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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2012
Commission File Number 001-34807
VERINT SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
330 South Service Road, Melville, New York
(Address of principal executive offices)
11-3200514
(I.R.S. Employer
Identification No.)
11747
(Zip code)
Registrant’s telephone number, including area code: (631) 962-9600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.001 par value per share
Name of each exchange
on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Title of class
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134)
No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes (cid:134) No ⌧
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ⌧ No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer ⌧
Non-accelerated filer (cid:134)
(Do not check if a smaller reporting company)
Accelerated filer (cid:134)
Smaller reporting company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No ⌧
The aggregate market value of common stock held by non-affiliates of the registrant, based on the closing price for the registrant’s
common stock on the NASDAQ Global Market on the last business day of the registrant’s most recently completed second fiscal
quarter (July 31, 2011) was approximately $762,054,000.
There were 38,989,555 shares of the registrant’s common stock outstanding on March 15, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be filed under Regulation 14A within 120 days of the end of the registrant’s fiscal year
ended January 31, 2012 are incorporated by reference into Part III of this Annual Report on Form 10-K.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
PART IV
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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20
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Cautionary Note on Forward-Looking Statements
Certain statements discussed in this report constitute forward-looking statements, which include financial projections, statements of
plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto.
Forward-looking statements are often identified by future or conditional words such as “will”, “plans”, “expects”, “intends”,
“believes”, “seeks”, “estimates”, or “anticipates”, or by variations of such words or by similar expressions. There can be no assurances
that forward-looking statements will be achieved. By their very nature, forward-looking statements involve known and unknown risks,
uncertainties, and other important factors that could cause our actual results or conditions to differ materially from those expressed or
implied by such forward-looking statements. Important risks, uncertainties, and other factors that could cause our actual results or
conditions to differ materially from our forward-looking statements include, among others:
• uncertainties regarding the impact of general economic conditions in the United States and abroad, particularly in information
technology spending and government budgets, on our business;
• risks associated with our ability to keep pace with technological changes and evolving industry standards in our product
offerings and to successfully develop, launch, and drive demand for new and enhanced, innovative, high-quality products that
meet or exceed customer needs;
• risks due to aggressive competition in all of our markets, including with respect to maintaining margins and sufficient levels
of investment in our business;
• risks created by the continued consolidation of our competitors or the introduction of large competitors in our markets with
greater resources than we have;
• risks associated with our ability to successfully compete for, consummate, and implement mergers and acquisitions, including
risks associated with capital constraints, costs and expenses, maintaining profitability levels, management distraction, post-
acquisition integration activities, and potential asset impairments;
• risks associated with Comverse Technology, Inc. (“Comverse”) controlling our board of directors and the outcome of all
matters submitted for stockholder action, including the approval of significant corporate transactions, such as certain equity
issuances or mergers and acquisitions;
• risks associated with Comverse’s strategic plans and related speculation and announcements, such as its recently announced
plan to eliminate its holding company structure either simultaneously with or shortly after the completion of a spin-off of its
Comverse, Inc. subsidiary;
• risks that we may be unable to maintain and enhance relationships with key resellers, partners, and systems integrators;
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• risks relating to our ability to effectively and efficiently execute on our growth strategy, including managing investment in
our business and operations and enhancing and securing our internal and external operations;
• risks relating to our ability to successfully implement and maintain adequate systems and internal controls for our current and
future operations and reporting needs and related risks of financial statement omissions, misstatements, restatements, or filing
delays;
• risks associated with the mishandling or perceived mishandling of sensitive or confidential information, security lapses, or
with information technology system failures or disruptions;
• risks associated with our ability to efficiently and effectively allocate limited financial and human resources to business,
development, strategic, or other opportunities that may not come to fruition or produce satisfactory returns;
• risks associated with significant international operations, including, among others, in Israel, Europe, and Asia, exposure to
regions subject to political or economic instability, and fluctuations in foreign exchange rates;
• risks associated with complex and changing local and foreign regulatory environments in the jurisdictions in which we
operate;
• risks associated with our ability to recruit and retain qualified personnel in regions in which we operate;
• challenges associated with selling sophisticated solutions, long sales cycles, and emphasis on larger transactions, including in
accurately forecasting revenue and expenses and maintaining profitability;
• risks that our intellectual property rights may not be adequate to protect our business or assets or that others may make claims
on our intellectual property or claim infringement on their intellectual property rights;
• risks that our products may contain undetected defects, which could expose us to substantial liability;
• risks associated with a significant amount of our business coming from domestic and foreign government customers,
including the ability to maintain security clearances for certain projects;
• risks associated with our dependence on a limited number of suppliers or original equipment manufacturers (“OEMs”) for
certain components of our products, including companies that may compete with us or work with our competitors;
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• risks that our customers or partners delay or cancel orders or are unable to honor contractual commitments due to liquidity
issues, challenges in their business, or otherwise;
• risks that we may experience liquidity or working capital issues and related risks that financing sources may be unavailable to
us on reasonable terms or at all;
• risks associated with significant leverage resulting from our current debt position, including with respect to covenant
limitations and compliance, fluctuations in interest rates, and our ability to maintain our credit ratings;
• risks associated with being a consolidated, controlled subsidiary of Comverse and formerly part of Comverse’s consolidated
tax group;
• risks relating to our ability to timely implement new accounting pronouncements or new interpretations of existing
accounting pronouncements and related risks of future restatements or filing delays; and
• risks associated with changing tax rates, tax laws and regulations, and the continuing availability of expected tax benefits.
