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

FORM 10-Q


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

For the quarterly period ended July 31, 2003

or

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


Commission File Number: 0-15502


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

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

170 Crossways Park Drive, Woodbury, NY 11797
(Address of principal executive offices) (Zip Code)

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

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)


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

[X] Yes [ ] No

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

[X] Yes [ ] No

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares of Common Stock, par value $0.10 per share,
outstanding as of September 5, 2003 was 190,790,147


Page 1 of 31 Total Pages



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

Page
----

PART I
Financial Information

ITEM 1. Financial Statements.

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

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

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

4. Notes to Condensed Consolidated Financial Statements 6

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

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

ITEM 4. Controls and Procedures. 29


PART II
Other Information

ITEM 1. Legal Proceedings. 30

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

SIGNATURES 31



Page 2 of 31 Total Pages



PART I
Financial Information

ITEM 1. Financial Statements.




COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)

January 31, July 31,
2003* 2003
(Unaudited)

ASSETS
- ------

CURRENT ASSETS:
Cash and cash equivalents $ 1,402,783 $ 1,383,340
Bank time deposits and short-term investments 406,089 727,033
Accounts receivable, net 212,953 179,022
Inventories 40,015 40,455
Prepaid expenses and other current assets 65,018 54,481
----------- -----------
TOTAL CURRENT ASSETS 2,126,858 2,384,331
PROPERTY AND EQUIPMENT, net 146,380 137,367
OTHER ASSETS 130,421 138,919
----------- -----------
TOTAL ASSETS $ 2,403,659 $ 2,660,617
=========== ===========

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

CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 260,810 $ 245,079
Advance payments from customers 53,496 41,670
Other current liabilities 46,045 2,500
----------- -----------
TOTAL CURRENT LIABILITIES 360,351 289,249
CONVERTIBLE DEBENTURES 390,838 577,830
OTHER LIABILITIES 19,230 20,860
----------- -----------
TOTAL LIABILITIES 770,419 887,939
----------- -----------

MINORITY INTEREST 83,548 153,203
----------- -----------

STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value -
authorized, 600,000,000 shares;
issued and outstanding, 187,754,407 and
189,892,900 shares 18,775 18,989
Additional paid-in capital 1,078,720 1,162,859
Retained earnings 445,285 438,408
Accumulated other comprehensive income (loss) 6,912 (781)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,549,692 1,619,475
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,403,659 $ 2,660,617
=========== ===========



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

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


Page 3 of 31 Total Pages






COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)

Six months ended Three months ended
July 31, July 31, July 31, July 31,
2002 2003 2002 2003


Sales $ 392,404 $ 369,020 $ 181,210 $ 188,468
Cost of sales 171,122 161,697 79,345 81,324
--------- --------- --------- ---------
Gross margin 221,282 207,323 101,865 107,144

Operating expenses:
Research and development, net 123,757 108,292 60,834 53,804
Selling, general and administrative 146,011 125,065 72,498 62,993
Workforce reduction, restructuring
and impairment charges (credits) 2,798 (233) 2,798 (233)
--------- --------- --------- ---------

Loss from operations (51,284) (25,801) (34,265) (9,420)

Interest and other income, net 34,105 23,130 39,349 10,588
--------- --------- --------- ---------

Income (loss) before income tax provision (17,179) (2,671) 5,084 1,168
Income tax provision 2,474 4,206 1,161 2,226
--------- --------- --------- ---------

Net income (loss) $ (19,653) $ (6,877) $ 3,923 $ (1,058)
========= ========= ========= =========
Earnings (loss) per share:
Basic $ (0.11) $ (0.04) $ 0.02 $ (0.01)
========= ========= ========= =========
Diluted $ (0.11) $ (0.04) $ 0.02 $ (0.01)
========= ========= ========= =========




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


Page 4 of 31 Total Pages






COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

Six months ended
July 31, July 31,
2002 2003

Cash flows from operating activities:
Net cash from operations after adjustment
for non-cash items $ 13,457 $ 32,953
Changes in assets and liabilities:
Accounts receivable 83,521 35,609
Inventories 6,340 225
Prepaid expenses and other current assets 17,328 8,422
Accounts payable and accrued expenses (79,668) (17,519)
Other, net (3,160) (14,691)
----------- -----------
Net cash provided by operating activities 37,818 44,999
----------- -----------

