BUSINESS SEGMENT INFORMATION

The Company changed its reportable segments during the three months ended October 31, 2011. 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, including the Comverse MI operating segment, Comverse's Netcentrex operations, Comverse's global corporate functions that support its business units, Starhome B.V. and its subsidiaries, miscellaneous operations and CTI's holding company operations, 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 or the aggregation criteria under segment reporting guidance. Specifically, they do not have similar economic characteristics with any separately presented reportable segment. The Company does not maintain balance sheets for the Comverse operating segments.

The changes in reportable segments are 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.

The Company has recast the presentation of its segment information for the three months ended April 30, 2011 to reflect these reportable segments.

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 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) strategic evaluation related costs (vi) impairment of property and equipment (vii) litigation settlements and related costs; (viii) acquisition-related charges; (ix) restructuring and integration charges; and (x) certain other gains and charges. Compliance-related professional fees and compliance-related compensation and other expenses relate to fees and expenses recorded in connection with the Company’s efforts to (a) complete certain financial statements and audits of such financial statements, and (b) become current in its periodic reporting obligations under the federal securities laws, and (c) remediate material weaknesses in internal control over financial reporting. Compliance-related professional fees and compliance-related compensation and other expenses recorded for the three months ended April 30, 2012 also relate to fees and expenses incurred in connection with timely filings of certain periodic reports of CTI. Strategic evaluation related costs include financial advisory, accounting, tax, consulting and legal fees incurred in connection with Company's evaluation of strategic alternatives, including the proposed share distribution.

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 months ended April 30, 2012 and 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 stand-alone basis with respect to acquisitions consummated by Verint.

The tables below present information about total revenue, total costs and expenses, income (loss) from operations, segment performance, interest expense, depreciation and amortization, and other non-cash items for the three months ended April 30, 2012 and 2011:



	Comverse BSS			Comverse VAS			Verint			All Other			Eliminations			Consolidated
	(In thousands)
Three Months Ended April 30, 2012
Revenue	$	57,680		$	65,922		$	196,635		$	23,430		$	—		$	343,667
Intercompany revenue	—			—			—			1,553			(1,553		)	—
Total revenue	$	57,680		$	65,922		$	196,635		$	24,983		$	(1,553	)	$	343,667
Total costs and expenses	$	53,283		$	50,082		$	175,652		$	83,527		$	(1,449	)	$	361,095
Income (loss) from operations	$	4,397		$	15,840		$	20,983		$	(58,544	)	$	(104	)	$	(17,428	)
Computation of segment performance:
Total revenue	$	57,680		$	65,922		$	196,635		$	24,983
Segment revenue adjustment	—			—			3,604			—
Segment revenue	$	57,680		$	65,922		$	200,239		$	24,983
Total costs and expenses	$	53,283		$	50,082		$	175,652		$	83,527
Segment expense adjustments:
Stock-based compensation expense	—			—			5,711			2,435
Amortization of acquisition-related intangibles	4,074			—			9,982			—
Compliance-related professional fees	—			—			—			8
Compliance-related compensation and other expenses	630			773			—			(285		)
Strategic evaluation related costs	—			—			911			3,894
Impairment of property and equipment	—			—			—			22
Litigation settlements and related cost	—			—			—			(230		)
Restructuring and integration charges	—			—			—			680
Other	—			—			(1,759		)	(173		)
Segment expense adjustments	4,704			773			14,845			6,351
Segment expenses	48,579			49,309			160,807			77,176
Segment performance	$	9,101		$	16,613		$	39,432		$	(52,193	)
Interest expense	$	—		$	—		$	(7,718	)	$	(202	)	$	—		$	(7,920	)
Depreciation and amortization	$	(4,863	)	$	(1,201	)	$	(14,096	)	$	(2,198	)	$	—		$	(22,358	)
Other non-cash items ⁽¹⁾	$	—		$	—		$	(606	)	$	(22	)	$	—		$	(628	)


