-------------- --------------

$ 146,380 $ 125,023
============== ==============


7. OTHER ASSETS

Other assets consist of:


JANUARY 31,
-----------
2003 2004
---- ----
(IN THOUSANDS)

Software development costs, net of
accumulated amortization
of $37,843 and $52,731 $ 40,110 $ 32,824

Investments 34,741 35,262

Other assets 55,570 72,649
------------- -------------

$ 130,421 $ 140,735
============= =============

F-13

8. BUSINESS COMBINATIONS

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 February 2002, Verint acquired the digital video recording business
of Lanex, LLC ("Lanex"). The Lanex business provides digital video
recording solutions for security and surveillance applications primarily
to North American banks. The purchase price consisted of $9,510,000 in
cash and a $2,200,000 non-interest bearing note, guaranteed by CTI, and
convertible in whole or in part, into shares of Verint's common stock at
a conversion price of $16.06 per share. The note matured and was
converted into shares of Verint common stock on February 1, 2004.

In June 2002, the Company acquired Odigo, Inc. ("Odigo"), a
privately-held provider of instant messaging and presence management
solutions to service providers. The purchase price was approximately
$20,100,000 in cash. Prior to the acquisition, the Company was a
strategic partner with Odigo, holding an equity position which it
previously acquired for approximately $3,000,000.

These acquisitions were accounted for under the purchase method and,
accordingly, the Consolidated Statements of Operations include the
results of operations from the date of acquisition. Assets acquired and
liabilities assumed were recorded at estimated fair values as determined
by the Company's management based on information then available and
through the assistance of independent appraisal specialists, where
applicable. After allocating the purchase price, including the direct
costs of the acquisition, to net tangible and identifiable intangible
assets, any excess of cost over fair value of net assets acquired was
recorded as goodwill, included in `Other assets' in the Consolidated
Balance Sheets. A summary of the assets acquired and liabilities assumed
in the acquisitions as well as pro forma results of operations have not
been presented because the effects of these acquisitions were not deemed
material.


9. WORKFORCE REDUCTION, RESTRUCTURING AND IMPAIRMENT CHARGES (CREDITS)

During the year ended January 31, 2002, the Company committed to and
began implementing a restructuring program 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,
during the years ended January 31, 2002, 2003 and 2004, the Company
incurred net charges (credits) to operations of approximately
$63,562,000, $66,714,000 and $(2,123,000) 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 and other impaired assets.


F-14

An analysis of the total charges of approximately $63,562,000 incurred
during the year ended January 31, 2002 as well as a rollforward of the
workforce reduction and restructuring accrual for that period is as
follows:



WORKFORCE
REDUCTION, ACCRUAL
RESTRUCTURING BALANCE AT
& IMPAIRMENT CASH NON-CASH JANUARY 31,
CHARGES PAYMENTS CHARGES 2002
------- -------- ------- ----
(IN THOUSANDS)

Severance and related $ 27,685 $ 15,823 $ - $ 11,862
Facilities and related 24,347 - - 24,347
Inventory 4,000 - 4,000 -
Property and equipment 4,620 - 4,620 -
Capitalized software 2,910 - 2,910 -
-------- -------- -------- --------
Total $ 63,562 $ 15,823 $ 11,530 $ 36,209
======== ======== ======== ========


An analysis of the total charges of approximately $66,714,000 incurred
during the year ended January 31, 2003 as well as a rollforward of the
workforce reduction and restructuring accrual for that period is as
follows:



WORKFORCE
ACCRUAL REDUCTION, ACCRUAL
BALANCE AT RESTRUCTURING BALANCE AT
FEBRUARY 1, & IMPAIRMENT CASH NON-CASH JANUARY 31,
2002 CHARGES PAYMENTS CHARGES 2003
---- ------- -------- ------- ----
(IN THOUSANDS)

Severance and related $ 11,862 $ 26,857 $ 29,352 $ - $ 9,367
Facilities and related 24,347 19,360 3,253 - 40,454
Property and equipment - 20,497 - 20,497 -
-------- -------- -------- -------- --------
Total $ 36,209 $ 66,714 $ 32,605 $ 20,497 $ 49,821
======== ======== ======== ======== ========


An analysis of the net credit of approximately $2,123,000 incurred
during the year ended January 31, 2004 as well as a rollforward of the
workforce reduction and restructuring accrual for that period is as
follows:



WORKFORCE
ACCRUAL REDUCTION, ACCRUAL
BALANCE AT RESTRUCTURING BALANCE AT
FEBRUARY 1, & IMPAIRMENT CASH NON-CASH JANUARY 31,
2003 CHARGES (CREDITS) PAYMENTS CHARGES 2004
---- ----------------- -------- ------- ----
(IN THOUSANDS)

Severance and related $ 9,367 $ 4,494 $ 10,793 $ - $ 3,068
Facilities and related 40,454 (8,051) 5,976 - 26,427
Property and equipment - 1,434 - 1,434 -
-------- --------- -------- -------- --------
Total $ 49,821 $ (2,123) $ 16,769 $ 1,434 $ 29,495
======== ========= ======== ======== ========


F-15

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
during the year ended January 31, 2005.