Cash flows from investing activities:
Maturities and sales (purchases) of bank
time deposits and investments, net 137,040 (326,949)
Purchases of property and equipment (16,330) (19,403)
Capitalization of software development costs (7,594) (4,894)
Net assets acquired (27,765) (5,910)
----------- -----------
Net cash provided by (used in) investing activities 85,351 (357,156)
----------- -----------

Cash flows from financing activities:
Net proceeds from issuance of debentures -- 412,974
Repurchase of debentures (166,000) (221,446)
Net repayments of bank loans and other debt (77) (46,205)
Net proceeds from issuance of common stock 72,751 147,391
----------- -----------
Net cash provided by financing activities (93,326) 292,714
----------- -----------

Net increase (decrease) in cash and cash equivalents 29,843 (19,443)
Cash and cash equivalents, beginning of period 1,361,862 1,402,783
----------- -----------
Cash and cash equivalents, end of period $ 1,391,705 $ 1,383,340
=========== ===========



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


Page 5 of 31 Total Pages



COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)


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

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

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

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

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

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


Page 6 of 31 Total Pages






Three months ended
July 31,
-----------------------------
2002 2003
---------- ----------
(In thousands)


Net income (loss), as reported $ 3,923 $ (1,058)

Deduct: Total stock-based employee
compensation expense determined under fair value
based method for all awards, net of related tax
effects (20,259) (39,914)
---------- ----------

Pro forma net loss $ (16,336) $ (40,972)
========== ==========

Earnings (loss) per share:

Basic - as reported $ 0.02 $ (0.01)
Basic - pro forma $ (0.09) $ (0.22)

Diluted - as reported $ 0.02 $ (0.01)
Diluted - pro forma $ (0.09) $ (0.22)



Six months ended
July 31,
-----------------------------
2002 2003
---------- ----------
(In thousands)


Net loss, as reported $ (19,653) $ (6,877)

Deduct: Total stock-based employee
compensation expense determined under fair value
based method for all awards, net of related tax
effects (59,317) (77,049)
---------- ----------

Pro forma net loss $ (78,970) $ (83,926)
========== ==========

Loss per share:

Basic - as reported $ (0.11) $ (0.04)
Basic - pro forma $ (0.42) $ (0.45)

Diluted - as reported $ (0.11) $ (0.04)
Diluted - pro forma $ (0.42) $ (0.45)



Page 7 of 31 Total Pages



Inventories. The composition of inventories at January 31, 2003 and July
31, 2003 is as follows:

January 31, July 31,
2003 2003
(In thousands)

Raw materials $ 17,111 $ 19,071
Work in process 12,430 13,944
Finished goods 10,474 7,440
-------- --------
$ 40,015 $ 40,455
======== ========

Research and Development Expenses. A significant portion of the Company's
research and development operations are located in Israel where the Company
derives benefits from participation in programs sponsored by the Government of
Israel for the support of research and development activities conducted in that
country. Certain of the Company's research and development activities include
projects partially funded by the Office of the Chief Scientist of the Ministry
of Industry and Trade of the State of Israel (the "OCS") under which the funding
organization reimburses a portion of the Company's research and development
expenditures under approved project budgets. One of the Company's subsidiaries
accrues royalties to the OCS for the sale of products incorporating technology
developed in these projects. Another subsidiary of the Company is not required
to pay royalties on such grants. Under the terms of the applicable funding
agreements, products resulting from projects funded by the OCS may not be
manufactured outside of Israel without government approval. The amounts
reimbursed by the OCS for the three month periods ended July 31, 2002 and 2003
were $4,733,000 and $3,781,000, respectively, and for the six month periods
ended July 31, 2002 and 2003 were $5,937,000 and $4,989,000, respectively.