(1)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Verint			All Other			Eliminations			Consolidated
	(In thousands)
Three Months Ended April 30, 2011
Revenue	$	75,201		$	79,475		$	176,332		$	18,489		$	—		$	349,497
Intercompany revenue	—			—			—			699			(699		)	—
Total revenue	$	75,201		$	79,475		$	176,332		$	19,188		$	(699	)	$	349,497
Total costs and expenses	$	70,142		$	58,689		$	157,498		$	97,327		$	(735	)	$	382,921
Income (loss) from operations	$	5,059		$	20,786		$	18,834		$	(78,139	)	$	36		$	(33,424	)
Computation of segment performance:
Total revenue	$	75,201		$	79,475		$	176,332		$	19,188
Segment revenue adjustment	—			—			235			—
Segment revenue	$	75,201		$	79,475		$	176,567		$	19,188
Total costs and expenses	$	70,142		$	58,689		$	157,498		$	97,327
Segment expense adjustments:
Stock-based compensation expense	—			—			7,550			3,527
Amortization of acquisition-related intangibles	4,498			—			8,196			—
Compliance-related professional fees	—			—			991			18,406
Compliance-related compensation and other expenses	2,062			1,201			—			(1,230		)
Strategic evaluation related costs	—			—			—			220
Impairment of property and equipment	—			—			—			128
Litigation settlements and related costs	—			—			—			559
Acquisition-related charges	—			—			2,374			—
Restructuring and integration charges	—			—			—			11,087
Other	—			—			1,335			(10		)
Segment expense adjustments	6,560			1,201			20,446			32,687
Segment expenses	63,582			57,488			137,052			64,640
Segment performance	$	11,619		$	21,987		$	39,515		$	(45,452	)
Interest expense	$	—		$	—		$	(8,794	)	$	(334	)	$	—		$	(9,128	)
Depreciation and amortization	$	(5,466	)	$	(936	)	$	(12,954	)	$	(2,319	)	$	—		$	(21,675	)
Other non-cash items ⁽¹⁾	$	—		$	—		$	(203	)	$	(128	)	$	—		$	(331	)


(1)	Other non-cash items consist of write-downs of property and equipment.

Supplemental Financial Information

As discussed above, the Company has revised its reportable segments as a result of the implementation of the Phase II Business Transformation at Comverse and the manner in which its CODM reviews the financial results of Comverse and allocates resources to the Company's operating segments. The Company is providing the following additional information, presenting the results of operations of the previous Comverse reportable 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 or a subset of 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 reportable segments and include 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 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 Company's efforts to become or remain current in periodic reporting obligations under the federal securities laws and the remediation of material weaknesses in internal control over financial reporting, certain non-cash charges, and certain other gains and charges.



	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Three Months Ended April 30, 2012
Revenue	$	57,680		$	65,922		$	12,803		$	136,405
Intercompany revenue	—			—			1,345			1,345
Total revenue	$	57,680		$	65,922		$	14,148		$	137,750
Total costs and expenses	$	53,283		$	50,082		$	57,268		$	160,633
Income (loss) from operations	$	4,397		$	15,840		$	(43,120	)	$	(22,883	)
Computation of Comverse performance:
Total revenue	$	57,680		$	65,922		$	14,148		$	137,750
Total costs and expenses	$	53,283		$	50,082		$	57,268		$	160,633
Expense adjustments:
Stock-based compensation expense	—			—			1,431			1,431
Amortization of acquisition-related intangibles	4,074			—			—			4,074
Compliance-related professional fees	—			—			(136		)	(136		)
Compliance-related compensation and other expenses	630			773			(285		)	1,118
Impairment of property and equipment	—			—			22			22
Litigation settlements and related costs	—			—			(230		)	(230		)
Restructuring and integration charges	—			—			680			680
Other	—			—			(173		)	(173		)
Expense adjustments	4,704			773			1,309			6,786
Expenses after adjustments										153,847
Comverse performance										$	(16,097	)
Interest expense	$	—		$	—		$	(196	)	$	(196	)
Depreciation and amortization	$	(4,863	)	$	(1,201	)	$	(1,981	)	$	(8,045	)
Other non-cash items ⁽¹⁾	$	—		$	—		$	(22	)	$	(22	)


(1)	Other non-cash items consist of write-downs of property and equipment.



	Comverse BSS			Comverse VAS			Comverse Other			Total Comverse
	(In thousands)
Three Months Ended April 30, 2011
Revenue	$	75,201		$	79,475		$	8,484		$	163,160
Intercompany revenue	—			—			604			604
Total revenue	$	75,201		$	79,475		$	9,088		$	163,764
Total costs and expenses	$	70,142		$	58,689		$	72,608		$	201,439
Income (loss) from operations	$	5,059		$	20,786		$	(63,520	)	$	(37,675	)
Computation of Comverse performance:
Total revenue	$	75,201		$	79,475		$	9,088		$	163,764
Total costs and expenses	$	70,142		$	58,689		$	72,608		$	201,439
Expense adjustments:
Stock-based compensation expense	—			—			668			668
Amortization of acquisition-related intangibles	4,498			—			—			4,498
Compliance-related professional fees	—			—			12,609			12,609
Compliance-related compensation and other expenses	2,062			1,201			(1,230		)	2,033
Impairment of property and equipment	—			—			128			128
Litigation settlements and related costs	—			—			475			475
Restructuring and integration charges	—			—			11,087			11,087
Other	—			—			(27		)	(27		)
Expense adjustments	6,560			1,201			23,710			31,471
Expenses after adjustments										169,968
Comverse performance										$	(6,204	)
Interest expense	$	—		$	—		$	(330	)	$	(330	)
Depreciation and amortization	$	(5,466	)	$	(936	)	$	(2,097	)	$	(8,499	)
Other non-cash items ⁽¹⁾	$	—		$	—		$	(128	)	$	(128	)


(1)	Other non-cash items consist of write-downs of property and equipment.