Facilities and related costs consist primarily of contractually
obligated lease liabilities and operating expenses related to facilities
that were vacated primarily in the United States and Israel as a result
of the restructuring. During the year ended January 31, 2004, the
Company reversed approximately $8,051,000 in previously taken
restructuring charges for facilities and related costs, primarily as a
result of the sublet of a portion of the excess facilities. 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, including the
value of certain unimproved land in Israel, written down during the year
ended January 31, 2003, that the Company had acquired with a view to the
future construction of facilities for its Israeli operations.

In connection with the restructuring, the Company changed its
organizational structure and product offerings. As a result, certain
inventory and capitalized software became impaired and were written-off
during the year ended January 31, 2002.

10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of:

JANUARY 31,
2003 2004
---- ----
(IN THOUSANDS)

Accounts payable $ 88,649 $ 67,110
Accrued compensation 37,054 37,088
Accrued vacation 20,761 21,704
Accrued royalties 6,596 7,704
Accrued workforce reduction
and restructuring 49,821 29,495
Accrued warranty 12,269 8,333
Other accrued expenses 45,660 57,862
------------- -------------

$ 260,810 $ 229,296
============= =============

11. CONVERTIBLE DEBT

In May 2003, the Company issued $420,000,000 aggregate principal amount
of its Zero Yield Puttable Securities due 2023 ("ZYPS"), for net
proceeds of approximately $412.8 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


F-16

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.

In November and December 2000, the Company issued $600,000,000 aggregate
principal amount of its 1.50% convertible senior debentures due December
2005 (the "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 years ended January 31, 2003 and 2004, the Company acquired,
in open market purchases, $209,162,000 and $266,115,000 of face amount
of the Debentures, respectively, resulting in pre-tax gains, net of debt
issuance costs, of approximately $39,374,000 and $10,224,000,
respectively, included in `Interest and other income (expense), net' in
the Consolidated Statements of Operations. As of January 31, 2004, the
Company had outstanding Debentures of $124,723,000. Refer to Note 24,
"Subsequent Events."

In June 1998, the Company issued $300,000,000 of convertible
subordinated debentures bearing interest at 4.50% per annum, payable
semi-annually. In June 2001, the Company called these debentures for
redemption. The debentures were converted into 13,953,462 shares of
common stock.

12. LIABILITY FOR SEVERANCE PAY

Liability for severance pay consists primarily of the Company's
unfunded liability for severance pay to employees of certain foreign
subsidiaries and accrued severance to the Company's chief executive
officer.

Under Israeli law, the Company is obligated to make severance payments
to employees of its Israeli subsidiaries on the basis of each
individual's current salary and length of employment. These liabilities
are currently provided primarily by premiums paid by the Company to
insurance providers.

The Company is obligated under an agreement with its chief executive
officer to provide a severance payment upon the termination of his
employment with the Company. Approximately $3,013,000 and $3,480,000
has been accrued as of January 31, 2003 and 2004, respectively,
relating to this liability.


F-17

13. ISSUANCE OF SUBSIDIARY STOCK

In April and October 2000, a majority-owned subsidiary of the Company,
Ulticom, Inc. ("Ulticom"), issued shares of its common stock in public
offerings. As of January 31, 2004, the Company's ownership interest in
Ulticom was approximately 70.2%.

In May 2002, Verint issued 4,500,000 shares of its common stock in an
initial public offering. Proceeds from the offering, based on the
offering price of $16.00 per share, totaled approximately $65.4 million,
net of offering expenses. The Company recorded a gain of approximately
$48.1 million during the year ended January 31, 2003, which was recorded
as an increase in stockholders' equity as a result of the issuance.

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. The proceeds of the offering were
approximately $122.2 million, net of offering expenses. 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. As of
January 31, 2004, the Company's ownership interest in Verint was
approximately 61.8%.

