5. BUSINESS COMBINATIONS

Verint Segment

Vovici Acquisition

On August 4, 2011, Verint acquired all of the outstanding shares of Vovici Corporation ("Vovici"), a U.S.-based privately-held provider of online survey management and enterprise feedback solutions. This acquisition enhances Verint's Enterprise Intelligence product suite to include comprehensive Voice of the Customer software and services offerings, designed to help organizations implement a single-vendor solution set for collecting, analyzing and acting on customer insights. The financial results of Vovici have been included in the Company's condensed consolidated financial statements since August 4, 2011.

Verint acquired Vovici for approximately $56.1 million in cash at closing, including $0.4 million to repay Vovici's bank debt. The consideration also included the exchange of certain unvested Vovici stock options for options to acquire approximately 42,000 shares of Verint Systems' common stock with fair values totaling $1.0 million, of which $0.1 million represents compensation for pre-acquisition services and is included in the consideration transferred and $0.9 million is being recognized as stock-based compensation expense over the remaining future vesting periods of the awards. Verint also agreed to make potential additional cash payments of up to approximately $19.1 million, contingent upon the achievement of certain performance targets over the period ending January 31, 2013. The fair value of this contingent obligation was estimated to be $9.9 million at August 4, 2011.

The $9.9 million acquisition date fair value of the contingent consideration obligation was estimated based on the probability adjusted present value of the consideration expected to be transferred using significant inputs that are not observable in the market. Key assumptions used in this estimate include probability assessments with respect to the likelihood of achieving the performance targets and discount rates consistent with the level of risk of achievement. At each reporting date, the contingent consideration obligation is revalued to its fair value and increases and decreases in fair value are recorded within "Selling, general and administrative" expenses in the Company's condensed consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets. The Company recorded expense of approximately $0.3 million for the three months ended October 31, 2011, reflecting the impact of revised assessments of the probability of payment, as well as the decrease in the discount period since the acquisition date. As of October 31, 2011, the fair value of this contingent consideration obligation was approximately $10.2 million, of which $5.9 million was recorded within "Accounts payable and accrued expenses" and $4.3 million within "Other long-term liabilities".

The purchase price was allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair values assigned to identifiable intangible assets acquired was determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management. The acquired identifiable intangible assets are being amortized on a straight-line basis, which the Company believes approximates the pattern in which the assets are utilized, over their estimated useful lives.

Among the factors contributing to the recognition of goodwill in this transaction were synergies in products and technologies, and the addition of a skilled, assembled workforce. This goodwill is not deductible for income tax purposes.

In connection with the purchase price allocation, the estimated fair value of support obligations assumed from Vovici was determined utilizing a cost build-up approach. The cost build-up approach calculates fair value by estimating the costs relating to fulfilling these obligations plus a normal profit margin, which approximates the amount the Company believes would be required to pay a third party to assume the support obligations. The estimated costs to fulfill the support obligation were based on the historical direct costs related to providing support services. These estimated costs did not include any costs associated with selling efforts or research and development or the related margins on these costs. Profit associated with selling efforts is excluded because the selling effort on the support contracts concluded prior to the August 4, 2011 acquisition date. The estimated profit margin was 15%, which the Company believes best approximates the operating profit margin to fulfill support obligations. As a result, in allocating the purchase price, an adjustment was recorded to reduce the $5.3 million carrying value of Vovici's deferred revenue to $2.3 million, representing the estimated fair value of the support obligations assumed. As former Vovici customers renew their support contracts, revenue will be recognized at the full contract value over the remaining term of the contracts.

Revenue attributable to Vovici from August 4, 2011 through October 31, 2011 was $2.3 million. The impact of Vovici on net income for this fiscal period was not significant.

Transaction and related costs, consisting primarily professional fees and integration expenses, directly related to the acquisition of Vovici, totaled $2.5 million for the nine months ended October 31, 2011, including $1.3 million incurred during the three months ended October 31, 2011, were expensed as incurred and recorded within "Selling, general and administrative" expenses.

Global Management Technologies Acquisition

On October 7, 2011, Verint acquired all of the outstanding shares of Global Management Technologies Corporation ("GMT"), a U.S.-based, privately-held provider of workforce management solutions whose software and services are widely used by organizations, particularly in retail branch banking environments. This acquisition adds key functionality to Verint's Enterprise Intelligence product solutions. The financial results of GMT have been included in the Company's condensed consolidated financial statements since October 7, 2011.