These risks, uncertainties and challenges, as well as other factors, are discussed in greater detail in “Risk Factors” under Item 1A of
this report. You are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only
as of the date of this report. We make no commitment to revise or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made, except as otherwise required under the federal securities laws. If we were in
any particular instance to update or correct a forward-looking statement, investors and others should not conclude that we would make
additional updates or corrections thereafter except as otherwise required under the federal securities laws.
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PART I
Item 1. Business
Our Company
®
Verint Systems Inc. (together with its consolidated subsidiaries, “Verint”, the “Company”, “we”, “us”, and “our”, unless the context
indicates otherwise) is a global leader in Actionable Intelligence solutions and value-added services. Our solutions enable
organizations of all sizes to make more timely and effective decisions to improve enterprise performance and make the world a safer
place. More than 10,000 organizations in over 150 countries — including over 85 percent of the Fortune 100 — use Verint Actionable
Intelligence solutions to capture, distill, and analyze complex and underused information sources, such as voice, video, and
unstructured text.
®
In the enterprise intelligence market, our workforce optimization and voice of the customer 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, our communications and
cyber intelligence, video and situation intelligence, and public safety solutions help government and commercial organizations in their
efforts to protect people and property and neutralize terrorism and crime.
We have established leadership positions in both the enterprise intelligence and security intelligence markets by leveraging our core
competency in developing highly scalable, enterprise-class solutions with advanced, integrated analytics for both unstructured and
structured information. Our innovative solutions are developed by approximately 1,000 employees and contractors in research and
development, representing approximately one-third of our total headcount, and are evidenced by more than 520 patents and patent
applications worldwide, including over 60 allowed or granted patents worldwide for the year ended January 31, 2012. We offer a
range of customer services, from initial implementation to consulting to ongoing maintenance and support, to maximize the value our
customers receive from our Actionable Intelligence solutions and allow us to extend our customer relationships.
Headquartered in Melville, New York, we support our customers around the globe directly and with an extensive network of selling
and support partners.
Our Markets — Enterprise Intelligence and Security Intelligence
We deliver our Actionable Intelligence solutions to the enterprise intelligence and security intelligence markets across a wide range of
industries, including financial services, retail, healthcare, telecommunications, law enforcement, government, transportation, utilities,
and critical infrastructure. Much of the information available to organizations in these industries is unstructured, residing in telephone
conversations, video streams, Web pages such as social media sites, customer surveys, email, and other text communications. Our
advanced Actionable Intelligence solutions enable our customers to collect and analyze large amounts of both structured and
unstructured information in order to make better decisions.
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In the enterprise intelligence market, demand for our Actionable Intelligence solutions is driven by organizations that seek to leverage
unstructured information from customer interactions and other customer-related data in order to optimize the performance of their
customer service operations, improve the customer experience, and enhance compliance. In the security intelligence market, demand
for our Actionable Intelligence solutions is driven by organizations that seek to distill intelligence from a wide range of unstructured
and structured information sources in order to detect, investigate, and neutralize security threats.
We have established leadership positions in both the enterprise intelligence and security intelligence markets by leveraging our core
competency in developing highly scalable, enterprise-class solutions with advanced, integrated analytics for both unstructured and
structured information.
Company Background
We were incorporated in Delaware in February 1994 as a wholly owned subsidiary of Comverse. Our initial focus was on the
commercial call recording market, which at the time was transitioning from analog tape to digital recorders. In 1999, we expanded
into the security market by combining with another division of Comverse focused on the communications interception market. In
2001, we further expanded our security offering into video security.
In May 2002, we completed our initial public offering (“IPO”), and, as of January 31, 2012, Comverse held approximately a 54.4%
beneficial ownership position in us assuming conversion of all of our Series A Convertible Preferred Stock, par value $0.001 per share
(“preferred stock”), into common stock. Since our IPO, we have acquired a number of companies that have strengthened our position
in both the enterprise intelligence and security intelligence markets.
™
We participate in the enterprise intelligence and security intelligence markets through three operating segments: Enterprise
Intelligence Solutions (“Enterprise Intelligence”), Video and Situation Intelligence Solutions (“Video Intelligence”), and
Communications and Cyber Intelligence Solutions (“Communications Intelligence”), each of which is described in greater detail
below and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7. See also Note
17, “Segment, Geographic, and Significant Customer Information” to our consolidated financial statements included in Item 15 of this
report for additional information and financial data about each of our operating segments and geographic regions.
™
™
Through our website at www.verint.com, we make available our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and
Current Reports on Form 8-K, as well as amendments to those reports filed or furnished by us pursuant to Section 13(a) or Section 15
(d) of the Exchange Act, free of charge, as soon as reasonably practicable after we file such materials with, or furnish such materials
to, the Securities and Exchange Commission (“SEC”). Our website address set forth above is not intended to be an active link and
information on our website is not incorporated in, and should not be construed to be a part of, this report.