14. STOCK-BASED COMPENSATION

OPTION EXCHANGE PROGRAM - In May 2002, the Company announced the
commencement of a voluntary stock option exchange program for its
eligible employees. Under the program, which was approved by the
Company's shareholders, participating employees were given the
opportunity to have unexercised stock options previously granted to them
cancelled, in exchange for replacement options that were granted at a
future date. Replacement options were granted at a ratio of 0.85 new
options for each existing option cancelled, at an exercise price equal to
the fair market value of the Company's stock on the date of the re-grant.
The exchange program was designed in accordance with Financial Accounting
Standards Board ("FASB") Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation (an interpretation of APB
Opinion No. 25)", under which, the grant of replacement options not less
than six months and one day after cancellation will not result in any
variable compensation charges relating to these options.

On the date of re-grant, December 23, 2002, replacement options to
acquire 14,208,987 shares of the Company's common stock were granted at
$10.52 per share, the closing fair market value of the Company's stock on
that date.

STOCK OPTIONS - At January 31, 2004, 23,287,332 shares of common stock
were reserved for issuance upon the exercise of stock options then
outstanding and 4,928,221 shares were available for future grant under
Comverse's Stock Incentive Plans, under which options and restricted
stock may be granted to key employees, directors, and other persons
rendering services to the Company. Options which are designated as
"incentive stock options" under the plans may be granted with an exercise
price not less than the fair market value of the underlying shares at the
date of grant and are subject to certain quantity and other limitations
specified in Section 422 of the Internal Revenue Code. Options which are
not intended to qualify as incentive stock options may be granted at a
price below fair market value. The options and the underlying shares are
subject to adjustment in accordance with the terms of the plans in the
event of stock dividends, recapitalizations and similar transactions. The
right to exercise the options generally vests in increments over periods
of up to four years from the date of grant or the date of commencement of
the grantee's employment with the Company, up to a maximum term of ten
years for all options granted.


F-18

The changes in the number of options were as follows:



YEAR ENDED JANUARY 31,
-----------------------------------------------

2002 2003 2004
---- ---- ----

Outstanding at beginning of period 26,163,560 33,089,823 25,079,827
Granted during the period 9,945,007 15,851,028 5,297,836
Exercised during the period (1,463,467) (530,661) (5,770,041)
Canceled, terminated and expired (1,555,277) (23,330,363) (1,320,290)
------------ ------------ ------------

Outstanding at end of period 33,089,823 25,079,827 23,287,332
============ ============ ============


At January 31, 2004, options to purchase an aggregate of 13,377,757
shares were vested and currently exercisable under the plans and options
to purchase an additional 9,909,575 shares vest at various dates
extending through the year 2007.

Weighted average option exercise price information was as follows:



YEAR ENDED JANUARY 31,
----------------------------------

2002 2003 2004
---- ---- ----

Outstanding at beginning of period $ 45.66 $ 38.24 $ 12.73
Granted during the period 18.03 10.30 16.56
Exercised during the period 11.43 7.87 9.56
Canceled, terminated and expired 56.73 47.42 18.08
Outstanding at end of period 38.24 12.73 14.09
Exercisable at end of period 31.23 15.24 13.84



Significant option groups outstanding at January 31, 2004 and related
weighted average price and life information were as follows:



Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
-------------- ----------- ---------------- -------------- ----------- --------------

$ 0.01 - 10.42 4,528,107 4.89 $ 9.39 3,894,716 $ 9.80
$10.52 10,571,310 6.82 10.52 7,233,469 10.52
$10.95 - 16.05 2,380,754 6.48 14.74 1,537,979 14.30
$16.70 4,927,755 9.88 16.70 - -
$17.28 - 119.69 879,406 5.37 64.75 711,593 68.73
---------- ---------- ---------- ---------- ----------
23,287,332 7.00 $14.09 13,377,757 $13.84
==========


The weighted average fair value of the options granted for the years
ended January 31, 2002, 2003 and 2004, respectively, is estimated at
$10.85, $4.66 and $9.88 on the date of grant (using the Black-Scholes
option pricing model) with the following weighted average assumptions
for the years ended January 31, 2002, 2003 and 2004, respectively:
volatility of 76%, 75% and 73%; risk-free interest rate of 4.0%, 1.8%
and 3.2%; and an expected life of 4.3, 2.6 and 4.6 years.


F-19

OPTIONS ON SUBSIDIARY SHARES - The Company has granted options to
certain employees to acquire shares of certain subsidiaries, other than
Comverse, Inc. Such option issuances are not tied to the performance of
the subsidiaries, but are intended to incentivize employees in the units
for which they have direct responsibility. Options outstanding for each
subsidiary do not exceed 20% of the shares outstanding of such
subsidiary assuming exercise in full. The options have terms of up to 15
years and become exercisable and vest over various periods ranging up to
seven years from the date of initial grant. The exercise price of each
option is equal to the higher of the book value of the underlying shares
at the date of grant or the fair market value of such shares at that
date determined on the basis of an arms'-length transaction with a third
party or, if no such transactions have occurred, on a reasonable basis
as determined by a committee of the Board of Directors.

