BUSINESS SEGMENT INFORMATION

The Company changed its reportable segments during the three months ended October 31, 2011. The Company's reportable segments now consist of Comverse BSS, Comverse VAS, and Verint. The results of operations of all the other operations of the Company, including the Comverse MI operating segment, Comverse's Netcentrex operations, Comverse's global corporate functions that support its business units, miscellaneous operations and CTI's holding company operations, are included in the column captioned “All Other” as part of the Company's business segment presentation. The operating segments included in “All Other” do not meet the quantitative thresholds required for a separate presentation or the aggregation criteria under segment reporting guidance. Specifically, they do not have similar economic characteristics with any separately presented reportable segment. The Company does not maintain balance sheets for the Comverse operating segments.

The changes in reportable segments are attributable to the implementation of the Phase II Business Transformation at Comverse that focuses on process reengineering to maximize business performance, productivity and operational efficiency. For a more comprehensive discussion relating to the Phase II Business Transformation (see Note 8, Restructuring). As part of the Phase II Business Transformation, Comverse restructured its operations into new business units that are designed to improve operational efficiency and business performance.

In addition, on August 1, 2012, CTI entered into the Starhome Share Purchase Agreement with unaffiliated purchasers, and accordingly, Starhome's results of operations, which previously were included in “All Other,” are included in discontinued operations for the three and six months ended July 31, 2012.

The Company has recast the presentation of its segment information for the three and six months ended July 31, 2011 to reflect these reportable segments and the elimination of Starhome's results of operations (which are included in discontinued operations) from All Other.

Segment Performance

The Company evaluates its business by assessing the performance of each of its operating segments. CTI’s Chief Executive Officer is its chief operating decision maker (“CODM”). The CODM uses segment performance, as defined below, as the primary basis for assessing the financial results of the operating segments and for the allocation of resources. Segment performance, as the Company defines it in accordance with the FASB’s guidance relating to segment reporting, is not necessarily comparable to other similarly titled captions of other companies.

Segment performance is computed by management as income (loss) from operations adjusted for the following: (i) stock-based compensation expense; (ii) amortization of acquisition-related intangibles; (iii) compliance-related professional fees; (iv) compliance-related compensation and other expenses; (v) strategic evaluation related costs; (vi) impairment of property and equipment; (vii) litigation settlements and related costs; (viii) acquisition-related charges; (ix) restructuring charges; and (x) certain other gains and charges, including changes in the fair value of contingent consideration liabilities associated with business combinations. Compliance-related professional fees and compliance-related compensation and other expenses relate to fees and expenses recorded in connection with the Company’s efforts to (a) complete certain financial statements and audits of such financial statements, and (b) become current in its periodic reporting obligations under the federal securities laws, and (c) remediate material weaknesses in internal control over financial reporting. Strategic evaluation related costs include financial advisory, accounting, tax, consulting and legal fees incurred in connection with Company's evaluation of strategic alternatives, including the proposed share distribution and the Verint Merger.

In evaluating each segment’s performance, management uses segment revenue, which consists of revenue generated by the segment. Certain segment performance adjustments relate to expenses included in the calculation of income (loss) from operations, while, from time to time, certain segment performance adjustments may be presented as adjustments to revenue. In calculating Verint’s segment performance for the three and six months ended July 31, 2012 and 2011, the presentation of segment revenue gives effect to segment revenue adjustments that represent the impact of fair value adjustments required under the FASB’s guidance relating to acquired customer support contracts that would have otherwise been recognized as revenue on a stand-alone basis with respect to acquisitions consummated by Verint.

The tables below present information about total revenue, total costs and expenses, income (loss) from operations, segment performance, interest expense, depreciation and amortization, and other non-cash items for the three and six months ended July 31, 2012 and 2011:



	Comverse BSS			Comverse VAS			Verint				All Other			Eliminations			Consolidated
	(In thousands)
Three Months Ended July 31, 2012
Total revenue	$	69,052		$	91,289		$	212,426			$	10,885		$	—		$	383,652
Total costs and expenses	$	54,420		$	60,109		$	186,163			$	57,098		$	13		$	357,803
Income (loss) from operations	$	14,632		$	31,180		$	26,263			$	(46,213	)	$	(13	)	$	25,849
Computation of segment performance:
Total revenue	$	69,052		$	91,289		$	212,426			$	10,885
Segment revenue adjustment	—			—			2,642				—
Segment revenue	$	69,052		$	91,289		$	215,068			$	10,885
Total costs and expenses	$	54,420		$	60,109		$	186,163			$	57,098
Segment expense adjustments:
Stock-based compensation expense	—			—			5,922				3,151
Amortization of acquisition-related intangibles	3,998			—			9,679				—
Compliance-related professional fees	—			—			—				149
Compliance-related compensation and other expenses	48			143			—				244
Strategic evaluation related costs	—			—			2,428				7,451
Impairment of property and equipment	1			—			—				13
Litigation settlements and related cost	—			—			—				(13		)
Restructuring charges	—			—			—				427
Other	—			—			(4,001		)	⁽¹⁾	(35		)
Segment expense adjustments	4,047			143			14,028				11,387
Segment expenses	50,373			59,966			172,135				45,711
Segment performance	$	18,679		$	31,323		$	42,933			$	(34,826	)
Interest expense	$	—		$	—		$	(7,867	)		$	(11	)	$	—		$	(7,878	)
Depreciation and amortization	$	(4,800	)	$	(1,243	)	$	(14,169	)		$	(1,930	)	$	—		$	(22,142	)
Other non-cash items ⁽²⁾	$	(1	)	$	—		$	69			$	(13	)	$	—		$	55