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Our Strengths
Enterprise Intelligence
We believe that the following competitive strengths will enable us to sustain our market leadership in the enterprise intelligence
market:
• Comprehensive, unified suite of workforce optimization solutions. A core part of our product strategy has been to unify our
workforce optimization solutions through targeted, predefined integrations. Our comprehensive, unified suite of workforce
optimization solutions offers many advantages in terms of both functionality and total cost of ownership, and we believe that
this approach helps further differentiate us in the enterprise intelligence market.
• Advanced voice of the customer analytics. We were an early innovator of speech analytics for contact centers, and today we
offer an advanced suite of Voice of the Customer Analytics™, which includes speech, text, and enterprise feedback
management solutions. We believe that these solutions are attractive to a broad set of customers, enabling them to better
understand the customer experience, customer sentiment, workforce performance, and the factors underlying important
business trends by collecting customer intelligence across the enterprise.
• Compelling workforce optimization solutions for back-office and branch operations. Workforce optimization solutions have
traditionally been deployed in contact centers. However, many customer service employees work in other areas of the
enterprise, such as the back office and branch and remote office locations. We believe that enterprises are interested in
deploying workforce optimization solutions outside the contact center to enable the same type of performance measurement
and improvement that has historically been available to contact centers, and we have built a portfolio of solutions specifically
for this opportunity.
• Focus on delivering best-in-class customer service. A core part of our strategy is to help enable our customers to derive
maximum value from our Actionable Intelligence solutions. We believe that a combination of our unified Enterprise
Intelligence solutions and focus on customer service has been a major factor in our success.
• Strong OEM partner relationships. We have increased our focus on partners, including resellers and OEMs, which is a core
element of our go-to-market strategy. We believe that this investment has strengthened our relationships with our partners,
expanded our market coverage and provided our customers with tighter integration of certain third-party solutions.
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Video and Situation Intelligence
We believe that the following competitive strengths will enable us to sustain our leadership in the video and situation intelligence
market:
• Broad networked IP video and situation intelligence portfolio. Our Video and Situation Intelligence portfolio includes
Internet Protocol (“IP”) video management software and services, edge devices for capturing, digitizing, and transmitting
video over different types of wired and wireless networks, video analytics, network video recorders, and physical security
information management solutions. Our broad portfolio allows organizations to deploy an end-to-end IP video solution with
analytics or evolve to networked IP video solutions over time; view, correlate, and analyze information from various security
systems and sensors; and generate Actionable Intelligence from video and related data.
• Open platform. Designed on an open platform, our solutions facilitate interoperability with our customers’ business and
security systems and with complementary third-party products, such as cameras, video analytics, video management
software, command and control systems, and access control systems.
• Ability to help our customers cost-effectively migrate to networked IP video. While the security market is evolving to
networked IP video solutions, many organizations have already made significant investments in analog technology. Our
video solutions help our customers cost effectively migrate to networked IP video without discarding their existing analog
closed circuit television (“CCTV”) investments.
Communications and Cyber Intelligence
We believe that the following competitive strengths will enable us to sustain our market leadership in the communications intelligence
business:
• Broad portfolio. Our broad Communications and Cyber Intelligence portfolio includes solutions for communications
interception, service provider compliance, mobile location tracking, open source Web intelligence, and tactical
communications intelligence, as well as solutions being developed for cyber intelligence. Our portfolio is designed to handle
massive amounts of unstructured and structured information from different sources (including fixed and mobile networks, IP
networks, and the Internet), quickly make sense of complex scenarios, and generate evidence and intelligence.
• Highly scalable solutions for a broad range of communications. Our solutions can be deployed stand-alone or collectively as
part of a large-scale system to address the needs of large government agencies, law enforcement, and communications service
providers that require advanced, comprehensive solutions. Our solutions can process very large amounts of information,
enabling the interception, monitoring, and analysis of information collected from a wide range of communications networks,
including fixed and mobile networks, IP networks, and the Internet.
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• High-quality, long-term customer relationships. We have security customers around the world, including large and
sophisticated government organizations, as well as commercial companies that are leaders in their respective markets. We
have long-term relationships with many of these customers that allow us to gain insight into their challenges and develop new
security solutions for a broader set of customers.
Our Strategy
Our strategy to further enhance our position as a leading provider of enterprise intelligence and security intelligence solutions
worldwide includes the following key elements:
• Continue to drive the development of Actionable Intelligence solutions for unstructured data. We were a pioneer in the
development of solutions that help businesses and governmental organizations derive intelligence from unstructured data. We
intend to continue to drive the adoption of Actionable Intelligence solutions designed to provide a high return on investment
by delivering software and services to the enterprise intelligence and security intelligence markets.
• Maintain market leadership through innovation and customer centricity. We believe that to compete successfully, we must
continue to introduce solutions that better enable customers to derive Actionable Intelligence from their unstructured data. In
order to do this, we intend to continue to make significant investments in research and development, protect our intellectual
property through patents and other means, and maintain a regular dialog with our customer base in order to understand their
business objectives and requirements.
• Continue to expand our market presence through OEM and partner relationships. We have expanded our relationships with
OEMs and other channel partners. We believe that these relationships broaden our market coverage, and we intend to
continue expanding our existing relationships, while creating new ones.
• Augment our organic growth with acquisitions. We examine acquisition opportunities regularly as a means to add
technology, increase our geographic presence, enhance our market leadership, or expand into adjacent markets. Historically,
we have engaged in acquisitions for all of these purposes and expect to continue doing so in the future when strategic
opportunities arise.