RESTRICTED STOCK - In December 2003, the Company granted 314,300 shares
of restricted stock to certain key employees of the Company. Unearned
stock compensation of approximately $5,249,000 was recorded based on the
fair market value of the Company's common stock at the date of grant, or
$16.70 per share. Unearned stock compensation is shown as a separate
component of stockholders' equity and is being amortized to expense
pro-rata over the four year vesting period of the restricted stock.
Amortization of unearned stock compensation for the year ended January
31, 2004 was approximately $157,000 and was included in `Selling,
general and administrative' expenses in the Consolidated Statements of
Operations. The restricted stock has all the rights and privileges of
the Company's common stock, subject to certain restrictions and
forfeiture provisions. At January 31, 2004, a total of 314,300 shares of
restricted stock had been granted and all were subject to restriction.

In December 2003, Verint granted shares of its common stock as
restricted stock to certain of its key employees. Unearned stock
compensation of approximately $1,672,000 was recorded based on the fair
market value of its common stock at the date of grant and is being
amortized to expense pro-rata over the four year vesting period of the
restricted stock. Amortization of unearned stock compensation for the
year ended January 31, 2004 was approximately $57,000 and was included
in `Selling, general and administrative' expenses in the Consolidated
Statements of Operations.

15. WARRANTS

In November 1995, the Company entered into an agreement to supply its
products to a customer. Pursuant to this agreement, the Company issued
warrants to purchase shares of its common stock at an exercise price of
$7.18 per share. As of January 31, 2002, all such warrants were
exercised.

16. EMPLOYEE STOCK PURCHASE PLANS

Under Comverse's Employee Stock Purchase Plans, all employees who have
completed three months of employment are entitled, through payroll
deductions of amounts up to 10% of their base salary, to purchase shares
of the Company's common stock at 85% of the lesser of the market price
at the offering commencement date or the offering termination date. The
total number of shares available under Comverse's Employee Stock
Purchase Plans is 5,000,000, of which approximately 2,900,000 had been
issued as of January 31, 2004.


F-20

17. EARNINGS PER SHARE ("EPS")

Basic earnings (loss) per share is determined by using the weighted
average number of shares of common stock outstanding during each
period. Diluted earnings per share further assumes the issuance of
common shares for all dilutive potential common shares outstanding. The
calculation of earnings (loss) per share for the years ended January
31, 2002, 2003 and 2004 was as follows:



JANUARY 31, 2002 JANUARY 31, 2003 JANUARY 31, 2004
------------------------------- --------------------------------- -----------------------------
Per Share Per Share Per Share
Income Shares Amount Loss Shares Amount Loss Shares Amount
------ ------ ------ ---- ------ ------ ---- ------ ------
(In thousands, except per share data)

BASIC EPS
---------
Net Income (loss) $ 54,619 179,311 $0.30 $(129,478) 187,212 $(0.69) $(5,386) 190,351 $(0.03)
===== ======= =======

EFFECT OF DILUTIVE
SECURITIES
----------
Options 7,123
-------- ------- ----- ---------- ------- ------- -------- ------- -------

DILUTED EPS $ 54,619 186,434 $0.29 $(129,478) 187,212 $(0.69) $(5,386) 190,351 $(0.03)
======== ======= ===== ========== ======= ======= ======== ======= =======


The diluted loss per share computation for the years ended January 31,
2003 and 2004 excludes incremental shares of approximately 632,000 and
5,466,000, respectively, primarily related to employee stock options.
These shares are excluded due to their antidilutive effect as a result
of the Company's loss during the periods. The shares issuable upon the
conversion of the Debentures were not included in the computation of
diluted earnings (loss) per share for all periods because the effect of
including them would be antidilutive. In addition, the shares issuable
upon the conversion of the ZYPS were not included in the computation of
diluted earnings (loss) 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." A full conversion of
the ZYPS would result in the issuance of approximately 23,367,000
additional shares of common stock.

