Discontinued Operations

6 Months Ended

Jul. 31, 2012

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

DISCONTINUED OPERATIONS

On August 1, 2012, CTI, certain other Starhome shareholders and Starhome entered into a Share Purchase Agreement (the “Starhome Share Purchase Agreement”) with Fortissimo Capital Fund II (Israel), L.P., Fortissimo Capital Fund III (Israel), L.P. and Fortissimo Capital Fund III (Cayman), L.P. (collectively, “Fortissimo”) pursuant to which Fortissimo agreed to purchase all of the outstanding share capital of Starhome (the “Starhome Disposition”).

Under the terms of the Starhome Share Purchase Agreement, Starhome's shareholders are expected to receive aggregate cash proceeds of approximately $80.3 million, subject to adjustment for fees, transaction expenses and certain taxes. Of this amount, $10.5 million will be held in escrow to cover potential post-closing indemnification claims, with $5.5 million being released after 18 months (less any claims made on or prior to such date) and the remainder released after 24 months. The Company is expected to receive aggregate net cash consideration (including amounts deposited in escrow at closing) of approximately $37.4 million, after payments that CTI agreed to make to certain other Starhome shareholders of up to $4.5 million.

CTI and the other Starhome shareholders have made customary representations and warranties and covenants in the Starhome Share Purchase Agreement, including an agreement not to solicit Starhome employees or interfere with Starhome's clients, customers, suppliers, licensors or other business relationships for a period of four years following the closing. CTI has also agreed for a period of four years following the closing that it will not, and will cause its affiliates (other than Verint) not to, create, design, develop or offer for sale any product or service which directly competes with any products or services offered by Starhome, subject to certain limited exceptions. In addition, the Starhome Share Purchase Agreement contemplates that Starhome and Comverse will enter into a transition services agreement at the closing of the Starhome Disposition.

Completion of the Starhome Disposition is subject to customary conditions, including antitrust filings and approvals. The Starhome Disposition is expected to close in October 2012. If the closing of the Starhome Disposition does not occur by October 19, 2012, either the Starhome shareholders or Fortissimo may terminate the Starhome Share Purchase Agreement; provided, that the Starhome Share Purchase Agreement may not be terminated by Fortissimo before December 31, 2012 in the event that a creditor objects to the consummation of the Starhome Disposition and notice has been given that Starhome intends to contest such objection.

It is a condition to the Verint Merger that CTI dispose of its interest in Starhome prior to the consummation of the merger. As a result, if the Starhome Disposition does not close by October 19, 2012, CTI will contribute its interest in Starhome to Comverse prior to the completion of the share distribution in order to ensure it can meet the conditions to the Verint Merger. In addition, CTI is currently evaluating the contribution of its interest in Starhome, including CTI's rights and obligations under the Starhome Share Purchase Agreement, to Comverse prior to the October 19, 2012 termination date.

The Company does not expect to have significant continuing involvement in Starhome's operations following the closing of the Starhome Disposition, and accordingly, the results of operations of Starhome are included in discontinued operations, less applicable income taxes, as a separate component of net loss in the Company's condensed consolidated statements of operations for all periods presented and the assets and liabilities of Starhome are included in discontinued operations as separate components to the Company's condensed consolidated balance sheets as of all dates presented.

The assets and liabilities of Starhome were not previously classified as held for sale, because a sale was not probable as of April 30, 2012.

Starhome's results of operations included in discontinued operations were as follows:

	Three Months Ended July 31,						Six Months Ended July 31,
	2012			2011			2012			2011
	(In thousands)
Total revenue	$	13,072		$	11,571		$	23,907		$	21,671
Income before income tax provision	2,714			2,814			3,182			4,269
Income tax provision	(237		)	(377		)	(223		)	(538		)
Total income from discontinued operations, net of tax	2,477			2,437			2,959			3,731
Income from discontinued operations, net of tax
Attributable to Comverse Technology, Inc.	$	1,621		$	1,504		$	1,949		$	2,324
Attributable to noncontrolling interest	$	856		$	933		$	1,010		$	1,407

Starhome's assets and liabilities included in discontinued operations in the condensed consolidated balance sheets were as follows:

	July 31,		January 31,
	2012		2012
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	29,349	$	32,466
Accounts receivable, net of allowance of $142 and $105, respectively	9,718		3,832
Inventories	2,861		2,716
Deferred cost of revenue	669		888
Prepaid expenses and other current assets	760		871
Total current assets	43,357		40,773
Property and equipment, net	1,123		1,173
Goodwill	7,559		7,559
Deferred cost of revenue	144		229
Total assets	$	52,183	$	49,734
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses	$	9,412	$	9,959
Deferred revenue	18,454		17,912
Income taxes payable	137		113
Total current liabilities	28,003		27,984
Deferred revenue	1,877		2,683
Other long-term liabilities	2,939		2,747
Total liabilities	$	32,819	$	33,414

The Company and Starhome had previously entered into transactions pursuant to which the Company performed certain production, support and maintenance services for Starhome, and it is expected that these transactions will continue following the completion of the Starhome Disposition. The Company does not consider these transactions to be significant. The Company recognized revenue related to transactions with Starhome of $0.9 million and $2.3 million for the three and six months endedJuly 31, 2012, respectively, and $1.1 million and $1.7 million for the three and six months endedJuly 31, 2011, respectively. The Company recognized cost of revenue related to transactions with Starhome of $0.2 million and $0.4 million for the three and six months endedJuly 31, 2012, respectively, and $1.2 million for each of the three and six months endedJuly 31, 2011.