The Enterprise Intelligence Solutions Segment
We are a leading provider of enterprise intelligence software and services. Our solutions enable organizations to extract and analyze
valuable information from customer interactions and related operational data in order to make more effective, proactive decisions for
optimizing the performance of their customer service operations, improving the customer experience, and facilitating compliance, and
enhancing products and services. We market these solutions primarily under the Impact 360 brand to contact center, back-office, and
branch and remote office operations, to other customer-facing departments such as sales and marketing that also seek to distill insights
®
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from the voice of their customers, and to public safety centers. These solutions comprise a unified suite of enterprise workforce
optimization and voice of the customer solutions and services that include IP and Time Division Multiplexing (“TDM”) voice
recording, quality monitoring, voice of the customer analytics (speech, text, and enterprise feedback management), workforce
management, eLearning and coaching, performance management, and desktop and process analytics. These solutions can be deployed
stand-alone or in an integrated fashion.
The Enterprise Intelligence Market and Trends
We believe that customer service is viewed more strategically than in the past, particularly by organizations whose interactions with
customers regarding sales and services take place primarily through contact center, back-office, and branch operations. Consistent
with this trend, we believe that organizations seek workforce optimization and voice of the customer solutions that enable them to
better understand customer expectations, preferences, and sentiments in order to strengthen customer relationships, efficiently manage
their workforce and customer service operations across the enterprise, and strike the right balance among driving sales, managing
operating costs, and delivering the optimal customer experience.
In order to make better decisions to achieve these goals, we believe that organizations increasingly seek to leverage valuable data
collected from customer interactions and associated operational activities and that using the voice of the customer to drive operational
excellence has become a strategic objective for organizations worldwide. However, customer service applications have traditionally
been deployed as stand-alone applications, which prevented information from being shared and analyzed across multiple/related
applications. These solutions also lacked functionality for analyzing unstructured and structured information, such as the content of
phone calls, email, Web chat, customer surveys and social media sites. As a result, organizations historically based their customer
service-related business decisions on a fraction of the information available to them.
We believe that customer-centric organizations today seek to gain a holistic view of the customer experience and the effectiveness of
their customer service operations through unified, innovative workforce optimization solutions and a voice of the customer analytical
platform delivered by a single vendor. We believe that the key business and technology trends driving demand for workforce
optimization and voice of the customer solutions include:
Integration of Enterprise Intelligence Solutions
We believe that organizations increasingly seek a unified enterprise intelligence suite that includes call recording and quality
monitoring, voice of the customer analytics (speech, text, and enterprise feedback management), workforce management,
performance management, eLearning, and coaching, as well as pre-defined business integrations. Such a unified enterprise
intelligence suite can provide business and financial benefits, create a foundation for continuous improvement through a closed loop
feedback process, and improve collaboration among various functions throughout the enterprise. For example:
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• using integrated speech analytics with quality monitoring, calls can be categorized, allowing organizations to review the
interactions that are most significant to the business and identify the underlying causes of customer service issues;
• using integrated voice of the customer solutions, organizations can collect and assess customer feedback from the diverse
platforms on which it is provided, including surveys, phone calls, Web chat, emails, and social media;
• contact center managers can receive instant alerts when staff is out of adherence with standards, monitor and record
interactions to determine the cause, and act quickly to correct the problem; and
• supervisors can assign and deliver electronic learning material to staff desktops based on training needs automatically
identified from quality monitoring evaluation scores and performance management scorecard metrics, and then track courses
taken and new skills acquired.
Additionally, by deploying an integrated enterprise intelligence suite with a single, unified graphical user interface and common
database, enterprises can achieve lower cost of ownership, reduce hardware costs, simplify system administration, and streamline
implementation and training. An integrated enterprise intelligence suite also enables enterprises to interact with a single vendor for
sales and service and helps ensure seamless integration and update of all solutions.
Greater Insight through Voice of the Customer Analytics
We believe that customer-centric organizations are increasingly interested in deploying sophisticated and more comprehensive voice
of the customer analytics (such as speech, text, and enterprise feedback management) to gain a better understanding of the customer
experience, workforce performance, and the factors underlying business trends. Although enterprises have historically captured
customer interactions, most were able to extract intelligence only by manually analyzing each customer interaction individually, which
generally could be done for only a small percentage of interactions. Today, voice of the customer analytics solutions have evolved to
analyze and categorize customer interactions automatically through voice, email, Web chat, customer surveys and social media in
order to detect patterns and trends that significantly impact the business. These solutions provide a new level of insight into important
areas such as customer satisfaction, customer behavior, customer sentiment, and staff effectiveness, including the underlying cause of
business trends in these critical areas.
Adoption of Workforce Optimization Across the Enterprise
Workforce optimization solutions have traditionally been deployed in contact centers. However, many customer service employees
work in other areas of the enterprise, such as the back office and branch and remote office locations. Today, we believe that certain
enterprises show increased interest in deploying certain workforce optimization solutions, such as staff scheduling and desktop and
process analytics, outside the contact center to enable the same type of performance measurement that has historically been available
in the contact center, with the goal of improving customer service and performance across the enterprise.
