14. FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

Money Market Funds; the Company values these assets using quoted market prices for such funds.

Commercial paper; the Company uses quoted prices for similar assets and liabilities.

ARS; the Company determines the fair value of ARS on a quarterly basis by utilizing a discounted cash flow model, which considers, among other factors, assumptions about the (i) underlying collateral, (ii) credit risk associated with the issuer, and (iii) contractual maturity. The discounted cash flow model considers contractual future cash flows, representing both interest and principal payments. Future interest payments were projected using U.S. Treasury and swap curves over the remaining term of the ARS in accordance with the terms of each specific security and principal payments were assumed to be made at an estimated contractual maturity date taking into account applicable prepayments. Yields used to discount these payments were determined based on the specific characteristics of each security. Key considerations in the determination of the appropriate discount rate include the securities' remaining term to maturity, capital structure subordination, quality and level of collateralization, complexity of payout structure, credit rating of the issuer, and the presence or absence of additional insurance enhancement from monoline insurers.

Contingent consideration; the Company values contingent consideration using an estimated probability-adjusted discounted cash flow model. The fair value measurement is based on significant inputs not observable in the market. The fair value of contingent consideration is re-measured at each reporting period, and any changes in fair value are recorded in earnings.

Derivative assets and liabilities; the fair value of derivative instruments is based on quotes or data received from counterparties and third party financial institutions. These quotes are reviewed for reasonableness by discounting the future estimated cash flows under the contracts considering the terms and maturities of the contracts and markets rates for similar contracts using readily observable market prices thereof.

The following tables present financial instruments according to the fair value hierarchy as defined by the FASB's guidance as of January 31, 2011 and 2010:

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis as of January 31, 2011


	January 31, 2011
	Quoted Prices to Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(In thousands)
Financial Assets:
Commercial paper ⁽¹⁾	$	—	$	9,375	$	—	$	9,375
Money market funds ⁽¹⁾		186,414		—		—		186,414
Auction rate securities		—		—		72,441		72,441
Derivative assets		—		957		—		957
Contingent consideration asset recorded for sale of business		—		—		722		722

	$	186,414	$	10,332	$	73,163	$	269,909

Financial Liabilities:
Derivative liabilities	$	—	$	1,926	$	—	$	1,926
Contingent consideration liability for business combination		—		—		3,686		3,686

	$	—	$	1,926	$	3,686	$	5,612

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis as of January 31, 2010


	January 31, 2010
	Quoted Prices to Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(In thousands)
Financial Assets:
Commercial paper ⁽¹⁾	$	—	$	122,219	$	—	$	122,219
Money market funds ⁽¹⁾		114,387		—		—		114,387
Auction rate securities		—		—		114,650		114,650
Derivative assets		—		1,622		—		1,622

	$	114,387	$	123,841	$	114,650	$	352,878

Financial Liabilities:
Derivative liabilities	$	—	$	30,448	$	—	$	30,448

	$	—	$	30,448	$	—	$	30,448

(1)

As of January 31, 2011, $162.4 million of commercial paper and money market funds were classified in "Cash and cash equivalents" and $33.4 million of money market funds were classified in "Restricted cash and bank time deposits." As of January 31, 2010, $210.5 million of commercial paper and money market funds were classified in "Cash and cash equivalents," $9.0 million of money market funds were classified in "Restricted cash and bank time deposits" and $17.1 million of money market funds was classified in "Other assets" as long-term restricted cash.

The following table is a summary of changes in the fair value of the level 3 financial assets and liabilities during the fiscal years ended January 31, 2011 and 2010:


	Level Three Financial Assets and Liabilities
	Fiscal Year Ended January 31,
	2011					2010
	Asset			Liability		Asset			Liability
	(In thousands)
Beginning balance	$	114,650		$	—	$	120,265		$	—
Sales and redemptions		(57,220	)		—		(26,370	)		—
Change in realized and unrealized gains included in other income (expense), net		23,810			—		10,759			—
Change in unrealized (losses) gains included in other comprehensive income		(8,392	)		—		16,910			—
Impairment charges		(407	)		—		(6,914	)		—
Contingent consideration asset recorded for sale of business		722			—		—			—
Contingent consideration liability recorded for business combination		—			3,424		—			—
Change in fair value recorded in operating expenses		—			262		—			—

Ending balance	$	73,163		$	3,686	$	114,650		$	—

The Company did not recognize any transfers between levels of fair value measurement hierarchy during the fiscal years ended January 31, 2011 and 2010.

Assets and Liabilities Not Measured at Fair Value on a Recurring Basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also measures certain assets and liabilities at fair value on a nonrecurring basis. The Company measures non-financial assets, including goodwill, intangible assets and property, plant and equipment, at fair value when there is an indication of impairment. These assets are recorded at fair value only when an impairment charge is recognized. For further details regarding impairment reviews see in Note 1, Organization, Business and Summary of Significant Accounting Policies.

The following table presents the fair value of financial instruments as of January 31, 2011 and 2010 which are carried at cost in the consolidated balance sheets.


	Fiscal Years Ended January 31,
	2011				2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(In thousands)
Assets:
UBS Put	$	—	$	—	$	6,696	$	6,696

Liabilities:
Term Loan	$	583,234	$	586,200	$	605,912	$	572,600
Line of credit		6,000		6,000		—		—
Revolving Credit Facility		—		—		15,000		15,000
Convertible Debt Obligations		2,195		801		2,195		1,161

The carrying amounts of cash and cash equivalents, restricted cash and bank time deposits, accounts receivable and accounts payable are reasonable estimates of their fair value.

The UBS Put was recorded at inception at its then fair value of $13.6 million and subsequently assessed for impairment. The Company determined the fair value of the UBS Put was $6.7 million as of January 31, 2010, after the recognition of a pre-tax impairment charge of $6.9 million, using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality and risk profile, which are considered significant unobservable inputs. In determining the market interest yield curve, the Company considered the credit rating of UBS (see Note 3, Investments). As such, the UBS Put has a fair value based on inputs consistent with an asset included in Level 3 of the fair value hierarchy.

Due to its exercise on June 30, 2010, the Company had no recorded amounts in connection with the UBS Put as of January 31, 2011.

As of January 31, 2011, the estimated fair value of Verint's term loan borrowings was $586.2 million. As of January 31, 2010, the estimated fair values of Verint's term loan and revolving credit borrowings outstanding were $572.6 million and $15.0 million, respectively. The estimated fair value of the term loan is based upon the estimated bid and ask prices as determined by the agent responsible for the syndication of Verint's term loan. The fair value of the revolving credit facility was estimated to equal the principal amount outstanding as of January 31, 2010.

As of January 31, 2011, the fair value of the Comverse Ltd.'s borrowings under its line of credit was estimated to be equal to the principal amount outstanding.

The carrying amount of Convertible Debt Obligations reported in the consolidated balance sheet as of January 31, 2011 and 2010 was $2.2 million. The Company has determined their fair value as of January 31, 2011 and 2010, to be $0.8 million and $1.2 million, respectively.