18. INTEREST AND OTHER INCOME (EXPENSE), NET

Interest and other income (expense), net, consists of the following:



YEAR ENDED JANUARY 31,
2002 2003 2004
---- ---- ----
(IN THOUSANDS)

Interest and dividend income $ 71,210 $ 45,171 $ 32,441
Interest expense (18,344) (11,552) (6,980)
Investment losses, net (37,079) (41,666) (1,240)
Foreign currency gains (losses), net (20,788) 27,752 4,938
Gain on repurchase of Debentures - 39,374 10,224
Other, net (1,500) (177) (425)
------------- ------------- --------------
$ (6,501) $ 58,902 $ 38,958
============= ============= ==============


F-21

19. INCOME TAXES

The provision for income taxes consists of the following:



YEAR ENDED JANUARY 31,
2002 2003 2004
---- ---- ----
(IN THOUSANDS)

Current provision:
Federal $ 6,288 $ - $ 1,782
State 779 886 1,662
Foreign 6,631 2,257 3,744
------------ ------------ ------------

13,698 3,143 7,188
------------ ------------ ------------

Deferred provision (benefit):
Federal (9,077) (956) -
State (162) (20) -
Foreign (23) 1,127 1,018
------------ ------------ ------------

(9,262) 151 1,018
------------ ------------ ------------

$ 4,436 $ 3,294 $ 8,206
============ ============ ============


The reconciliation of the U.S. Federal statutory tax rate to the
Company's effective tax rate is as follows:



YEAR ENDED JANUARY 31,
2002 2003 2004
---- ---- ----

U.S. Federal statutory rate 35% 35% 35%
Consolidated worldwide income
(in excess of) less than U.S. income (47) (38) 46
Foreign income taxes (benefit) 11 2 (7)
Permanent differences 9 (2) 22
---------- ---------- ----------
Company's effective tax rate 8% (3)% 96%
========== ========== ==========


Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax
purposes and (b) operating loss carryforwards. The tax effects of
significant items comprising the Company's deferred tax asset and
liability at January 31, 2003 and 2004 is as follows:


F-22



JANUARY 31,
-----------
2003 2004
---- ----
(IN THOUSANDS)

Deferred tax liability:
Expenses deductible for tax purposes and
not for financial reporting purposes $ 2,666 $ 4,169
============ =============

Deferred tax asset:
Reserves not currently deductible $ 65,194 $ 28,230
Tax loss carryforwards 278,364 280,247
Inventory capitalization 51 57
------------ -------------
343,609 308,534
Less: valuation allowance (331,090) (297,740)
------------ -------------

Total deferred tax asset $ 12,519 $ 10,794
============ =============



At January 31, 2004, the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $735.2 million which
will begin to expire in 2019.

Income tax has not been provided on unrepatriated earnings of foreign
subsidiaries as currently it is the intention of the Company to
reinvest such foreign earnings in their operations.


F-23

20. BUSINESS SEGMENT INFORMATION

The Company's reporting segments are as follows:

Comverse Network Systems - Enable telecommunications service providers
("TSP") to offer products to enhance the communication experience and
generate TSP traffic and revenue. These services comprise four primary
categories: call completion and call management solutions; advanced
messaging solutions for groups, communities and person-to-person
communication; solutions and enablers for the management and delivery
of data and content-based services; and real-time billing and account
management solutions for dynamic service environments and other
components and applications.

Service Enabling Signaling Software - Enable equipment manufacturers,
application developers, and service providers to deploy revenue
generating infrastructure and enhanced services for wireline, wireless
and Internet communications. These services include global roaming,
voice and text messaging, prepaid calling and emergency-911. These
products are also embedded in a range of packet softswitching products
to interoperate or converge voice and data networks and facilitate
services such as VoIP, hosted IP telephony, and virtual private
networks. This segment represents the Company's Ulticom subsidiary.

Security and Business Intelligence Recording - Provides analytic
software-based solutions for communications interception, networked
video and contact centers. 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.

Reconciling items - consists of the following:

Sales - elimination of intersegment revenues.
Income (Loss) from Operations - elimination of intersegment income
(loss) from operations and corporate operations.
Depreciation and Amortization - elimination of corporate operations.
Total Assets - elimination of intersegment receivables and unallocated
corporate assets.

F-24

The table below presents information about sales, income (loss) from
operations, depreciation and amortization, significant non-cash items
consisting of operating asset write-downs and impairments, and total
assets as of and for the years ended January 31, 2002, 2003 and 2004:



Service Security and
Comverse Enabling Business
Network Signaling Intelligence All Reconciling Consolidated
Systems Software Recording Other Items Totals
---------------------------------------------------------------------------------------------------------
(In thousands)

YEAR ENDED
JANUARY 31, 2002
----------------

Sales $ 1,080,694 $ 58,156 $ 131,235 $ 9,966 $ (9,833) $ 1,270,218

Income (Loss)
from Operations $ 66,105 $ 8,523 $ (2,533) $ (984) $ (6,267) $ 64,844