(1)	Consists of changes in the fair value of contingent consideration liabilities associated with business combinations.


(2)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Verint				All Other			Eliminations			Consolidated
	(In thousands)
Three Months Ended July 31, 2011
Total revenue	$	85,471		$	84,105		$	194,959			$	12,479		$	—		$	377,014
Total costs and expenses	$	64,618		$	54,240		$	173,549			$	75,445		$	(22	)	$	367,830
Income (loss) from operations	$	20,853		$	29,865		$	21,410			$	(62,966	)	$	22		$	9,184
Computation of segment performance:
Total revenue	$	85,471		$	84,105		$	194,959			$	12,479
Segment revenue adjustment	—			—			727				—
Segment revenue	$	85,471		$	84,105		$	195,686			$	12,479
Total costs and expenses	$	64,618		$	54,240		$	173,549			$	75,445
Segment expense adjustments:
Stock-based compensation expense	—			—			6,641				1,590
Amortization of acquisition-related intangibles	4,498			—			8,100				—
Compliance-related professional fees	—			—			17				9,467
Compliance-related compensation and other expenses	5			35			—				1,835
Strategic evaluation related costs	—			—			—				2,904
Impairment of property and equipment	—			5			—				24
Litigation settlements and related costs	—			—			—				3
Acquisition-related charges	—			—			2,820				—
Restructuring charges	—			—			—				1,963
Other	—			—			671			⁽¹⁾	(19		)
Segment expense adjustments	4,503			40			18,249				17,767
Segment expenses	60,115			54,200			155,300				57,678
Segment performance	$	25,356		$	29,905		$	40,386			$	(45,199	)
Interest expense	$	—		$	—		$	(7,857	)		$	(148	)	$	—		$	(8,005	)
Depreciation and amortization	$	(5,374	)	$	(1,097	)	$	(12,585	)		$	(2,439	)	$	—		$	(21,495	)
Other non-cash items ⁽²⁾	$	—		$	(5	)	$	(19	)		$	(24	)	$	—		$	(48	)


(1)	Consists of changes in the fair value of contingent consideration liabilities associated with business combinations.


(2)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Verint				All Other			Eliminations			Consolidated
	(In thousands)
Six Months Ended July 31, 2012
Total revenue	$	126,732		$	157,211		$	409,061			$	25,033		$	—		$	718,037
Total costs and expenses	$	107,703		$	110,191		$	361,815			$	130,318		$	9		$	710,036
Income (loss) from operations	$	19,029		$	47,020		$	47,246			$	(105,285	)	$	(9	)	$	8,001
Computation of segment performance:
Total revenue	$	126,732		$	157,211		$	409,061			$	25,033
Segment revenue adjustment	—			—			6,246				—
Segment revenue	$	126,732		$	157,211		$	415,307			$	25,033
Total costs and expenses	$	107,703		$	110,191		$	361,815			$	130,318
Segment expense adjustments:
Stock-based compensation expense	—			—			11,633				5,463
Amortization of acquisition-related intangibles	8,072			—			19,661				—
Compliance-related professional fees	—			—			—				157
Compliance-related compensation and other expenses	678			916			—				(41		)
Strategic evaluation related costs	—			—			3,339				11,345
Impairment of property and equipment	1			—			—				35
Litigation settlements and related costs	—			—			—				(243		)
Restructuring charges	—			—			—				1,107
Other	—			—			(5,760		)	⁽¹⁾	(208		)
Segment expense adjustments	8,751			916			28,873				17,615
Segment expenses	98,952			109,275			332,942				112,703
Segment performance	$	27,780		$	47,936		$	82,365			$	(87,670	)
Interest expense	$	—		$	—		$	(15,585	)		$	(213	)	$	—		$	(15,798	)
Depreciation and amortization	$	(9,663	)	$	(2,444	)	$	(28,265	)		$	(3,974	)	$	—		$	(44,346	)
Other non-cash items ⁽²⁾	$	(1	)	$	—		$	(537	)		$	(35	)	$	—		$	(573	)


(1)	Consists of changes in the fair value of contingent consideration liabilities associated with business combinations.