Earnings (Loss) Per Share. The computation of basic earnings (loss) per
share is based on the weighted average number of outstanding common shares.
Diluted earnings per share further assumes the issuance of common shares for all
dilutive potential common shares outstanding. The calculation of earnings (loss)
per share for the three and six month periods ended July 31, 2002 and 2003 is as
follows:




Page 8 of 31 Total Pages






Three Months Ended Three Months Ended
July 31, 2002 July 31, 2003
------------- -------------
Net Per Share Net Per Share
Income Shares Amount Loss Shares Amount
(In thousands, except per share data)

Basic EPS
- ---------

Net Income (loss) $ 3,923 186,948 $ 0.02 $(1,058) 188,844 $ (0.01)
======== ========

Effect of Dilutive
Securities
- ----------
Options 465
-----

Diluted EPS $ 3,923 187,413 $ 0.02 $(1,058) 188,844 $ (0.01)
======= ======= ======== ======= ======= ========



Six Months Ended Six Months Ended
July 31, 2002 July 31, 2003
------------- -------------
Net Per Share Net Per Share
Loss Shares Amount Loss Shares Amount
(In thousands, except per share data)


Basic and Diluted EPS
- ---------------------
Net loss $(19,653) 186,762 $ (0.11) $(6,877) 188,531 $ (0.04)
======== ======= ========= ======= ======= ========



The diluted loss per share computation for the three and six month periods
ended July 31, 2003 and for the six month period ended July 31, 2002 excludes
incremental shares of approximately 5,639,000, 3,935,000 and 1,262,000,
respectively, related to employee stock options. These shares are excluded due
to their antidilutive effect as a result of the Company's loss during these
periods. The Company's 1.50% Convertible Senior Debentures due December 2005
(the "Debentures") were not included in the computation of diluted earnings per
share for all periods because the effect of including them would be
antidilutive. In addition, the Company's Zero Yield Puttable Securities due 2023
("ZYPS") were not included in the computation of diluted earnings per share for
all periods. The ZYPS are convertible into shares of the Company's common stock
contingent upon the occurrence of certain events that have not yet occurred. As
such, the contingent conversion feature has not been satisfied and the ZYPS are
not currently considered to be dilutive in accordance with the provisions of
SFAS No. 128, "Earnings per Share."

Comprehensive Income (Loss). Total comprehensive income (loss) was
$8,190,000 and $(7,748,000) for the three month periods ended July 31, 2002 and
2003, respectively, and $(19,284,000) and $(14,570,000) for the six month
periods ended July 31, 2002 and 2003, respectively. The elements of
comprehensive income (loss) include net income (loss), unrealized gains/losses
on available for sale securities and foreign currency translation adjustments.


Page 9 of 31 Total Pages



Convertible Debentures. In May 2003, the Company issued $420,000,000
aggregate principal amount of its ZYPS, for net proceeds of approximately $413.0
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.

In November and December 2000, the Company issued $600,000,000 aggregate
principal amount of its Debentures. The Debentures are unsecured senior
obligations of the Company ranking equally with all of the Company's existing
and future unsecured senior indebtedness and are senior in right of payment to
any of the Company's existing and future subordinated indebtedness. The
Debentures are convertible, at the option of the holders, into shares of the
Company's common stock at a conversion price of $116.325 per share, subject to
adjustment in certain events; and are subject to redemption at any time on or
after December 1, 2003, in whole or in part, at the option of the Company, at
redemption prices (expressed as percentages of the principal amount) of 100.375%
if redeemed during the twelve-month period beginning December 1, 2003, and 100%
of the principal amount if redeemed thereafter. The Debenture holders may
require the Company to repurchase the Debentures at par in the event that the
common stock ceases to be publicly traded and, in certain instances, upon a
change in control of the Company. Upon the occurrence of a change in control,
instead of paying the repurchase price in cash, the Company may, under certain
circumstances, pay the repurchase price in common stock. During the three and
six month periods ended July 31, 2002, the Company acquired, in open market
purchases, $166,000,000 of face amount of the Debentures, resulting in a pre-tax
gain, net of debt issuance costs, of approximately $31,502,000 included in
'Interest and other income, net' in the condensed consolidated statements of
operations.

During the three and six month periods ended July 31, 2003, the Company
acquired, in open market purchases, $188,458,000 and $233,008,000 of face amount
of the Debentures, respectively, resulting in a pre-tax gain, net of debt
issuance costs, of approximately $6,405,000 and $9,214,000, respectively,
included in 'Interest and other income, net' in the condensed consolidated
statements of operations.