Verint acquired GMT for approximately $24.6 million in cash at closing. Verint also agreed to make potential additional cash payments of up to approximately $17.4 million, contingent upon the achievement of certain performance targets over the period ending January 31, 2014. As of October 7, 2011 the fair value of this contingent obligation was estimated to be $12.0 million, of which $2.9 million was recorded within "Accounts payable and accrued expenses" and $9.1 million within "Other long-term liabilities".

The $12.0 million acquisition date fair value of the contingent consideration obligation was estimated based on the probability adjusted present value of the consideration expected to be transferred using significant inputs that are not observable in the market. Key assumptions used in this estimate include probability assessments with respect to the likelihood of achieving the performance targets and discount rates consistent with the level of risk of achievement. At each reporting date, the contingent consideration obligation is revalued to its fair value and increases and decreases in fair value are recorded within "Selling, general and administrative" expenses in the Company's condensed consolidated statements of operations. Increases or decreases in the fair value of the contingent consideration obligation may result from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets. There was no change in the estimated fair value of the contingent consideration obligation between the acquisition date and October 31, 2011.

In connection with the purchase price allocation, the estimated fair value of support obligations assumed from GMT was determined utilizing a cost build-up approach. The cost build-up approach calculates fair value by estimating the costs relating to fulfilling the obligations plus a normal profit margin, which approximates the amount that the Company believes would be required to pay a third party to assume the support obligations. The estimated costs to fulfill the support obligation were based on the historical direct costs related to providing support services. These estimated costs did not include any costs associated with selling efforts or research and development or the related margins on these costs. Profit associated with selling efforts is excluded because the selling effort on the support contracts was concluded prior to the October 7, 2011 acquisition date. The estimated profit margin was 20%, which the Company believes best approximates the operating profit margin to fulfill support obligations. As a result, in allocating the purchase price, an adjustment was recorded to reduce the $4.3 million carrying value of GMT's deferred revenue to $1.2 million, representing the estimated fair value of the support obligations assumed. As former GMT customers renew their support contracts, revenue will be recognized at the full contract value over the remaining term of the contracts.

Revenue and the impact on net income attributable to GMT from October 7, 2011 through October 31, 2011 were not significant.

Transaction and related costs, primarily professional fees and integration expenses, directly related to the acquisition of GMT, totaled $1.0 million for the nine months ended October 31, 2011, almost all of which were incurred during the three months ended October 31, 2011, were expensed as incurred and recorded within "Selling, general and administrative" expenses.

Other Business Combinations

On August 2, 2011, Verint acquired all of the outstanding shares of a privately-held provider of communications intelligence solutions, data retention services, and network performance management, based in the Americas region. This acquisition expands Verint's Communications Intelligence product portfolio and increases its presence in this region.

On March 30, 2011, Verint acquired all of the outstanding shares of a privately-held company, based in Israel. This acquisition broadened product portfolio of Verint's video intelligence product line.

Verint acquired these two companies for combined consideration of approximately $34.1 million, including $22.0 million of combined cash paid at the closings. Verint also agreed to make potential additional cash payments aggregating up to approximately $27.3 million contingent upon the achievement of certain performance targets over periods ending January 31, 2014. The combined fair values of these contingent consideration obligations were estimated to be $11.8 million as of the respective acquisition dates.

Benefits of $0.9 million and $1.1 million were recorded within selling, general and administrative expenses for the three and nine months ended October 31 2011, respectively, for changes in the fair values of the contingent consideration obligations associated with these acquisitions, reflecting the impacts of revised assessments of the probability of payment, as well as decreases in the discount periods since the acquisition dates. As of October 31, 2011, the combined fair values of these contingent consideration obligations were $10.7 million, of which $3.1 million was recorded within "Accounts payable and accrued expenses" and $7.6 million within "Other long-term liabilities".

The fair values assigned to identifiable intangible assets acquired in these business combinations were determined primarily by using the income approach, which discounts expected future cash flows to present value using estimates and assumptions determined by management. The acquired identifiable intangible assets are being amortized on a straight-line basis, which the Company believes approximates the pattern in which the assets are utilized, over their estimated useful lives.

