18. BUSINESS SEGMENT INFORMATION

The Company changed its reportable segments during the three months ended October 31, 2011. The change in reportable segments is 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. Consequently, 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 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. The Company has recast the presentation of its segment information for the six months ended July 31, 2011 (which is included in the segment information for the nine months ended October 31, 2011) and for the three and nine months ended October 31, 2010 to reflect these reportable segments. The Company does not maintain balance sheets for the Comverse operating segments. For a more comprehensive discussion relating to the changes in the Company's reportable segments, see Note 1, Basis of Presentation. Ulticom was a reportable segment of the Company prior to its sale to a third party on December 3, 2010. 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 nine months ended October 31, 2010.

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, as defined by management, represents operating results of a segment without the impact of significant expenditures incurred by the segment in connection with the efforts to become or remain current in periodic reporting obligations under the federal securities laws which are expected to be eliminated over time, certain non-cash charges, and certain other gains and charges.

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) impairment charges; (vi) litigation settlements and related costs; (vii) acquisition-related charges; (viii) restructuring and integration charges; and (ix) certain other gains and charges. Compliance-related professional fees and compliance-related compensation and other expenses recorded for fiscal periods ended on or before July 31, 2011 relate to fees and expenses incurred in connection with (a) the Company's efforts to complete current and previously issued financial statements and audits of such financial statements, and (b) the Company's efforts to become current in its periodic reporting obligations under the federal securities laws. Compliance-related professional fees and compliance-related compensation and other expenses recorded for the three months ended October 31, 2011 relate to fees and expenses incurred in connection with the timely filing of our Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2011 and the Company's efforts to remediate material weaknesses in internal control over financial reporting that are expected to be eliminated over time.

In evaluating each segment's performance, management uses segment revenue, which consists of revenue generated by the segment, including intercompany revenue. 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 nine months ended October 31, 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 standalone basis with respect to acquisitions consummated by Verint during the periods presented. Verint did not have a segment revenue adjustment for the three or nine months ended October 31, 2010.

The tables below present information about total revenue, total costs and expenses, income (loss) from operations, interest expense, depreciation and amortization, other non-cash items, and segment performance for the three and nine months ended October 31, 2011 and 2010:


	Comverse BSS			Comverse VAS			Verint			All Other			Eliminations			Consolidated
	(In thousands)
Three Months Ended October 31, 2011:

Revenue	$	117,731		$	112,655		$	199,364		$	23,328		$	—		$	453,078
Intercompany revenue		—			—			—			1,066			(1,066	)		—

Total revenue	$	117,731		$	112,655		$	199,364		$	24,394		$	(1,066	)	$	453,078


Total costs and expenses	$	87,318		$	64,283		$	181,082		$	89,309		$	(1,044	)	$	420,948


Income (loss) from operations	$	30,413		$	48,372		$	18,282		$	(64,915	)	$	(22	)	$	32,130


Computation of segment performance:
Total revenue	$	117,731		$	112,655		$	199,364		$	24,394
Segment revenue adjustment		—			—			5,211			—

Segment revenue	$	117,731		$	112,655		$	204,575		$	24,394


Total costs and expenses	$	87,318		$	64,283		$	181,082		$	89,309
Segment expense adjustments:
Stock-based compensation expense		—			—			6,650			2,010
Amortization of acquisition-related intangibles		4,245			—			9,368			—
Compliance-related professional fees		—			—			3			5,082
Compliance-related compensation and other expenses		(1	)		295			—			1,281
Impairment charges		—			—			—			1,118
Litigation settlements and related costs		—			—			—			4,882
Acquisition-related charges		—			—			2,183			—
Restructuring and integration charges		—			—			—			1,838
Gain on sale of land		—			—			—			—
Other		—			—			2,329			3,155

Segment expense adjustments		4,244			295			20,533			19,366

Segment expenses		83,074			63,988			160,549			69,943

Segment performance	$	34,657		$	48,667		$	44,026		$	(45,549	)


Interest expense	$	—		$	—		$	(7,905	)	$	(287	)	$	—		$	(8,192	)

Depreciation and amortization	$	(5,116	)	$	(1,248	)	$	(13,613	)	$	(2,422	)	$	—		$	(22,399	)

Other non-cash items ⁽¹⁾	$	—		$	—		$	(44	)	$	(1,118	)	$	—		$	(1,162	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.