As of July 31, 2003, the Company had outstanding Debentures of
approximately $157,830,000. From August 1 through September 5, 2003, the Company
acquired, in open


Page 10 of 31 Total Pages



market purchases, an additional $18,667,000 of face amount of the Debentures,
resulting in a pre-tax gain, net of debt issuance costs, of approximately
$733,000.

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

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

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

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

As of July 31, 2003 the Company had an accrual of approximately
$39,009,000 relating to workforce reduction and restructuring. A roll-forward of
the workforce reduction and restructuring accrual from January 31, 2003 is as
follows:



Page 11 of 31 Total Pages






Workforce
Accrual Reduction, Accrual
Balance at Restructuring Balance at
January 31, & Impairment Cash Non-Cash July 31,
2003 Credit, net Payments Charges 2003
---------- ------------- -------- -------- ----------
(In thousands)


Severance and related $ 9,367 $ 295 $ 7,758 $ -- $ 1,904
Facilities and related 40,454 (774) 2,575 -- 37,105
Property and equipment -- 246 -- 246 --
------- ------- ------- ------- -------
Total $49,821 $ (233) $10,333 $ 246 $39,009
======= ======= ======= ======= =======



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

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

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

Business Segment Information. The Company's reporting segments are as
follows:

Enhanced Services Solutions Products ("ESS"). Enable telecommunications
service providers to offer a variety of revenue and traffic generating services
accessible to large numbers of simultaneous users. These services include a
broad range of messaging, information distribution and personal communications
services, such as call answering with one-touch call return, voicemail, unified
messaging (voice, fax, text, multimedia content and email in a single mailbox,
media conversion such as email to voice and visual mailbox presentation),
value-added services for roamers, prepaid wireless calling services, wireless
data and Internet-based services such as short messaging services, wireless
information and entertainment services, multimedia messaging services, wireless
instant messaging, interactive voice response, and voice portal services, which
are part of a voice-controlled portfolio of services such as voice dialing,
voice-controlled messaging, and other applications.

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


Page 12 of 31 Total Pages



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

All Other. Includes other miscellaneous operations.

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




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


Three Months Ended July 31, 2002:

Sales $ 135,233 $ 6,103 $ 38,470 $ 2,588 $ (1,184) $ 181,210

Income (loss) from
operations $ (29,117) $ (4,726) $ 2,232 $ (189) $ (2,465) $ (34,265)

Three Months Ended July 31, 2003:

Sales $ 130,401 $ 9,434 $ 46,892 $ 2,673 $ (932) $ 188,468

Income (loss) from
operations $ (12,506) $ 855 $ 4,133 $ (200) $ (1,702) $ (9,420)

Six Months Ended July 31, 2002:

Sales $ 301,771 $ 13,200 $ 74,787 $ 4,881 $ (2,235) $ 392,404

Income (loss) from
operations $ (43,936) $ (7,627) $ 4,307 $ (454) $ (3,574) $ (51,284)

Six Months Ended July 31, 2003:

Sales $ 256,277 $ 18,563 $ 91,307 $ 4,917 $ (2,044) $ 369,020

Income (loss) from
operations $ (30,818) $ 1,232 $ 7,632 $ (452) $ (3,395) $ (25,801)


Page 13 of 31 Total Pages






Total Assets:

July 31, 2002 $ 1,098,474 $ 235,748 $ 192,962 $ 39,751 $ 966,880 $ 2,533,815

July 31, 2003 $ 927,718 $ 238,983 $ 309,072 $ 35,045 $ 1,149,799 $ 2,660,617


Reconciling items consist of the following:

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

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

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

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


Page 14 of 31 Total Pages



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

RESULTS OF OPERATIONS

Introduction

As explained in greater detail in "Certain Trends and Uncertainties", the
Company's two business units serving telecommunications markets are operating
within an industry experiencing a difficult capital spending environment.
Despite these conditions, both business units achieved sequential revenue growth
during the three month period ended July 31, 2003. In contrast, Verint, which
services the security and enterprise business intelligence markets, achieved
record revenue growth based, in part, on heightened awareness surrounding
homeland defense and security related initiatives in the United States and
abroad. Overall, for the three month period ended July 31, 2003, the Company
experienced sequential and year over year sales increases of 4.4% and 4.0%,
respectively, with a substantial majority of sales for the period generated from
activities serving the telecommunications industry. Nevertheless, the Company
still incurred an operating loss for the period.