Among the factors contributing to the recognition of goodwill in these transactions were synergies in products and technologies, and the additions of skilled, assembled workforces. Of the $19.6 million of goodwill associated with these business combinations, $10.1 million was not deductible for income tax purposes, and $9.5 million is still being assessed for tax deductibility.

In connection with the foregoing August 2, 2011 Verint acquisition, the Company has evaluated and continues to evaluate the impact of certain liabilities associated with pre-acquisition business activities of the acquired company. Based upon this evaluation, the Company recorded liabilities of approximately $10.7 million, of which $5.5 million is classified as current and $5.2 million is classified as long-term, along with corresponding indemnification assets of the same amounts and classified in the same manner, as components of the purchase price for this acquisition, representing the Company's best estimates of these amounts at the acquisition date. The indemnification assets recognize the selling shareholders' contractual obligation to indemnify Verint for these pre-acquisition liabilities, and were measured on the same basis as the corresponding liabilities. As of October 31, 2011, the current and long-term liabilities were reduced to $5.0 million and $4.8 million, respectively, as a result of currency exchange rate fluctuations, with corresponding changes in the current and long-term indemnification assets. The Company is continuing to gather and assess information in this regard, and changes to the amounts recorded, if any, during the remainder of the measurement period, will be included in the purchase price allocation during the measurement period and, subsequently, in the Company's results of operations.

Revenue and the impact on net income attributable to these acquisitions for the three and nine months ended October 31, 2011 were not significant.

Transaction and related costs, primarily professional fees and integration expenses, directly related to these acquisitions totaled $3.0 million for the nine months ended October 31, 2011, including $0.6 million incurred during the three months ended October 31, 2011, and were expensed as incurred.

Components and Allocations of Purchase Prices

The following table sets forth the components and the allocations of the purchase prices, some of which are preliminary, for business combinations completed during the nine months ended October 31, 2011:


	Vovici			GMT			Other
	(In thousands)
Components of Purchase Price:
Cash and cash equivalents	$	55,708		$	24,596		$	21,965
Fair value of contingent consideration		9,900			12,000			11,804
Fair value of stock options		60			—			—
Bank debt, prepaid at closing		435			—			—
Other purchase price adjustments		—			—			317

Total purchase price	$	66,103		$	36,596		$	34,086


Allocation of Purchase Price:
Net tangible assets (liabilities):
Accounts receivable	$	1,106		$	512		$	493
Other current assets		4,396			1,717			12,445
Other assets		912			482			5,508
Current and other liabilities		(1,794	)		(1,634	)		(15,653	)
Deferred revenue		(2,264	)		(1,234	)		(845	)
Bank debt		—			—			(3,330	)
Deferred income taxes - long-term		(2,300	)		—			—

Net tangible assets (liabilities)		56			(157	)		(1,382	)

Identifiable intangible assets:
Developed technology		11,300			7,500			6,943
Customer relationships		15,400			7,200			6,550
Trademarks and trade names		1,700			400			1,000
Other identifiable intangible assets		—			—			1,421

Total identifiable intangible assets ⁽¹⁾		28,400			15,100			15,914

Goodwill		37,647			21,653			19,554

Total purchase price	$	66,103		$	36,596		$	34,086

(1)	The weighted-average estimated useful life of all finite-lived identifiable intangible assets is 7.5 years.

The purchase price allocations for acquisitions completed during the nine months ended October 31, 2011 are preliminary and subject to revision as more detailed analyses are completed and additional information about the acquisition date fair values of assets and liabilities becomes available during the respective measurement periods. The purchase price allocations for these acquisitions as reported as of October 31, 2011 represent the Company's best estimates of their fair values and were based upon information available to the Company.

For the acquisition of Vovici, the acquired developed technology, customer relationships, and trademarks and tradenames were assigned estimated useful lives of six years, ten years, and five years, respectively, the weighted average of which is approximately 8.1 years.

For the acquisition of GMT, the acquired developed technology, customer relationships, and trademarks and tradenames were assigned estimated useful lives of five years, ten years, and three years, respectively, the weighted average of which is approximately 7.3 years.

For other acquisitions, the acquired developed technology, customer relationships, trademarks and tradenames, and other identifiable intangible assets were assigned estimated useful lives of six years, from four years to ten years, five years, and from three years to four years, respectively, the weighted average of which is approximately 6.7 years.