Depreciation and
Amortization $ 48,476 $ 4,612 $ 7,394 $ 558 $ 2,784 $ 63,824

Significant Non-Cash
Items $ 11,530 $ - $ - $ - $ - $ 11,530

Total Assets $ 1,168,075 $ 240,675 $ 116,726 $ 56,930 $ 1,121,757 $ 2,704,163

YEAR ENDED
JANUARY 31, 2003
----------------

Sales $ 542,984 $ 29,231 $ 157,775 $ 9,602 $ (3,703) $ 735,889

Income (Loss)
from Operations $ (179,492) $ (8,362) $ 10,051 $ (615) $ (4,323) $ (182,741)

Depreciation and
Amortization $ 53,166 $ 2,502 $ 9,407 $ 506 $ 1,774 $ 67,355

Significant Non-Cash
Items $ 26,315 $ 130 $ - $ - $ - $ 26,445

Total Assets $ 989,357 $ 237,102 $ 207,050 $ 32,706 $ 937,444 $ 2,403,659

YEAR ENDED
JANUARY 31, 2004
----------------

Sales $ 529,597 $ 38,378 $ 192,744 $ 9,983 $ (4,810) $ 765,892

Income (Loss)
from Operations $ (40,913) $ 2,824 $ 17,189 $ (1,152) $ (8,326) $ (30,378)

Depreciation and
Amortization $ 57,619 $ 1,933 $ 10,069 $ 511 $ 1,639 $ 71,771

Significant Non-Cash
Items $ 6,170 $ - $ 514 $ - $ - $ 6,684

Total Assets $ 843,340 $ 242,817 $ 328,706 $ 34,265 $ 1,278,914 $ 2,728,042



F-25

Sales by country, based on end-user location, as a percentage of
total sales, for the years ended January 31, 2002, 2003 and 2004 were
as follows:

JANUARY 31,
-----------
2002 2003 2004
---- ---- ----

United States 30% 35% 34%
Germany 12 5 6
Other foreign 58 60 60
------ ------ ------
Total 100% 100% 100%
====== ====== ======


No customer accounted for 10% or more of sales for the years ended
January 31, 2002, 2003 or 2004.

Long-lived assets by country of domicile consist of:

JANUARY 31,
-----------
2003 2004
---- ----
(IN THOUSANDS)

United States $ 79,113 $ 70,317
Israel 134,514 123,454
Other 12,899 11,162
----------- -------------

$ 226,526 $ 204,933
=========== =============

21. COMMITMENTS AND CONTINGENCIES

LEASES - The Company leases office, manufacturing, and warehouse
space under non-cancelable operating leases. Rent expense for all
leased premises approximated $36,461,000, $36,032,000 and $31,616,000
in the years ended January 31, 2002, 2003 and 2004, respectively.

As of January 31, 2004, the minimum annual rent obligations of the
Company were approximately as follows:

TWELVE MONTHS ENDED
JANUARY 31, AMOUNT
----------- ------
(IN THOUSANDS)

2005 $ 30,783
2006 27,359
2007 11,519
2008 9,242
2009 and thereafter 23,858
-------------

$ 102,761
=============

The Company has entered into various sub-lease agreements to rent out
excess space. As of January 31, 2004, the minimum annual sub-lease
income obligation to the Company under such agreements was
approximately $1,392,000, $827,000, $875,000, $910,000 and $876,000
for the twelve months ending January 31, 2005, 2006, 2007, 2008 and
2009 and thereafter, respectively, for a total of approximately
$4,880,000.


F-26

EMPLOYMENT AGREEMENTS - The Company is obligated under employment
contracts with Kobi Alexander, its Chairman and Chief Executive Officer,
to provide compensation, insurance and fringe benefits through February
1, 2007. Minimum salary payments under the contracts currently amount to
$672,000 per year. Following termination of his employment with the
Company the executive is entitled to receive a severance payment equal to
$165,077 times the number of years from January 1983, the amount of which
payment increases at the rate of 10% per annum compounded for each year
of employment following December 31, 2004, plus continued fringe benefits
for three years. In addition to the severance payment, if the executive's
employment is terminated by the Company without "cause", or by the
executive for "good reason", the executive is entitled to his salary and
pro-rata bonus through the date of termination plus three times the
executive's annual salary and three times his annual bonus. If such
termination occurs within three months before or within two years
following a change in control of the Company, the executive is
additionally entitled to the accelerated vesting of all stock options and
restricted stock, and payments sufficient to reimburse any associated
excise tax liability and income tax resulting from such reimbursement.
Stock options and restricted stock granted the executive become fully
vested, exercisable and nonforfeitable in the event of the executive's
death or disability. Insurance benefits include life insurance providing
cumulative death benefits of approximately $30,000,000, including amounts
provided under an arrangement through which the Company is to be
reimbursed premiums from the benefit payments or cash surrender value.