Six Month and Three Month Periods Ended July 31, 2003
Compared to Six Month and Three Month Periods Ended July 31, 2002

Sales. Sales for the six month period ended July 31, 2003 decreased by
approximately $23.4 million, or 6%, compared to the six month period ended July
31, 2002. The decrease is primarily attributable to a decrease in sales of ESS
products of approximately $45.5 million across all major geographic regions.
This decrease is partially offset by sales of security and business intelligence
recording products, which increased by approximately $16.5 million, primarily as
a result of increased digital security and surveillance sales, and sales of
service enabling signaling software products, which increased by approximately
$5.4 million. Sales for the three month period ended July 31, 2003 increased by
approximately $7.3 million, or 4%, compared to the three month period ended July
31, 2002. This increase is primarily attributable to an increase in sales of
security and business intelligence recording products of approximately $8.4
million, primarily as a result of increased digital security and surveillance
sales, and an increase in sales of service enabling signaling software products
of approximately $3.3 million, partially offset by a decrease in sales of ESS
products of approximately $4.8 million. On a consolidated basis, sales to
customers in North America represented approximately 36% and 39% of total sales
for the six month periods ended July 31, 2003 and 2002, respectively, and 28%
and 33% of total sales for the three month periods ended July 31, 2003 and 2002,
respectively.

Cost of Sales. Cost of sales for the six month period ended July 31, 2003
decreased by approximately $9.4 million, or 6%, compared to the six month period
ended July 31, 2002. The decrease in cost of sales is primarily attributable to
decreased personnel-related and travel and entertainment costs of approximately
$13.7 million and $3.6 million, respectively, primarily the result of cost
reduction efforts combined with the decrease in sales, partially offset by
increased royalty expense of approximately $5.5 million, primarily the result of
a prior period credit realized upon a settlement with the OCS, and net increase
in various other costs of approximately $2.4 million. Gross margins for the six
month period ended July 31, 2003 decreased to


Page 15 of 31 Total Pages



approximately 56.2% from approximately 56.4% in the corresponding 2002 period.
Cost of sales for the three month period ended July 31, 2003 increased by
approximately $2.0 million, or 3%, compared to the three month period ended July
31, 2002. The increase in cost of sales is primarily attributable to increased
materials and overhead costs of approximately $8.2 million, increased royalty
expense of approximately $4.7 million, primarily the result of a prior period
credit realized upon a settlement with the OCS, partially offset by decreased
personnel-related and travel and entertainment costs of approximately $6.1
million and $1.9 million, respectively, primarily the result of cost reduction
efforts, and net decrease in various other costs of approximately $2.9 million.
Gross margins for the three month period ended July 31, 2003 increased to
approximately 56.8% from approximately 56.2% in the corresponding 2002 period.

Research and Development, Net. Net research and development expenses for
the six month and three month periods ended July 31, 2003 decreased by
approximately $15.5 million, or 13%, and $7.0 million, or 12%, respectively,
compared to the six month and three month periods ended July 31, 2002. The
decrease in net research and development expenses is primarily attributable to
decreased personnel and other labor related costs of approximately $15.1 million
and $6.3 million for the six and three month periods, respectively, which is
primarily the result of cost reduction efforts and a reduction of research and
development projects.

Selling, General and Administrative. Selling, general and administrative
expenses for the six month and three month periods ended July 31, 2003 decreased
by approximately $20.9 million, or 14%, and $9.5 million, or 13%, respectively,
compared to the six month and three month periods ended July 31, 2002, and as a
percentage of sales for the six month and three month periods ended July 31,
2003, decreased to approximately 33.9% and 33.4% from approximately 37.2% and
40.0% in the corresponding 2002 periods. The decrease in the dollar amount of
selling, general and administrative expenses for the six month and three month
periods is primarily due to lower bad debt expense of approximately $27.0
million and $15.9 million, respectively, partially offset by increased agent
commissions of approximately $2.8 million and $2.7 million, respectively, due
primarily to increased international sales, increased personnel and other labor
related costs of approximately $3.4 million and $1.1 million, respectively, due
primarily to increased headcount at Verint, and net increase (decrease) in
various other costs of approximately $(0.1) million and $2.6 million,
respectively.