(2)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Verint				All Other			Eliminations			Consolidated
	(In thousands)
Six Months Ended July 31, 2011
Total revenue	$	160,672		$	163,580		$	371,291			$	21,567		$	—		$	717,110
Total costs and expenses	$	134,760		$	112,929		$	331,047			$	163,572		$	(44	)	$	742,264
Income (loss) from operations	$	25,912		$	50,651		$	40,244			$	(142,005	)	$	44		$	(25,154	)
Computation of segment performance:
Total revenue	$	160,672		$	163,580		$	371,291			$	21,567
Segment revenue adjustment	—			—			962				—
Segment revenue	$	160,672		$	163,580		$	372,253			$	21,567
Total costs and expenses	$	134,760		$	112,929		$	331,047			$	163,572
Segment expense adjustments:
Stock-based compensation expense	—			—			14,191				5,014
Amortization of acquisition-related intangibles	8,996			—			16,296				—
Compliance-related professional fees	—			—			1,008				27,873
Compliance-related compensation and other expenses	2,067			1,236			—				604
Strategic evaluation related costs	—			—			—				3,124
Impairment of property and equipment	—			5			—				152
Litigation settlements and related costs	—			—			—				562
Acquisition-related charges	—			—			5,194				—
Restructuring charges	—			—			—				13,050
Other	—			—			2,006			⁽¹⁾	(29		)
Segment expense adjustments	11,063			1,241			38,695				50,350
Segment expenses	123,697			111,688			292,352				113,222
Segment performance	$	36,975		$	51,892		$	79,901			$	(91,655	)
Interest expense	$	—		$	—		$	(16,651	)		$	(482	)	$	—		$	(17,133	)
Depreciation and amortization	$	(10,840	)	$	(2,033	)	$	(25,539	)		$	(4,609	)	$	—		$	(43,021	)
Other non-cash items ⁽²⁾	$	—		$	(5	)	$	(222	)		$	(152	)	$	—		$	(379	)


(1)	Consists of changes in the fair value of contingent consideration liabilities associated with business combinations.


(2)	Other non-cash items consist of write-downs of property and equipment.

Supplemental Financial Information

As discussed above, the Company has revised its reportable segments as a result of the implementation of the Phase II Business Transformation at Comverse and the manner in which its CODM reviews the financial results of Comverse and allocates resources to the Company's operating segments. The Company is providing the following additional information, presenting the results of operations of the previous Comverse reportable segment. The Company believes that such presentation provides useful information to investors regarding the performance of the Company’s Comverse subsidiary, including comparability to previously reported financial information. The additional information provided is not a replacement for or a subset of the business segment information presented above. The results of operations presented in the column below under “Comverse Other” relate to all the operations of the Company’s Comverse subsidiary, other than the Company’s Comverse BSS and Comverse VAS reportable segments and include the Comverse MI operating segment, Comverse’s Netcentrex operations and Comverse’s global corporate functions that support its business units. The information presented for “Comverse Other” includes unallocated global corporate function costs that are consistent with prior internal allocation practices. The results of operations of “Comverse Other” are included in the Company’s “All Other” column.

Comverse performance represents the operating results of the Company’s Comverse subsidiary without the impact of significant expenditures incurred by Comverse in connection with the Company's efforts to become or remain current in periodic reporting obligations under the federal securities laws and the remediation of material weaknesses in internal control over financial reporting, certain non-cash charges, and certain other gains and charges as presented below:



	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Three Months Ended July 31, 2012
Total revenue	$	69,052		$	91,289		$	10,885		$	171,226
Total costs and expenses	$	54,420		$	60,109		$	42,907		$	157,436
Income (loss) from operations	$	14,632		$	31,180		$	(32,022	)	$	13,790
Computation of Comverse performance:
Total revenue	$	69,052		$	91,289		$	10,885		$	171,226
Total costs and expenses	$	54,420		$	60,109		$	42,907		$	157,436
Expense adjustments:
Stock-based compensation expense	—			—			2,201			2,201
Amortization of acquisition-related intangibles	3,998			—			—			3,998
Compliance-related professional fees	—			—			149			149
Compliance-related compensation and other expenses	48			143			244			435
Impairment of property and equipment	1			—			13			14
Litigation settlements and related costs	—			—			(13		)	(13		)
Restructuring charges	—			—			427			427
Other	—			—			(35		)	(35		)
Expense adjustments	4,047			143			2,986			7,176
Expenses after adjustments	50,373			59,966			39,921			150,260
Comverse performance	$	18,679		$	31,323		$	(29,036	)	$	20,966
Interest expense	$	—		$	—		$	(180	)	$	(180	)
Depreciation and amortization	$	(4,800	)	$	(1,243	)	$	(1,867	)	$	(7,910	)
Other non-cash items ⁽¹⁾	$	(1	)	$	—		$	(13	)	$	(14	)