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Our Enterprise Intelligence Solutions Portfolio
We are a leader in the enterprise intelligence market with Impact 360, a comprehensive, unified portfolio of workforce optimization
and voice of the customer solutions. Our solutions are highly scalable and designed to be deployed by small to very large
organizations in traditional contact centers and other areas of the enterprise, such as back-office, remote office, and branch operations
and other customer-facing departments such as sales and marketing that seek to distill insights from the voice of their customers, and
by public safety centers. Historically our enterprise intelligence solutions have been implemented on customer premises; however
today we also offer some of our enterprise intelligence solutions on a “Software as a Service”, or “SaaS”, basis. Our solutions are
generally implemented in industries that have significant customer service operations, such as insurance, banking and brokerage,
telecommunications, media, retail, public safety, and hospitality.
The following table summarizes our portfolio of Enterprise Intelligence Solutions.
Solution
Quality Monitoring
Records multimedia interactions based on user-defined business rules and provides sophisticated
interaction assessment functionality, including intelligent evaluation forms and automatic delivery of
calls for evaluation according to quotas or contact-related criteria, to help enterprises evaluate and
improve the performance of customer service staff.
Description
Full-Time and
Compliance Recording
Provides contact center recording for compliance, sales verification, and monitoring in IP, traditional
TDM, and mixed telephony environments. Includes encryption capabilities to help support the Payment
Card Industry Data Security Standard and other regulatory requirements for protecting sensitive data.
Workforce Management
Voice of the Customer
Analytics (Speech, Text,
and Enterprise Feedback
Management)
Helps enterprises forecast staffing requirements, deploy the appropriate level of resources, and evaluate
the productivity of their customer service staff. Also includes optional strategic planning capabilities to
help determine optimal hiring plans.
Our speech analytics solutions analyze call content for the purpose of proactively identifying business
trends, building effective cost containment and customer service strategies, and enhancing quality
monitoring programs.
Our text analytics analyze structured and unstructured data in multiple text sources, including email, chat
sessions, blogs, contact center notes, white mail, survey comments, and social media channels, to
provide enterprises with a better understanding of customer sentiment, corporate image, competitors, and
other market factors for more effective decision making.
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Our enterprise feedback management solutions provide enterprise-wide customer feedback capabilities
via surveys and online communities to centralize and simplify survey management, deployment, and
analysis across multiple survey platforms, including Interactive Voice Response, email, social media,
and mobile devices. These solutions provide a more holistic view of customer sentiments, experiences,
and behaviors to enable better decisions for increasing customer satisfaction, loyalty, and value.
Performance Management
Provides a comprehensive view of key performance indicators (“KPIs”), with performance scorecards
and reports on customer interactions, customer experience trends, and contact center, back-office,
branch, remote office, and customer service staff performance.
eLearning and Coaching
Enables enterprises to deliver Web-based training to customer service staff desktops, including learning
clips created from recordings and other customized materials targeted to staff needs and competencies.
Automated coaching also provides employees with personalized guidance on how to improve their
performance and extend their skills.
Desktop and Process
Analytics
Captures information from customer service employee interactions with their desktop applications to
provide insights into productivity, training issues, process adherence, and bottlenecks.
Workforce Optimization
and Voice of the Customer
for Small-to-Medium
Sized Businesses
Designed for smaller companies (with contact centers), which increasingly face the same business
requirements as their larger competitors. Enables companies of all sizes to boost productivity, reduce
attrition, capture and evaluate interactions, and satisfy compliance and risk management requirements in
a cost-effective way. Offered on a single, consolidated server with simplified installation and
maintenance.
Public Safety
Includes quality assurance, forecasting and scheduling, speech analytics, performance scorecards, citizen
surveys, incident investigation and analytics, and full-time and compliance recording solutions under the
brand Impact 360 for Public Safety Powered by Audiolog™. Our public safety solution allows first
responders (police, fire departments, emergency medical services, etc.) in the security intelligence
market to deploy workforce optimization solutions to record, manage, and act on incoming assistance
requests and related data.
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The Video and Situation Intelligence Solutions Segment
We are a leading provider of networked IP video solutions and a provider of situation intelligence solutions designed to optimize
security and enhance operations. Our solutions, marketed under the Nextiva brand, include IP video management software and
services, edge devices for capturing, digitizing, and transmitting video over different types of wired and wireless networks, video
analytics, network video recorders, and physical security information management. Our networked IP video portfolio enables
organizations to deploy an end-to-end IP video solution with analytics or evolve to IP video solutions without discarding their
investments in analog CCTV technology. Our situation intelligence solutions enable organizations to view, correlate, and analyze
information from various stand-alone systems and sensors.
®
The Networked IP Video and Situation Intelligence Market and Trends
We believe that terrorism, crime, and other security threats around the world are generating increased demand for advanced video and
situation intelligence solutions that can help detect threats and prevent security breaches. We believe that organizations across a wide
range of industries, including public transportation, utilities, ports and airports, government, education, finance, and retail, are
interested in broader deployment of video and situation intelligence solutions to increase the safety and security of their facilities,
employees, and visitors, improve emergency response, and enhance their investigative capabilities.
Consistent with this trend, the video security market continues to experience a technology transition from relatively passive analog
CCTV video systems, which use analog equipment and closed networks and generally provide only basic video recording and
viewing, to more sophisticated, proactive, network-based IP video systems that use video management software to efficiently collect,
manage, and analyze large amounts of video over networks and utilize video analytics. We believe this trend, combined with the
overall need for improved security by government and commercial organizations globally, is driving interest in both advanced
networked IP video intelligence solutions and physical situation information management solutions, which enable organizations to
manage and integrate video intelligence with other security system data.