Workforce reduction, restructuring and impairment charges (credits). In
order to better align its cost structure with the business environment and
improve the efficiency of its operations, the Company took steps to reduce its
workforce, restructure its operations and write-off impaired assets during the
six and three month periods ended July 31, 2002, and incurred a charge of
approximately $2.8 million, primarily pertaining to severance and other related
costs, the elimination of excess facilities and related leasehold improvements
and the write-off of certain property and equipment. During the six and three
month periods ended July 31, 2003, the Company recorded a credit of
approximately $0.2 million for the reversal of a previously taken restructuring
charge.

Interest and Other Income, Net. Interest and other income, net, for the
six month and three month periods ended July 31, 2003 decreased by approximately
$11.0 million and $28.8 million, respectively, compared to the six month and
three month periods ended July 31, 2002. The principal reasons for the decrease
in the six month and three month periods are (i) a decrease


Page 16 of 31 Total Pages



in the gain recorded as a result of the Company's repurchases of its Debentures
of approximately $22.3 million and $25.1 million, respectively; (ii) a decrease
in foreign currency gains of approximately $15.6 million and $18.9 million,
respectively, due primarily to the strengthening of the euro during the 2002
periods; (iii) decreased interest and dividend income of approximately $7.9
million and $4.6 million, respectively, due primarily to the decline in interest
rates; (iv) an increase of approximately $2.9 million and $1.5 million,
respectively, in the minority interest; (v) a decrease in the equity of
affiliates of approximately $0.5 million for the three months ended July 31,
2003; and (vi) other decreases of approximately $0.1 million and $0.7 million,
respectively. Such items were offset by (i) a decrease in net losses from the
sale and write-down of investments of approximately $33.9 million and $19.7
million, respectively; and (ii) decreased interest expense of approximately $3.9
million and $2.8 million, respectively, due primarily to the Company's
repurchases of its Debentures and other debt reduction.

Income Tax Provision. Provision for income taxes for the six month and
three month periods ended July 31, 2003 increased by approximately $1.7 million,
or 70%, and $1.1 million, or 92%, respectively, compared to the six month and
three month periods ended July 31, 2002, due primarily to shifts in the
underlying mix of pre-tax income by tax jurisdiction. The Company's overall rate
of tax is reduced significantly by the existence of net operating loss
carryforwards for Federal income tax purposes in the United States, as well as
the tax benefits associated with qualified activities of certain of its Israeli
subsidiaries, which are entitled to favorable income tax rates under a program
of the Israeli Government for "Approved Enterprise" investments in that country.

Net Income (Loss). Net (income) loss for the six month and three month
periods ended July 31, 2003 increased (decreased) by approximately $12.8 million
and $(5.0) million, respectively, compared to the six month and three month
periods ended July 31, 2002, while as a percentage of sales was approximately
(1.9)% and (5.0)% in the six month periods ended July 31, 2003 and 2002,
respectively, and approximately (0.6)% and 2.2% in the three month periods ended
July 31, 2003 and 2002, respectively. These variances resulted primarily from
the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital at July 31, 2003 and January 31, 2003 was
approximately $2,095.1 million and $1,766.5 million, respectively. At July 31,
2003 and January 31, 2003, the Company had total cash and cash equivalents, bank
time deposits and short-term investments of approximately $2,110.4 million and
$1,808.9 million, respectively.

Operations for the six month periods ended July 31, 2003 and 2002, after
adjustment for non-cash items, provided cash of approximately $33.0 million and
$13.5 million, respectively. During such periods, other changes in operating
assets and liabilities provided cash of approximately $12.0 million and $24.3
million, respectively. This resulted in net cash provided by operating
activities of approximately $45.0 million and $37.8 million, respectively.

Investing activities for the six month periods ended July 31, 2003 and
2002 provided (used) cash of approximately $(357.2) million and $85.4 million,
respectively. These amounts include (i) net maturities and sales (purchases) of
bank time deposits and investments of


Page 17 of 31 Total Pages



approximately $(326.9) million and $137.0 million, respectively; (ii) purchases
of property and equipment of approximately $(19.4) million and $(16.3) million,
respectively; (iii) capitalization of software development costs of
approximately $(4.9) million and $(7.6) million, respectively; and (iv) net
assets acquired as a result of acquisitions of approximately $(5.9) million and
$(27.8) million, respectively.