	Comverse BSS			Comverse VAS			Verint			All Other			Eliminations			Consolidated
	(In thousands)
Three Months Ended October 31, 2010:

Revenue	$	90,906		$	121,141		$	186,641		$	26,772		$	—		$	425,460
Intercompany revenue		—			—			—			795			(795	)		—

Total revenue	$	90,906		$	121,141		$	186,641		$	27,567		$	(795	)	$	425,460


Total costs and expenses	$	64,888		$	65,248		$	156,248		$	116,992		$	(1,218	)	$	402,158


Income (loss) from operations	$	26,018		$	55,893		$	30,393		$	(89,425	)	$	423		$	23,302


Computation of segment performance:
Total revenue	$	90,906		$	121,141		$	186,641		$	27,567
Segment revenue adjustment		—			—			—			—

Segment revenue	$	90,906		$	121,141		$	186,641		$	27,567


Total costs and expenses	$	64,888		$	65,248		$	156,248		$	116,992
Segment expense adjustments:
Stock-based compensation expense		—			—			13,090			2,744
Amortization of acquisition-related intangibles		4,641			—			7,632			—
Compliance-related professional fees		—			—			823			31,144
Compliance-related compensation and other expenses		47			—			—			1,829
Litigation settlements and related costs		—			—			—			(17,258	)
Acquisition-related charges		—			—			518			—
Restructuring and integration charges		—			—			—			21,800
Gain on sale of land		—			—			—			(2,371	)
Other		—			—			646			1,230

Segment expense adjustments		4,688			—			22,709			39,118

Segment expenses		60,200			65,248			133,539			77,874

Segment performance	$	30,706		$	55,893		$	53,102		$	(50,307	)


Interest expense	$	—		$	—		$	(8,941	)	$	(79	)	$	—		$	(9,020	)

Depreciation and amortization	$	(5,646	)	$	(1,104	)	$	(12,148	)	$	(2,757	)	$	—		$	(21,655	)

Other non-cash items⁽¹⁾	$	—		$	—		$	(15	)	$	(272	)	$	—		$	(287	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.


	Comverse BSS			Comverse VAS			Verint			All Other			Eliminations			Consolidated
	(In thousands)
Nine Months Ended October 31, 2011:

Revenue	$	278,403		$	276,234		$	570,655		$	63,650		$	—		$	1,188,942
Intercompany revenue		—			—			—			3,983			(3,983	)		—

Total revenue	$	278,403		$	276,234		$	570,655		$	67,633		$	(3,983	)	$	1,188,942


Total costs and expenses	$	222,142		$	177,217		$	512,129		$	270,702		$	(4,016	)	$	1,178,174


Income (loss) from operations	$	56,261		$	99,017		$	58,526		$	(203,069	)	$	33		$	10,768


Computation of segment performance:
Total revenue	$	278,403		$	276,234		$	570,655		$	67,633
Segment revenue adjustment		—			—			6,173			—

Segment revenue	$	278,403		$	276,234		$	576,828		$	67,633


Total costs and expenses	$	222,142		$	177,217		$	512,129		$	270,702
Segment expense adjustments:
Stock-based compensation expense		—			—			20,841			7,240
Amortization of acquisition-related intangibles		13,241			—			25,664			—
Compliance-related professional fees		—			—			1,011			32,955
Compliance-related compensation and other expenses		2,066			1,531			—			1,885
Impairment charges		—			5			—			1,270
Litigation settlements and related costs		—			—			—			5,444
Acquisition-related charges		—			—			7,377			—
Restructuring and integration charges		—			—			—			14,888
Gain on sale of land		—			—			—			—
Other		—			—			4,335			6,250

Segment expense adjustments		15,307			1,536			59,228			69,932

Segment expenses		206,835			175,681			452,901			200,770

Segment performance	$	71,568		$	100,553		$	123,927		$	(133,137	)


Interest expense	$	—		$	—		$	(24,556	)	$	(769	)	$	—		$	(25,325	)

Depreciation and amortization	$	(15,957	)	$	(3,281	)	$	(39,152	)	$	(7,333	)	$	—		$	(65,723	)

Other non-cash items ⁽¹⁾	$	—		$	—		$	(266	)	$	(1,275	)	$	—		$	(1,541	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.