While the security market is evolving to networked IP video solutions, many organizations have already made significant investments
in analog technology. Our networked IP video and situation intelligence solutions allow these organizations to cost effectively migrate
to networked IP video without discarding their existing analog investments. Designed on an open platform, our solutions facilitate
interoperability with our customers’ business and security systems and with complementary third-party products, such as cameras,
video analytics, video management software, command and control systems, and access control systems.
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Our Video and Situation Intelligence Solutions Portfolio
We are a leader in the networked IP video market with Nextiva, a comprehensive, end-to-end, networked IP video solution portfolio.
The following table summarizes our portfolio of Video and Situation Intelligence solutions.
Solution
IP Video Management
Software
Edge Devices
Video Analytics
Simplifies management of large volumes of video and geographically dispersed video surveillance
operations, with a suite of applications that includes automated system health monitoring, policy-based
video distribution, networked video viewing, and investigation management. Designed for use with
industry-standard servers and storage solutions and for interoperability with other enterprise systems.
Description
Captures, digitizes, and transmits video across enterprise networks, providing many of the benefits of
IP video while using existing analog CCTV investments. Includes IP cameras, bandwidth-efficient
video encoders to convert analog images to IP video for transmission over IP networks, and wireless
devices that perform both video encoding and wireless IP transmission, facilitating video surveillance
in areas too difficult or expensive to wire.
Analyzes video content to automatically detect anomalies and activities of interest, such as perimeter
intrusion, unattended objects, camera tampering, and vehicles moving in the wrong direction. Also
includes industry-specific analytics applications focused on the behavior of people in retail and other
environments.
Network Video Recorders
Performs networked video recording utilizing secure, embedded operating systems and market-specific
data integrations for applications that require local storage, as well as remote networking.
Physical Security
Information Management
(Situation Intelligence)
Captures and integrates information from various stand-alone security and public safety systems, such
as access control, video, intrusion, fire and public safety, first responder, and other mobile device
systems, to enable efficient information correlation and analysis and rapid, rules-based alerts and
actions.
Our Video Intelligence solutions are deployed across a wide range of industries, including banking, retail, critical infrastructure,
government, corporate campuses, education, airports, seaports, public transportation, and homeland security. Our video solutions
include certain video analytics and data integrations specifically optimized for these industries. For example, our public transportation
solution includes global positioning system (“GPS”) integrations, our retail solution includes point of sale integrations and retail traffic
analytics, our banking solution includes automated teller machine (“ATM”) integrations, and our critical infrastructure solution
includes video analytics for detecting suspicious events and command and control integrations.
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The Communications and Cyber Intelligence Solutions Segment
We are a leading provider of communications intelligence solutions and a developer of cyber intelligence solutions that help law
enforcement, national security, intelligence, and civilian government agencies effectively detect, investigate, and neutralize criminal
and terrorist threats and detect and thwart cyber-attacks. Our solutions are designed to handle massive amounts of unstructured and
structured information from different sources, quickly make sense of complex scenarios, and generate evidence and intelligence. Our
portfolio includes solutions for communications interception, service provider compliance, mobile location tracking, open source Web
intelligence, cyber intelligence, and tactical communications intelligence. These solutions can be deployed stand-alone or collectively,
as part of a large-scale system to address the needs of large government agencies that require advanced, comprehensive solutions.
The Communications and Cyber Intelligence Market and Trends
We believe that terrorism, criminal activities, including financial fraud and drug trafficking, cyber-attacks, and other security threats,
combined with an expanding range of communication and information media, are driving demand for innovative security solutions
that collect, integrate, and analyze information from voice, video, and data communications, as well as from other sources, such as
private and public databases. We believe that the key trends driving demand for our Communications Intelligence solutions are:
Increasing Complexity of Communications Networks and Growing Network Traffic
Law enforcement and certain other government agencies are typically given the authority to intercept communication transmissions to
and from specified targets for the purpose of generating evidence. National security and intelligence agencies intercept
communications, often in massive volumes, for the purpose of generating intelligence and supporting investigations. We believe that
these agencies are seeking technically advanced solutions to help them keep pace with increasingly complex communications
networks and the growing amount of network traffic.
Growing Demand for Advanced Intelligence and Investigative Solutions
Investigations related to criminal and terrorist networks, drugs, financial crimes, and other illegal activities are highly complex and
often involve collecting and analyzing information from multiple sources. We believe that law enforcement, national security,
intelligence, and other government agencies are seeking advanced solutions that enable them to integrate and analyze information
from multiple sources and collaborate more efficiently with various other agencies in order to unearth suspicious activity, optimize
investigative workflows, and make investigations more effective.
Legal and Regulatory Compliance Requirements
In many countries, communications service providers are mandated by government regulation to satisfy certain technical requirements
for delivering communication content and data to law enforcement and government authorities. For example, in the United States,
requirements have been established under the Communications Assistance for Law Enforcement Act (“CALEA”). In Europe, similar
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requirements have been adopted by the European Telecommunications Standards Institute (“ETSI”). In addition, many law
enforcement and government agencies around the world are mandated to ensure compliance with laws and regulations related to
criminal activities, such as financial crimes. We believe that these laws and regulations are creating demand for our Communications
Intelligence solutions.
