Basis Of Presentation

6 Months Ended

Jul. 31, 2011

Basis Of Presentation

Basis Of Presentation

1. BASIS OF PRESENTATION

Company Background

Comverse Technology, Inc. ("CTI" and, together with its subsidiaries, the "Company") is a holding company organized as a New York corporation in October 1984 that conducts business through its wholly-owned subsidiary, Comverse, Inc. (together with its subsidiaries, "Comverse"), and its majority-owned subsidiaries, Verint Systems Inc. ("Verint Systems" and together with its subsidiaries, "Verint"), Starhome B.V. (together with its subsidiaries, "Starhome") and, prior to its sale to a third party on December 3, 2010, Ulticom, Inc. (together with its subsidiaries, "Ulticom").

Comverse

Comverse is a leading provider of software-based products, systems and related services that (i) provide converged, prepaid and postpaid billing and active customer management for wireless, wireline and cable network operators ("Business Support Systems" or "BSS") delivering a value proposition designed to ensure timely and efficient service monetization and enable real-time offers to be made to end users based on all relevant customer profile information; (ii) enable wireless and wireline (including cable) network-based Value-Added Services ("VAS"), comprised of two categories – Voice and Messaging – that include voicemail, visual voicemail, call completion, short messaging service ("SMS") text messaging ("texting"), multimedia picture and video messaging and Internet Protocol ("IP") communications; and (iii) provide wireless users with optimized access to mobile Internet websites, content and applications, and generate data usage and revenue for wireless operators. Comverse's products and services are designed to generate carrier voice and data network traffic, revenue and customer loyalty, monetize network operators' services and improve operational efficiency for more than 450 wireless and wireline network communication service provider customers in more than 125 countries, including the majority of the world's 100 largest wireless network operators. Comverse comprises the Company's Comverse segment.

Verint

Verint is a global leader in Actionable Intelligence solutions and value-added services. Verint's solutions enable organizations of all sizes to make timely and effective decisions to improve enterprise performance and enhance safety. Verint's customers use Verint's Actionable Intelligence solutions to capture, distill, and analyze complex and underused information sources, such as voice, video, and unstructured text.

In the enterprise market, Verint's Workforce Optimization solutions help organizations enhance customer service operations in contact centers, branches and back-office environments to increase customer satisfaction, reduce operating costs, identify revenue opportunities, and improve profitability. In the security intelligence market, Verint's Video Intelligence, public safety, and Communications Intelligence solutions are used by government and commercial organizations in their efforts to protect people and property and neutralize terrorism and crime. Verint comprises the Company's Verint segment.

Starhome

Starhome is a provider of wireless service mobility solutions that enhance international roaming. Wireless operators use Starhome's software-based solutions to generate additional revenue and to improve profitability by directing international roaming traffic to preferred networks and by providing a wide range of services to subscribers traveling outside their home network. Starhome is part of the Company's All Other segment.

Ulticom

Ulticom, Inc. was a majority-owned publicly-traded subsidiary of CTI until it was sold to an affiliate of Platinum Equity Advisors, LLC ("Platinum Equity") on December 3, 2010 (the "Ulticom Sale"). Ulticom was a reportable segment of the Company prior to its sale. As a result of the Ulticom Sale, the results of operations of Ulticom are reflected in discontinued operations, less applicable income taxes, as a separate component of net loss in the Company's condensed consolidated statements of operations for the three and six months ended July 31, 2010 (see Note 15, Discontinued Operations).

Condensed Consolidated Financial Statements Preparation

The condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and on the same basis as the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2011 (the "2010 Form 10-K"). The condensed consolidated statements of operations and cash flows for the periods ended July 31, 2011 and 2010, and the condensed consolidated balance sheet as of July 31, 2011 are not audited but reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair presentation of the results of the periods presented. The condensed consolidated balance sheet as of January 31, 2011 is derived from the audited consolidated financial statements presented in the 2010 Form 10-K. Certain information and disclosures normally included in annual consolidated financial statements have been omitted in this interim period report pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim financial statements do not include all of the information and disclosures required by U.S. GAAP for annual financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the 2010 Form 10-K. The results for interim periods are not necessarily indicative of a full fiscal year's results.

Principles of Consolidation

The accompanying condensed consolidated financial statements include CTI and its wholly-owned subsidiaries and its controlled and majority-owned subsidiaries, which include Verint Systems (in which CTI owned 42.0% of the common stock and held 52.9% of the voting power as of July 31, 2011) and Starhome B.V. (66.5% owned as of July 31, 2011). Ulticom, Inc. was a majority-owned subsidiary prior to its sale on December 3, 2010 and was included in the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows through such date. For controlled subsidiaries that are not wholly-owned, the noncontrolling interest is included as a separate component of "Net loss" in the condensed consolidated statements of operations and "Total equity" in the condensed consolidated balance sheets. Verint Systems holds a 50% equity interest in a consolidated variable interest entity in which it is the primary beneficiary.

All intercompany balances and transactions have been eliminated.

The Company includes the results of operations of an acquired business from the date of acquisition.

Use of Estimates

The preparation of the condensed consolidated financial statements and the accompanying notes in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses.

The most significant estimates include:

• Estimates relating to the recognition of revenue, including the determination of vendor specific objective evidence ("VSOE") of fair value or the determination of best estimate of selling price for multiple element arrangements;

• Inventory reserves;

• Allowance for doubtful accounts;

• Fair value of stock-based compensation;

• Valuation of assets acquired and liabilities assumed in business combinations;

• Fair value of reporting units for the purpose of goodwill impairment test;

• Valuation of other intangible assets;

• Valuation of investments and financial instruments;

• Realization of deferred tax assets; and

• The identification and measurement of uncertain tax positions.

The Company's actual results may differ from its estimates.

Working Capital Position and Management's Plans

The Company incurred substantial losses and experienced declines in cash flows and working capital during the three fiscal years ended January 31, 2011 and the six months ended July 31, 2011, and had a significant accumulated deficit as of July 31, 2011.

The Company forecasts that available cash and cash equivalents will be sufficient to meet the liquidity needs, including capital expenditures, of CTI and Comverse for at least the next 12 months. To further enhance the cash position of CTI and Comverse, the Company continues to evaluate capital raising alternatives. The Company's forecast is based upon a number of assumptions, which the Company believes are reasonable. However, should one or more of the assumptions prove incorrect, or should one or more of the risks or uncertainties attendant to the Company and its business materialize, the Company's business and operations could be materially adversely affected and, in such event, the Company may need to seek new borrowings, asset sales or the issuance of equity or debt securities. Management believes that sources of liquidity could be identified.