The Company is obligated under an employment contract with David
Kreinberg, its Executive Vice President and Chief Financial Officer, to
provide compensation, insurance and fringe benefits through February 1,
2007. Minimum salary payments under the contract currently amount to
$325,000 per year. Following termination of his employment with the
Company the executive is entitled to receive a severance payment equal to
$22,000 times the number of years from and including 1994, the first year
of his employment with the Company, the amount of which payment increases
at the rate of 10% per annum compounded for each year of employment
following January 31, 2004, plus continued fringe benefits for eighteen
months. In addition to the severance payment, if the executive's
employment is terminated by the Company without "cause", or by the
executive for "good reason", the executive is entitled to his salary and
pro-rata bonus through the date of termination plus one year of
additional annual salary and bonus. If such termination occurs within
three months before or within two years following a change in control of
the Company, the executive is entitled to his salary and pro-rata bonus
through the date of termination plus three times the executive's annual
salary and three times his annual bonus, the accelerated vesting of all
stock options and restricted stock, and payments sufficient to reimburse
any associated excise tax liability and income tax resulting from such
reimbursement. Stock options and restricted stock granted the executive
become fully vested, exercisable and nonforfeitable in the event of the
executive's death or disability. Insurance benefits include life
insurance providing cumulative death benefits of approximately
$12,500,000, including amounts provided under an arrangement through
which the Company is to be reimbursed premiums from the benefit payments
or cash surrender value.

The Company is obligated under an agreement with Zeev Bregman, the Chief
Executive Officer of one of its subsidiaries, to provide compensation and
fringe benefits through February 1, 2007. Minimum salary payments under
the agreement amount to approximately $275,000 per year. Following
termination of his employment with the Company the executive is entitled
to continued fringe benefits for eighteen months. If the executive's
employment is terminated by the Company without "cause", or by the
executive for "good reason", the executive is entitled to his salary and
pro-rata bonus through the date of termination plus one year of
additional annual salary and bonus. If such termination occurs within
three months before or within two years following a change in control of
the Company, the executive is entitled to his salary and pro-rata bonus
through the date of termination plus three times the executive's annual
salary and three times his annual bonus, the accelerated vesting of all
stock options and restricted stock. Stock options and restricted stock
granted the executive become fully vested, exercisable and nonforfeitable
in the event of the executive's death or disability.


F-27

Most other employment agreements of the Company are terminable with or
without cause with prior notice of 90 days or less. In certain instances,
the termination of employment agreements without cause entitles the
employees to certain benefits, including severance payments of as much as
one year's compensation.

LICENSES AND ROYALTIES - The Company licenses certain technology,
"know-how" and related rights for use in the manufacture and marketing of
its products, and pays royalties to third parties, typically ranging up
to 6% of net sales of the related products, under such licenses and under
other agreements entered into in connection with research and development
financing, including projects partially funded by 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 in varying
amounts based upon the revenues attributed to the various components of
such products. Royalties due to the OCS in respect of research and
development projects are required to be paid until the OCS has received
total royalties up to the amounts received by the Company under the
approved project budgets, plus interest in certain circumstances. As of
January 31, 2004, such subsidiaries had received approximately $53.8
million in cumulative grants from the OCS, and have recorded
approximately $21.7 million in cumulative royalties to the OCS.

DIVIDEND RESTRICTIONS - The ability of the Company's Israeli subsidiaries
to pay dividends is governed by Israeli law, which provides that cash
dividends may be paid by an Israeli corporation only out of retained
earnings as determined for statutory purposes in Israeli currency. In the
event of a devaluation of the Israeli currency against the dollar, the
amount in dollars available for payment of cash dividends out of prior
years' earnings will decrease accordingly. Cash dividends paid by an
Israeli corporation to United States resident corporate parents are
subject to the Convention for the Avoidance of Double Taxation between
Israel and the United States. Under the terms of the Convention, such
dividends are subject to taxation by both Israel and the United States
and, in the case of Israel, such dividends out of income derived in
respect of a period for which an Israeli company is entitled to the
reduced tax rate applicable to an Approved Enterprise are generally
subject to withholding of Israeli income tax at source at a rate of 15%.
The Israeli company also is subject to additional Israeli taxes in
respect of such dividends, generally equal to the tax benefits previously
granted in respect of the underlying income by virtue of the Approved
Enterprise status.