	Comverse BSS			Comverse VAS			Verint			All Other			Eliminations			Consolidated
	(In thousands)
Nine Months Ended October 31, 2010:

Revenue	$	242,151		$	341,001		$	539,930		$	69,508		$	—		$	1,192,590
Intercompany revenue		—			—			—			2,271			(2,271	)		—

Total revenue	$	242,151		$	341,001		$	539,930		$	71,779		$	(2,271	)	$	1,192,590


Total costs and expenses	$	205,272		$	222,026		$	489,720		$	352,320		$	(3,308	)	$	1,266,030


Income (loss) from operations	$	36,879		$	118,975		$	50,210		$	(280,541	)	$	1,037		$	(73,440	)


Computation of segment performance:
Total revenue	$	242,151		$	341,001		$	539,930		$	71,779
Segment revenue adjustment		—			—			—			—

Segment revenue	$	242,151		$	341,001		$	539,930		$	71,779


Total costs and expenses	$	205,272		$	222,026		$	489,720		$	352,320
Segment expense adjustments:
Stock-based compensation expense		—			—			39,095			8,492
Amortization of acquisition-related intangibles		13,953			—			22,762			—
Compliance-related professional fees		—			—			27,090			107,492
Compliance-related compensation and other expenses		1,617			326			—			804
Litigation settlements and related costs		—			—			—			(17,148	)
Acquisition-related charges		—			—			1,349			—
Restructuring and integration charges		—			—			—			28,776
Gain on sale of land		—			—			—			(2,371	)
Other		—			—			1,199			269

Segment expense adjustments		15,570			326			91,495			126,314

Segment expenses		189,702			221,700			398,225			226,006

Segment performance	$	52,449		$	119,301		$	141,705		$	(154,227	)


Interest expense	$	—		$	—		$	(20,825	)	$	(416	)	$	—		$	(21,241	)

Depreciation and amortization	$	(17,877	)	$	(4,348	)	$	(36,100	)	$	(7,941	)	$	—		$	(66,266	)

Other non-cash items ⁽¹⁾	$	—		$	—		$	(238	)	$	(595	)	$	—		$	(833	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.

Supplemental Financial Information

As discussed above, the Company has revised its segment reporting as a result of the implementation of the Phase II Business Transformation at Comverse and the manner in which its CODM reviews the operating performance of Comverse and allocates resources to its operating segments. The Company is providing the following additional information, presenting the results of operations of the previous Comverse reporting 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 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 segments and includes 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 Company determined that the operating segments of the Company's Comverse subsidiary included in "Comverse Other" do not meet the aggregation criteria under the segment reporting guidance; specifically they do not have similar economic characteristics, which would permit the presentation of "Comverse Other" results of operations as a separate reportable segment in the revised segment reporting information. Accordingly, such 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 efforts to become or remain current in periodic reporting obligations under the federal securities laws which are expected to be eliminated over time, certain non-cash charges, and certain other gains and charges.


	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Three Months Ended October 31, 2011:

Revenue	$	117,731		$	112,655		$	12,757		$	243,143
Intercompany revenue		—			—			654			654

Total revenue	$	117,731		$	112,655		$	13,411		$	243,797


Total costs and expenses	$	87,318		$	64,283		$	62,695		$	214,296


Income (loss) from operations	$	30,413		$	48,372		$	(49,284	)	$	29,501


Computation of Comverse performance:
Total revenue	$	117,731		$	112,655		$	13,411		$	243,797

Total costs and expenses	$	87,318		$	64,283		$	62,695		$	214,296
Expense adjustments:
Stock-based compensation expense		—			—			974			974
Amortization of acquisition-related intangibles		4,245			—			—			4,245
Compliance-related professional fees		—			—			4,162			4,162
Compliance-related compensation and other expenses		(1	)		295			1,281			1,575
Impairment charges		—			—			1,118			1,118
Litigation settlements and related costs		—			—			—			—
Acquisition-related charges		—			—			—			—
Restructuring and integration charges		—			—			1,838			1,838
Gain on sale of land		—			—			—			—
Other		—			—			(8	)		(8	)

Expense adjustments		4,244			295			9,365			13,904

Expenses after adjustments											200,392

Comverse performance										$	43,405


Interest expense	$	—		$	—		$	(283	)	$	(283	)

Depreciation and amortization	$	(5,116	)	$	(1,248	)	$	(2,202	)	$	(8,566	)

Other non-cash items ⁽¹⁾	$	—		$	—		$	(1,118	)	$	(1,118	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.