For the Year Ended January 31, 2011

Iontas Limited

On February 4, 2010, Verint acquired all of the outstanding shares of Iontas Limited ("Iontas"), a privately-held provider of desktop analytics solutions which measure application usage and analyze workflows to help improve staff performance in contact center, branch, and back-office operations environments. Verint acquired Iontas, among other objectives, to expand the desktop analytical capabilities of its Enterprise Intelligence solutions. The financial results of Iontas have been included in the condensed consolidated financial statements since the acquisition date.

Verint acquired Iontas for total consideration valued at $21.7 million, including cash consideration of $17.7 million, and additional milestone-based contingent payments of up to $3.8 million tied to certain performance targets being achieved over the two-year period following the acquisition date. The acquisition-date fair value of the contingent consideration was estimated to be $3.2 million. The purchase price also included $1.5 million of prepayments for product licenses and support services procured from Iontas prior to the acquisition date, partially offset by $0.7 million of trade accounts payable to Iontas as of the acquisition date.

The consideration paid to acquire Iontas was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, which included $6.9 million for developed technology, $0.3 million for non-competition agreements, $1.7 million for tangible net assets, and $12.8 million for goodwill. The developed technology and non-competition agreements were assigned estimated useful lives of six years and three years, respectively, the weighted average of which is 5.9 years, and are being amortized on a straight-line basis, which the Company believes approximates the pattern in which the assets are utilized, over these estimated useful lives.

Among the factors that contributed to the recognition of goodwill in this transaction were the expansion of Verint's desktop analytical capabilities, the expansion of its suite of products and services, and the addition of an assembled workforce. This goodwill is not deductible for income tax purposes.

The Company recorded the $3.2 million acquisition-date estimated fair value of the contingent consideration as a component of the purchase price of Iontas. During the three months ended April 30, 2011, $2.0 million of the previously recorded contingent consideration was paid to the former shareholders of Iontas. The estimated fair value of the remaining contingent consideration was $1.7 million as of October 31, 2011 and was recorded within "Accounts payable and other accrued expenses." Changes in the fair value of this contingent consideration of $0.2 million for each of the nine months ended October 31, 2011 and 2010, respectively, were recorded within "Selling, general and administrative" expenses for those fiscal periods.

Transaction costs, primarily professional fees, directly related to the acquisition of Iontas, totaled $1.3 million and were expensed as incurred and recorded within "Selling, general and administrative" expenses.

Revenue from Iontas for the three and nine months ended October 31, 2011 and 2010 was not material.

Other Business Combination

In December 2010, Verint acquired certain technology and other assets in a transaction that qualified as a business combination. Total consideration for this acquisition was less than $15.0 million. The impact of this acquisition was not material to the Company's condensed consolidated financial statements. The fair value of the liability for contingent consideration related to this acquisition increased by $1.9 million during the nine months ended October 31, 2011, resulting in a corresponding charge recorded within "Selling, general and administrative" expenses for that fiscal period. Substantially all of the increase occurred during the three months ended April 30, 2011. The earned contingent consideration related to this acquisition was paid to the sellers during the three months ended July 31, 2011.

Pro Forma Information

The following table provides unaudited pro forma total revenue and net income (loss) attributable to Comverse Technology, Inc. for the three and nine months ended October 31, 2011 and 2010, as if Vovici and GMT had been acquired on February 1, 2010. These unaudited pro forma results reflect certain adjustments related to these acquisitions, such as amortization expense on finite-lived intangible assets acquired from Vovici and GMT. The unaudited pro forma results do not include any operating efficiencies or potential cost savings which may result from these business combinations. Accordingly, such unaudited pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisitions been completed on February 1, 2010, nor are they indicative of future operating results. The pro forma impact of the other business combinations discussed in this note were not material to the Company's historical consolidated operating results and is therefore not presented.


	Three Months Ended October 31,					Nine Months Ended October 31,
	2011		2010			2011			2010
	(In thousands)
Total revenue	$	457,076	$	431,737		$	1,206,577		$	1,206,022

Net income (loss) attributable to Comverse Technology Inc.	$	36,746	$	(42,268	)	$	(62,891	)	$	(151,665	)