INVESTMENTS - In 1997, a subsidiary of CTI and Quantum Industrial
Holdings Ltd. organized two new companies to make investments, including
investments in high technology ventures. Each participant committed a
total of $37,500,000 to the capital of the new companies, for use as
suitable investment opportunities are identified. Quantum Industrial
Holdings Ltd. is a member of the Quantum Group of Funds managed by Soros
Fund Management LLC and affiliated management companies. As of January
31, 2003 and 2004, the Company had invested approximately $25,259,000 and
$26,420,000 respectively, related to these ventures, included in `Other
assets' in the Consolidated Balance Sheets. In addition, the Company has
committed approximately $17,364,000 to various funds, ventures and
companies which may be called at the option of the investee.

GUARANTIES - The Company has obtained bank guaranties primarily for the
performance of certain obligations under contracts with customers as well
as for the guarantee of certain payment obligations. These guaranties,
which aggregated approximately $39,631,000 at January 31, 2004, are
generally to be released by the Company's performance of specified
contract milestones, which are scheduled to be completed primarily during
2004.


F-28

LITIGATION - On March 16, 2004, BellSouth Intellectual Property Corp.
("BellSouth") filed a complaint in the United States District Court for
the Northern District of Georgia against Comverse Technology, Inc.
alleging infringement of Patent Nos. 5,857,013 and 5,764,747, and, on
March 17, 2004, BellSouth amended the complaint to include Comverse Inc.,
in an action captioned: BellSouth Intellectual Property Corp. v. Comverse
Technology, Inc. and Comverse, Inc., Civil Action No. 1:04-CV-0739.
BellSouth alleges that Patent Nos. 5,857,013 and 5,764,747 cover certain
aspects of some of the Company's systems, and it seeks, among other
relief, monetary damages and injunctive relief. The Company believes all
claims are without merit and will vigorously defend against these claims.

From time to time, the Company is subject to claims in legal proceedings
arising in the normal course of its business. The Company does not
believe that it is currently party to any other pending legal action that
could reasonably be expected to have a material adverse effect on its
business, financial condition and results of operations.

22. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts have been determined by the Company,
using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.



JANUARY 31,
-----------------------------------------------------------
2003 2004
---- ----
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
(IN THOUSANDS)

Liabilities:
Debentures $ 390,838 $ 340,029 $124,723 $ 122,229
ZYPS - - $420,000 $ 489,300



CASH AND CASH EQUIVALENTS, BANK TIME DEPOSITS, SHORT-TERM INVESTMENTS,
ACCOUNTS RECEIVABLE, INVESTMENTS, AND ACCOUNTS PAYABLE - The carrying
amounts of these items are a reasonable estimate of their fair value.

CONVERTIBLE DEBT - The fair value of these securities is estimated based
on quoted market prices or recent sales for those or similar securities.

The fair value estimates presented herein are based on pertinent
information available to management as of January 31, 2004. Such amounts
have not been comprehensively revalued for purposes of these financial
statements since January 31, 2004, and current estimates of fair value
may differ significantly from the amounts presented herein.

23. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the 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
consolidated financial statements.


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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 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 the classification and
measurement of 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 consolidated
financial statements.

24. SUBSEQUENT EVENTS

During February 2004, the Company acquired, in open market purchases,
$30,495,000 of face amount of the Debentures, resulting in a pre-tax
gain, net of debt issuance costs, of approximately $244,000.

On March 31, 2004, Verint acquired certain assets and assumed certain
liabilities relating to ECtel Ltd.'s ("ECtel") communication interception
business for approximately $35,000,000 in cash. The acquisition is
expected to provide Verint with additional communication interception
capabilities for the mass collection and analysis of voice and data
communications. These technologies will be integrated into Verint's
existing product offerings. In addition, some of ECtel's existing
customers are new customers in new countries for Verint in the Asia
Pacific and Latin America regions.



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25. QUARTERLY INFORMATION (UNAUDITED)

The following table shows selected results of operations for each of
the quarters during the years ended January 31, 2003 and 2004:



FISCAL QUARTER ENDED
APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31, OCT. 31, JAN. 31,
2002 2002 2002 2003 2003 2003 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


Sales $ 211,194 $ 181,210 $ 167,469 $ 176,016 $ 180,552 $ 188,468 $ 193,843 $ 203,029
Gross margin 119,417 101,865 82,957 93,529 100,179 107,144 111,174 119,835
Net income (loss) (23,576) 3,923 (79,683) (30,142) (5,819) (1,058) (3,437) 4,928

Diluted earnings (loss)
per share $ (0.13) $ 0.02 $ (0.43) $ (0.16) $ (0.03) $ (0.01) $ (0.02) $ 0.02
========== ========== ========== ========== ========== ========== ========== ==========





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