Financing activities for the six month periods ended July 31, 2003 and
2002 provided (used) cash of approximately $292.7 million and $(93.3) million,
respectively. These amounts include (i) net proceeds from the issuance of ZYPS
of approximately $413.0 million during the six months ended July 31, 2003; (ii)
the repurchase of Debentures of approximately $(221.4) million and $(166.0)
million, respectively; (iii) net repayments of bank loans and other debt of
approximately $(46.2) million and $(0.1) million, respectively; and (iv) net
proceeds from the issuance of common stock in connection with Verint stock
offerings and the exercise of stock options and employee stock purchase plans of
approximately $147.4 million and $72.8 million, respectively.

In May 2003, the Company issued $420,000,000 aggregate principal amount of
its ZYPS, for net proceeds of approximately $413.0 million. The ZYPS are
unsecured senior obligations of the Company ranking equally with all of the
Company's existing and future unsecured senior indebtedness and are senior in
right of payment to any of the Company's existing and future subordinated
indebtedness. The ZYPS are convertible, contingent upon the occurrence of
certain events, into shares of the Company's common stock at a conversion price
of $17.97 per share. The ability of the holders to convert the ZYPS into common
stock is subject to certain conditions including, among others, the closing
price of the common stock exceeding 120% of the conversion price over certain
periods and other specified events. The ZYPS mature on May 15, 2023. The Company
has the right to redeem the ZYPS for cash at any time on or after May 15, 2008,
at their principal amount. The holders have a series of put options, pursuant to
which they may require the Company to repurchase all or a portion of the ZYPS on
each of May 15 of 2008, 2013, and 2018 and upon the occurrence of certain
events. The ZYPS holders may require the Company to repurchase the ZYPS at par
in the event that the common stock ceases to be publicly traded and, in certain
instances, upon a change in control of the Company. Upon the occurrence of a
change in control, instead of paying the repurchase price in cash, the Company
may, under certain circumstances, pay the repurchase price in common stock.

During the six month period ended July 31, 2003, the Company acquired, in
open market purchases, approximately $233.0 million of face amount of the
Debentures, for approximately $221.4 million in cash, resulting in a pre-tax
gain, net of debt issuance costs, of approximately $9.2 million included in
'Interest and other income, net' in the condensed consolidated statements of
operations.

As of July 31, 2003, the Company had outstanding Debentures of
approximately $157.8 million. From August 1 through September 5, 2003, the
Company acquired, in open market purchases, approximately $18.7 million of face
amount of the Debentures, for approximately $17.8 million in cash, resulting in
a pre-tax gain, net of debt issuance costs, of approximately $0.7 million.

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


Page 18 of 31 Total Pages



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

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

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

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

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

CERTAIN TRENDS AND UNCERTAINTIES

The Company derives the majority of its revenue from the
telecommunications industry, which is experiencing a difficult capital spending
environment. The Company's operating results and financial condition have been,
and will continue to be, adversely affected by the decline in technology
purchases and capital expenditures by telecommunications service providers
("TSP") worldwide. Consequently, the Company's operating results may deteriorate
in future periods if such conditions remain in effect. 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


Page 19 of 31 Total Pages



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.

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 further 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

Page 20 of 31 Total Pages



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.

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

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

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

Changing industry and market conditions may dictate strategic decisions to
restructure some business units and discontinue others. Discontinuing a business
unit or product line may result in the Company recording accrued liabilities for
special charges, such as costs associated

Page 21 of 31 Total Pages



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 digital security and surveillance and
enterprise business intelligence products in the past has been affected by
weakness in general economic conditions, delays or reductions in customers'
information technology spending and uncertainties relating to government
expenditure programs. The Company's business generated from government contracts
may be adversely affected if: (i) the Company's reputation or relationship with
government agencies is impaired, (ii) the Company is suspended or otherwise
prohibited from contracting with a domestic or foreign government or any
significant law enforcement agency, (iii) levels of government expenditures and
authorizations for law enforcement and security related programs decrease,
remain constant or shift to programs in areas where the Company does not provide
products and services, (iv) the Company is prevented from entering into new
government contracts or extending existing government contracts based on
violations or suspected violations of procurement laws or regulations, (v) the
Company is not granted security

Page 22 of 31 Total Pages



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.