(1)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Three Months Ended July 31, 2011
Total revenue	$	85,471		$	84,105		$	12,479		$	182,055
Total costs and expenses	$	64,618		$	54,240		$	53,606		$	172,464
Income (loss) from operations	$	20,853		$	29,865		$	(41,127	)	$	9,591
Computation of Comverse performance:
Total revenue	$	85,471		$	84,105		$	12,479		$	182,055
Total costs and expenses	$	64,618		$	54,240		$	53,606		$	172,464
Expense adjustments:
Stock-based compensation expense	—			—			1,029			1,029
Amortization of acquisition-related intangibles	4,498			—			—			4,498
Compliance-related professional fees	—			—			(2,142		)	(2,142		)
Compliance-related compensation and other expenses	5			35			1,835			1,875
Impairment of property and equipment	—			5			24			29
Litigation settlements and related costs	—			—			(1		)	(1		)
Restructuring charges	—			—			1,963			1,963
Other	—			—			(20		)	(20		)
Expense adjustments	4,503			40			2,688			7,231
Expenses after adjustments	60,115			54,200			50,918			165,233
Comverse performance	$	25,356		$	29,905		$	(38,439	)	$	16,822
Interest expense	$	—		$	—		$	(141	)	$	(141	)
Depreciation and amortization	$	(5,374	)	$	(1,097	)	$	(2,377	)	$	(8,848	)
Other non-cash items ⁽¹⁾	$	—		$	(5	)	$	(24	)	$	(29	)


(1)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Six Months Ended July 31, 2012
Total revenue	$	126,732		$	157,211		$	25,033		$	308,976
Total costs and expenses	$	107,703		$	110,191		$	100,175		$	318,069
Income (loss) from operations	$	19,029		$	47,020		$	(75,142	)	$	(9,093	)
Computation of Comverse performance:
Total revenue	$	126,732		$	157,211		$	25,033		$	308,976
Total costs and expenses	$	107,703		$	110,191		$	100,175		$	318,069
Expense adjustments:
Stock-based compensation expense	—			—			3,632			3,632
Amortization of acquisition-related intangibles	8,072			—			—			8,072
Compliance-related professional fees	—			—			13			13
Compliance-related compensation and other expenses	678			916			(41		)	1,553
Impairment of property and equipment	1			—			35			36
Litigation settlements and related costs	—			—			(243		)	(243		)
Restructuring charges	—			—			1,107			1,107
Other	—			—			(208		)	(208		)
Expense adjustments	8,751			916			4,295			13,962
Expenses after adjustments	98,952			109,275			95,880			304,107
Comverse performance	$	27,780		$	47,936		$	(70,847	)	$	4,869
Interest expense	$	—		$	—		$	(376	)	$	(376	)
Depreciation and amortization	$	(9,663	)	$	(2,444	)	$	(3,848	)	$	(15,955	)
Other non-cash items ⁽¹⁾	$	(1	)	$	—		$	(35	)	$	(36	)


(1)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Six Months Ended July 31, 2011
Total revenue	$	160,672		$	163,580		$	21,567		$	345,819
Total costs and expenses	$	134,760		$	112,929		$	126,214		$	373,903
Income (loss) from operations	$	25,912		$	50,651		$	(104,647	)	$	(28,084	)
Computation of Comverse performance:
Total revenue	$	160,672		$	163,580		$	21,567		$	345,819
Total costs and expenses	$	134,760		$	112,929		$	126,214		$	373,903
Expense adjustments:
Stock-based compensation expense	—			—			1,697			1,697
Amortization of acquisition-related intangibles	8,996			—			—			8,996
Compliance-related professional fees	—			—			10,467			10,467
Compliance-related compensation and other expenses	2,067			1,236			604			3,907
Impairment of property and equipment	—			5			152			157
Litigation settlements and related costs	—			—			474			474
Restructuring charges	—			—			13,050			13,050
Other	—			—			(47		)	(47		)
Expense adjustments	11,063			1,241			26,397			38,701
Expenses after adjustments	123,697			111,688			99,817			335,202
Comverse performance	$	36,975		$	51,892		$	(78,250	)	$	10,617
Interest expense	$	—		$	—		$	(471	)	$	(471	)
Depreciation and amortization	$	(10,840	)	$	(2,033	)	$	(4,474	)	$	(17,347	)
Other non-cash items ⁽¹⁾	$	—		$	(5	)	$	(152	)	$	(157	)


(1)	Other non-cash items consist of write-downs of property and equipment.