	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Three Months Ended October 31, 2010:

Revenue	$	90,906		$	121,141		$	16,279		$	228,326
Intercompany revenue		—			—			575			575

Total revenue	$	90,906		$	121,141		$	16,854		$	228,901


Total costs and expenses	$	64,888		$	65,248		$	107,884		$	238,020


Income (loss) from operations	$	26,018		$	55,893		$	(91,030	)	$	(9,119	)


Computation of Comverse performance:
Total revenue	$	90,906		$	121,141		$	16,854		$	228,901

Total costs and expenses	$	64,888		$	65,248		$	107,884		$	238,020
Expense adjustments:
Stock-based compensation expense		—			—			858			858
Amortization of acquisition-related intangibles		4,641			—			—			4,641
Compliance-related professional fees		—			—			23,134			23,134
Compliance-related compensation and other expenses		47			—			1,840			1,887
Impairment charges		—			—			—			—
Litigation settlements and related costs		—			—			—			—
Acquisition-related charges		—			—			—			—
Restructuring and integration charges		—			—			21,800			21,800
Gain on sale of land		—			—			(2,371	)		(2,371	)
Other		—			—			21			21

Expense adjustments		4,688			—			45,282			49,970

Expenses after adjustments											188,050

Comverse performance										$	40,851


Interest expense	$	—		$	—		$	(77	)	$	(77	)

Depreciation and amortization	$	(5,646	)	$	(1,104	)	$	(2,526	)	$	(9,276	)

Other non-cash items⁽¹⁾	$	—		$	—		$	(272	)	$	(272	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.


	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Nine Months Ended October 31, 2011:

Revenue	$	278,403		$	276,234		$	32,624		$	587,261
Intercompany revenue		—			—			2,355			2,355

Total revenue	$	278,403		$	276,234		$	34,979		$	589,616


Total costs and expenses	$	222,142		$	177,217		$	188,840		$	588,199


Income (loss) from operations	$	56,261		$	99,017		$	(153,861	)	$	1,417


Computation of Comverse performance:
Total revenue	$	278,403		$	276,234		$	34,979		$	589,616

Total costs and expenses	$	222,142		$	177,217		$	188,840		$	588,199
Expense adjustments:
Stock-based compensation expense		—			—			2,671			2,671
Amortization of acquisition-related intangibles		13,241			—			—			13,241
Compliance-related professional fees		—			—			14,629			14,629
Compliance-related compensation and other expenses		2,066			1,531			1,885			5,482
Impairment charges		—			5			1,270			1,275
Litigation settlements and related costs		—			—			474			474
Acquisition-related charges		—			—			—			—
Restructuring and integration charges		—			—			14,888			14,888
Gain on sale of land		—			—			—			—
Other		—			—			(55	)		(55	)

Expense adjustments		15,307			1,536			35,762			52,605

Expenses after adjustments											535,594

Comverse performance										$	54,022


Interest expense	$	—		$	—		$	(754	)	$	(754	)

Depreciation and amortization	$	(15,957	)	$	(3,281	)	$	(6,676	)	$	(25,914	)

Other non-cash items ⁽¹⁾	$	—		$	—		$	(1,275	)	$	(1,275	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.


	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Nine Months Ended October 31, 2010:

Revenue	$	242,151		$	341,001		$	42,223		$	625,375
Intercompany revenue		—			—			1,644			1,644

Total revenue	$	242,151		$	341,001		$	43,867		$	627,019


Total costs and expenses	$	205,272		$	222,026		$	276,297		$	703,595


Income (loss) from operations	$	36,879		$	118,975		$	(232,430	)	$	(76,576	)


Computation of Comverse performance:
Total revenue	$	242,151		$	341,001		$	43,867		$	627,019

Total costs and expenses	$	205,272		$	222,026		$	276,297		$	703,595
Expense adjustments:
Stock-based compensation expense		—			—			1,640			1,640
Amortization of acquisition-related intangibles		13,953			—			—			13,953
Compliance-related professional fees		—			—			63,536			63,536
Compliance-related compensation and other expenses		1,617			326			810			2,753
Impairment charges		—			—			—			—
Litigation settlements and related costs		—			—			—			—
Acquisition-related charges		—			—			—			—
Restructuring and integration charges		—			—			28,776			28,776
Gain on sale of land		—			—			(2,371	)		(2,371	)
Other		—			—			(1,421	)		(1,421	)

Expense adjustments		15,570			326			90,970			106,866

Expenses after adjustments											596,729

Comverse performance										$	30,290


Interest expense	$	—		$	—		$	(406	)	$	(406	)

Depreciation and amortization	$	(17,877	)	$	(4,348	)	$	(7,225	)	$	(29,450	)

Other non-cash items ⁽¹⁾	$	—		$	—		$	(595	)	$	(595	)

(1)	Other non-cash items consist primarily of write-offs and impairments of property and equipment.