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

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

Page 23 of 31 Total Pages



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

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

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

The Israeli government has reduced the benefits available under some of
these programs in recent years, and Israeli government authorities have
indicated that the government may further reduce or eliminate some of these
benefits in the future. The Company has regularly participated in a conditional
grant program administered by the Office of the Chief Scientist of the Ministry
of Industry and Trade of the State of Israel ("OCS") under which it has received
significant benefits through reimbursement of up to 50% of qualified research
and development expenditures. Verint currently pays royalties, of between 3% and
5% (or 6% under certain circumstances) of associated product revenues (including
service and other related revenues) to the Government of Israel for repayment of
benefits received under this program. Such royalty payments by Verint are
currently required to be made until the government has been reimbursed the
amounts received by the Company 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. During fiscal 2001, Comverse entered into an arrangement
with the OCS whereby Comverse agreed to pay a lump sum royalty amount for all
past amounts received from the OCS. In addition, Comverse began to receive


Page 24 of 31 Total Pages



lower amounts from the OCS than it had historically received, but will not have
to pay royalty amounts on such grants. The amount of reimbursement received by
the Company under this program has been reduced significantly, and the Company
does not expect to receive significant reimbursement under this program in the
future. In addition, permission from the Government of Israel is required for
the Company to manufacture outside of Israel products resulting from research
and development activities funded under these programs, or to transfer outside
of Israel related technology rights. In order to obtain such permission, the
Company may be required to increase the royalties to the applicable funding
agencies and/or repay certain amounts received as reimbursement of research and
development costs. The continued reduction in the benefits received by the
Company under the program, or the termination of its eligibility to receive
these benefits at all in the future, could adversely affect the Company's
operating results.

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

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

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.


Page 25 of 31 Total Pages



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

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

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

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


Page 26 of 31 Total Pages



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

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

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

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


Page 27 of 31 Total Pages



the highly qualified employees necessary for the growth of its business and its
ability to raise capital on relatively attractive conditions. The decline in the
price of the Company's shares, and the overall decline in equity prices
generally, and in the shares of technology companies in particular, can be
expected to make it more difficult for the Company to significantly rely on
equity incentive arrangements as a means to recruit and retain talented
employees.

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

FORWARD-LOOKING STATEMENTS

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

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

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

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.


Page 28 of 31 Total Pages



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

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


ITEM 4. Controls and Procedures.

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




Page 29 of 31 Total Pages



PART II
Other Information

ITEM 1. Legal Proceedings.

None.


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

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

31.1 Certification executed by Kobi Alexander, Chairman of the
Board and Chief Executive Officer of the Company as
required pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*

31.2 Certification executed by David Kreinberg, Executive Vice
President and Chief Financial Officer of the Company as
required pursuant to Rules 13a-14 and 15d-14 under the
Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*

32 Certifications executed by Kobi Alexander, Chairman of
the Board and Chief Executive Officer of the Company and
David Kreinberg, Executive Vice President and Chief
Financial Officer of the Company as required pursuant to
Rule 13a-14(b) or Rule 15d-14(b) under the Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. Section
1350), as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*

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

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

During the second quarter of 2003, the Company filed or furnished the following
reports on Form 8-K:

1. Form 8-K, dated May 2, 2003, regarding the announcement of a
private placement of $350 million principal amount of Zero
Yield Puttable Securities due 2023;

2. Form 8-K, dated May 7, 2003, regarding the announcement of the
closing of $350 million principal amount of the Company's Zero
Yield Puttable Securities due 2023; and

3. Form 8-K, dated June 3, 2003, regarding the announcement of the
Company's financial results for the fiscal quarter ended April
30, 2003.



Page 30 of 31 Total Pages



SIGNATURES
----------

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


COMVERSE TECHNOLOGY, INC.


Dated: September 12, 2003 /s/ Kobi Alexander
-------------------------
Kobi Alexander
Chairman of the Board
and Chief Executive Officer


Dated: September 12, 2003 /s/ David Kreinberg
-------------------------
David Kreinberg
Executive Vice President
and Chief Financial Officer



Page 31 of 31 Total Pages