Our Communications and Cyber Intelligence Solutions Portfolio
We are a leader in the market for communications intelligence solutions and a developer of cyber intelligence solutions, which are
marketed under the RELIANT , VANTAGE , STAR-GATE , ENGAGE , FOCALINFO , and CYBERVISION brand names.
The following table summarizes our portfolio of Communications and Cyber Intelligence solutions.
™
™
™
™
™
®
Solution
Communications Interception
Communications Service Provider Compliance
Mobile Location Tracking
Open Source Web Intelligence
Tactical Communications Intelligence
Description
Enables the interception, monitoring, and analysis of information collected from a
wide range of communications networks, including fixed and mobile networks, IP
networks, and the Internet. Includes lawful interception solutions designed to
intercept specific target communications pursuant to legal warrants and mass
interception solutions for investigating and proactively addressing criminal and
terrorist threats.
Enables communication service providers to collect and deliver to government
agencies specific call-related and call-content information in compliance with
CALEA, ETSI, and other compliance regulations and standards. Includes a
scalable warrant and subpoena management system for efficient, cost-effective
administration of legal warrants across multiple networks and sites.
Tracks the location of mobile network devices for intelligence and evidence
gathering, with analytics and workflow designed to support investigative activities.
Provides real-time tracking of multiple targets, real-time alerts, and investigative
capabilities, such as geospatial fencing and events correlation.
Increases the productivity and efficiency of investigations in which the Internet is
the primary source of information. Features advanced data collection, text analysis,
data enrichment, advanced analytics, and a clearly defined investigative workflow
on a scalable platform.
Provides portable communications interception and location tracking capabilities
for local use or integration with centralized monitoring systems, to support tactical
field operations.
Cyber Intelligence
Designed to provide network-based cyber security, including malware detection
capabilities for high-speed networks, for national cyber protection organizations.
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Customer Services
We offer a range of customer services, including implementation, training, consulting, and maintenance, to help our customers
maximize their return on investment in our solutions.
Implementation, Training, and Consulting
Our solutions are implemented by our service organizations, authorized partners, resellers, or customers. Our implementation services
include project management, system installation, and commissioning, including integrating our solutions with our customers’
environments and third-party solutions. Our training programs are designed to enable our customers to effectively utilize our solutions
and to certify our partners to sell, install, and support our solutions. Customer and partner training are provided at the customer site, at
our training centers around the world, or remotely through webinars. Our consulting services are designed to enable our customers to
maximize the value of our solutions in their own environments.
Maintenance Support
We offer a range of customer maintenance support programs to our customers and resellers, including phone, Web, and email access
to technical personnel up to 24 hours a day, seven days a week. Our support programs are designed to ensure long-term, successful use
of our solutions. We believe that customer support is critical to retaining and expanding our customer base. Our Enterprise
Intelligence solutions are sold with a warranty of generally one year for hardware and 90 days for software. Our Video Intelligence
solutions and Communications Intelligence solutions are sold with warranties that typically range from 90 days to three years and, in
some cases, longer. In addition, customers are typically provided the option to purchase maintenance plans that provide a range of
services, such as telephone support, advanced replacement, upgrades when and if available, and on-site repair or replacement.
Currently, the majority of our maintenance revenue is related to our Enterprise Intelligence solutions.
Direct and Indirect Sales
We sell our solutions through our direct sales teams and indirect channels, including distributors, systems integrators, value-added
resellers (“VARs”), and OEM partners. Approximately half of our sales are made through partners, distributors, resellers, and system
integrators.
Each of our solutions is sold by trained, dedicated, regionally organized direct and indirect sales teams. Our direct sales teams are
focused on large and mid-sized customers and, in many cases, co-sell with our other channels and sales agents. Our indirect sales
teams are focused on developing and supporting relationships with our indirect channels, which provide us with broader market
coverage, including access to their customer base, integration services, and presence in certain geographies and vertical markets. Our
sales teams are supported by business consultants, solutions specialists, and pre-sales engineers who, during the sales process,
determine customer requirements and develop technical responses to those requirements. While we sell directly and indirectly in all
three of our segments, sales of our Video Intelligence solutions are primarily indirect, and sales of our Communications Intelligence
solutions are primarily direct. See “Risk Factors — Risks Related to Our Business — Competition, Markets, and Operations — If we
are unable to maintain our relationship with third parties that market and sell our products, our business and ability to grow could be
materially adversely affected” under Item 1A.
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Customers
Our solutions are used by more than 10,000 organizations in over 150 countries. In the year ended January 31, 2012, we derived
approximately 56%, 18%, and 26% of our revenue from the sale of our Enterprise Intelligence solutions, Video Intelligence solutions,
and Communications Intelligence solutions, respectively. In the year ended January 31, 2011, we derived approximately 57%, 18%,
and 25% of our revenue from the sale of our Enterprise Intelligence solutions, Video Intelligence solutions, and Communications
Intelligence solutions, respectively. In the year ended January 31, 2010, we derived approximately 53%, 21%, and 26% of our
revenue from the sale of our Enterprise Intelligence solutions, Video Intelligence solutions, and Communications Intelligence
solutions, respectively.
