| Derivatives and Financial Instruments |
DERIVATIVES AND FINANCIAL INSTRUMENTS The Company's primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemed appropriate. Verint enters into these contracts in the normal course of business to mitigate risks and not for speculative purposes. Forward Contracts Under Verint's risk management strategy, Verint periodically uses derivative financial instruments to manage its short-term exposures to fluctuations in foreign currency exchange rates. Verint utilizes foreign exchange forward contracts to hedge certain operational cash flow exposures resulting from changes in foreign currency exchange rates. These cash flow exposures result from portions of Verint's forecasted operating expenses, primarily compensation and related expenses, which are transacted in currencies other than the U.S. dollar, primarily the Israeli shekel and the Canadian dollar. Verint also periodically utilizes foreign currency forward contracts to manage exposures resulting from forecasted customer collections to be remitted in currencies other than the applicable functional currency. Verint's joint venture, which has a Singapore dollar functional currency, also utilizes foreign exchange forward contracts to manage its exposure to exchange rate fluctuations related to settlements of liabilities denominated in U.S. dollars. These foreign currency forward contracts are reported at fair value on the condensed consolidated balance sheets and generally have maturities of no longer than twelve months, although occasionally Verint will execute a contract that extends beyond twelve months, depending upon the nature of the underlying risk. The counterparties to Verint's derivative financial instruments consist of several major international financial institutions. Verint regularly monitors the financial strength of these institutions. While the counterparties to these contracts expose Verint to credit-related losses in the event of a counterparty's non-performance, the risk would be limited to the unrealized gains on such affected contracts. Verint does not anticipate any such losses. Certain of these foreign currency forward contracts are not designated as hedging instruments under accounting guidance for derivatives, and gains and losses from changes in their fair values are therefore reported in “Other income (expense), net” in the condensed consolidated statements of operations. Changes in the fair values of foreign currency forward contracts that are designated and effective as cash flow hedges are recorded as part of other comprehensive income (loss) in the condensed consolidated statements of comprehensive loss. Such amounts are reclassified to the condensed consolidated statements of operations when the effects of the item being hedged are recognized in the condensed consolidated statements of operations. The following tables summarize the Company’s derivative positions and their respective fair values as of October 31, 2012 and January 31, 2012: | | | | | | | | | | | | | | October 31, 2012 | Type of Derivative | | Notional Amount | | Balance Sheet Classification | | Fair Value | | | (In thousands) | Assets | | | | | | | Derivatives designated as hedging instruments | | | | | | | Short-term foreign currency forward | | $ | 36,749 |
| | Prepaid expenses and other current assets | | $ | 713 |
| Total assets | | | | | | $ | 713 |
| Liabilities | | | | | | | Derivatives not designated as hedging instruments | | | | | | | Short-term foreign currency forward | | $ | 12,800 |
| | Other current liabilities | | $ | 155 |
| Derivatives designated as hedging instruments | | | | | | | Short-term foreign currency forward | | 45,778 |
| | Other current liabilities | | 669 |
| Total liabilities | | | | | | $ | 824 |
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| | | | | | | | | | | | | | January 31, 2012 | Type of Derivative | | Notional Amount | | Balance Sheet Classification | | Fair Value | | | (In thousands) | Assets | | | | | | | Derivatives designated as hedging instruments | | | | | | | Short-term foreign currency forward | | $ | 62,719 |
| | Prepaid expenses and other current assets | | $ | 978 |
| Total assets | | | | | | $ | 978 |
| Liabilities | | | | | | | Derivatives not designated as hedging instruments | | | | | | | Short-term foreign currency forward | | $ | 14,510 |
| | Other current liabilities | | $ | 303 |
| Derivatives designated as hedging instruments | | | | | | | Short-term foreign currency forward | | 16,907 |
| | Other current liabilities | | 227 |
| Total liabilities | | | | | | $ | 530 |
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The following tables summarize the Company’s classification of gains and losses on derivative instruments for the three and nine months ended October 31, 2012 and 2011: | | | | | | | | | | | | | | | | Three Months Ended October 31, 2012 | | | Gain (Loss) | Type of Derivative | | Recognized in Other Comprehensive Income (Loss) | | Reclassified from Accumulated Other Comprehensive Income into Statement of Operations (1) | | Recognized in Other Income (Expense), Net | | | (In thousands) | Derivatives not designated as hedging instruments | | | | | | | Foreign currency forward | | $ | — |
| | $ | — |
| | $ | (254 | ) | Derivatives designated as hedging instruments | | | | | | | Foreign currency forward | | (1,670 | ) | | (440 | ) | | — |
| Total | | $ | (1,670 | ) | | $ | (440 | ) | | $ | (254 | ) |
| | | | | | | | | | | | | | | | Three Months Ended October 31, 2011 | | | Gain (Loss) | Type of Derivative | | Recognized in Other Comprehensive Income (Loss) | | Reclassified from Accumulated Other Comprehensive Income into Statement of Operations (1) | | Recognized in Other Income (Expense), Net | | | (In thousands) | Derivatives not designated as hedging instruments | | | | | | | Foreign currency forward | | $ | — |
| | $ | — |
| | $ | 682 |
| Derivatives designated as hedging instruments | | | | | | | Foreign currency forward | | (985 | ) | | (607 | ) | | — |
| Total | | $ | (985 | ) | | $ | (607 | ) | | $ | 682 |
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| | | | | | | | | | | | | | | | Nine Months Ended October 31, 2012 | | | Gain (Loss) | Type of Derivative | | Recognized in Other Comprehensive Income (Loss) | | Reclassified from Accumulated Other Comprehensive Income into Statement of Operations (1) | | Recognized in Other Income (Expense), Net | | | (In thousands) | Derivatives not designated as hedging instruments | | | | | | | Foreign currency forward | | $ | — |
| | $ | — |
| | $ | (123 | ) | Derivatives designated as hedging instruments | | | | | | | Foreign currency forward | | (868 | ) | | (1,205 | ) | | — |
| Total | | $ | (868 | ) | | $ | (1,205 | ) | | $ | (123 | ) | | | | | | | |
| | | | | | | | | | | | | | | | Nine Months Ended October 31, 2011 | | | Gain (Loss) | Type of Derivative | | Recognized in Other Comprehensive Income (Loss) | | Reclassified from Accumulated Other Comprehensive Income into Statement of Operations (1) | | Recognized in Other Income (Expense), Net | | | (In thousands) | Derivatives not designated as hedging instruments | | | | | | | Foreign currency forward | | $ | — |
| | $ | — |
| | $ | (1,225 | ) | Derivatives designated as hedging instruments | | | | | | | Foreign currency forward | | 1,037 |
| | 1,179 |
| | — |
| Total | | $ | 1,037 |
| | $ | 1,179 |
| | $ | (1,225 | ) |
| | (1) | Amounts reclassified from accumulated other comprehensive income (“OCI”) into the statement of operations are classified as operating expenses. |
The components of OCI related to cash flow hedges are as follows: | | | | | | | | | | | | | | | | | | | | Three Months Ended October 31, | | Nine Months Ended October 31, | | | 2012 | | 2011 | | 2012 | | 2011 | | | (In thousands) | Accumulated OCI related to cash flow hedges, beginning of the period | | $ | (2,017 | ) | | $ | 573 |
| | $ | 514 |
| | $ | 748 |
| Unrealized (gains) losses on cash flow hedges | | 4,192 |
| | (1,591 | ) | | (343 | ) | | 4,091 |
| Reclassification adjustment for (losses) gains included in net gain (loss) | | (153 | ) | | 1,044 |
| | (293 | ) | | (4,509 | ) | Changes in accumulated OCI on cash flow hedges, before tax | | 4,039 |
| | (547 | ) | | (636 | ) | | (418 | ) | Other comprehensive (loss) income attributable to noncontrolling interest | | (1,444 | ) | | 465 |
| | 372 |
| | 157 |
| Deferred income tax (provision) benefit
| | (258 | ) | | 41 |
| | 70 |
| | 45 |
| Discontinued operations adjustment | | (310 | ) | | — |
| | (310 | ) | | — |
| Changes in accumulated OCI on cash flow hedges, net of tax | | 2,027 |
| | (41 | ) | | (504 | ) | | (216 | ) | Accumulated OCI related to cash flow hedges, end of the period | | $ | 10 |
| | $ | 532 |
| | $ | 10 |
| | $ | 532 |
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