In the year ended January 31, 2012, we derived approximately 53%, 27%, and 20% of our revenue from sales to end users in the
Americas, Europe, the Middle East, and Africa (“EMEA”), and the Asia-Pacific region (“APAC”), respectively. In the year ended
January 31, 2011, we derived approximately 53%, 26%, and 21% of our revenue from sales to end users in the Americas, EMEA, and
APAC, respectively. In the year ended January 31, 2010, we derived approximately 55%, 25%, and 20% of our revenue from sales to
end users in the Americas, EMEA, and APAC, respectively.
None of our customers, including system integrators, VARs, various local, regional, and national governments worldwide, and OEM
partners, individually accounted for more than 10% of our revenue in the years ended January 31, 2012, 2011, and 2010. For the year
ended January 31, 2012, approximately one quarter of our business was generated from contracts with various governments around the
world, including local, regional, and national government agencies. We are party to contracts with customers in each of our segments
the loss of which could have a material adverse effect on the segment. Some of the customer engagements on which we work require
us to have the necessary security credentials or to participate in the project through an approved legal entity. In addition, because of
the unique nature of the terms and conditions associated with government contracts generally, our government contracts may be
subject to renegotiation or termination at the election of the government customer. For a more detailed discussion of the risks
associated with our government customers, see “Risk Factors —Risks Related to Our Business—Competition, Markets, and
Operations —We are dependent on contracts with governments around the world for a significant portion of our revenue. These
contracts also expose us to additional business risks and compliance obligations” and “Risk Factors—Risks Related to Our Business—
Competition, Markets, and Operations—Loss of security clearances may adversely affect our business” under Item 1A. See also Note
17, “Segment, Geographic, and Significant Customer Information” to our consolidated financial statements included in Item 15 of this
report for additional information and financial data about each of our operating segments and geographic regions.
Seasonality and Cyclicality
As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. Our revenue and
operating income are typically highest in the fourth quarter and lowest in the first quarter. Moreover, revenue and operating income in
the first quarter of a new year may be lower than in the fourth quarter of the preceding year, potentially by a significant margin. In
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addition, we generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that
month. We believe that these seasonal and cyclical factors primarily reflects customer spending patterns and budget cycles, as well as
the impact of compensation incentive plans for our sales personnel. While seasonal and cyclical factors such as these are common in
the software and technology industry, this pattern should not be considered a reliable indicator of our future revenue or financial
performance. Many other factors, including general economic conditions, also have an impact on our business and financial results.
See “Risk Factors” under Item 1A for a more detailed discussion of factors which may affect our business and financial results.
Research and Development
We continue to enhance the features and performance of our existing solutions and to introduce new solutions through extensive
research and development activities, including the development of new solutions, the addition of capabilities to existing solutions,
quality assurance, and advanced technical support for our customer services organization. In certain instances, we may customize our
products to meet the particular requirements of our customers. Research and development is performed primarily in the United States,
the United Kingdom, and Israel for our Enterprise Intelligence segment; primarily in the United States, Canada, and Israel for our
Video Intelligence segment; and primarily in Israel, with separate research and development activities in Germany, Brazil, and
Bulgaria for our Communications Intelligence segment.
We believe that our future success depends on a number of factors, which include our ability to:
• identify and respond to emerging technological trends in our target markets;
• develop and maintain competitive solutions that meet or exceed our customers’ changing needs;
• enhance our existing products by adding features and functionality to meet or exceed specific customer needs or differentiate
our products from those of our competitors; and
• attract, recruit, and retain highly skilled and experienced employees.
To support these efforts, we make significant investments in research and development every year. In the years ended January 31,
2012, 2011, and 2010, we spent approximately $111.0 million, $96.5 million, and $83.8 million, respectively, on research and
development, net. We allocate our research and development resources in response to market research and customer demand for
additional features and solutions. Our development strategy involves rolling out initial releases of our products and adding features
over time. We incorporate product feedback received from our customers into our product development process. While the majority of
our products are developed internally, in some cases, we also acquire or license technologies, products, and applications from third
parties based on timing and cost considerations. See “Risk Factors—Risks Related to Our Business—Competition, Markets, and
Operations —For certain products and components, we rely on a limited number of suppliers, manufacturers, and partners and if these
relationships are interrupted we may not be able to obtain substitute suppliers, manufacturers, or partners on favorable terms or at all”
under Item 1A.
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As noted above, a significant portion of our research and development operations is located outside the United States. Historically, we
have also derived benefits from participation in certain government-sponsored programs, including those of the Israeli Office of the
Chief Scientist (“OCS”) and certain research and development programs in Canada, for the support of research and development
activities conducted in those countries. The Israeli law under which these OCS grants are made limits our ability to manufacture
products, or transfer technologies, developed using these grants outside of Israel without permission from the OCS. See “Risk
Factors—Risks Related to Our Business—Competition, Markets, and Operations —Because we have significant foreign operations,
we are subject to geopolitical and other risks that could materially adversely affect our business” and “Risk Factors—Risks Related to
Our Business—Competition, Markets, and Operations —Conditions in and our relationship to Israel may materially adversely affect
our operations and personnel and may limit our ability to produce and sell our products or engage in certain transactions” under Item
1A for a discussion of risks associated with our foreign operations.
Manufacturing and Suppliers
Our manufacturing and assembly operations are performed in our Israeli facility for our Enterprise Intelligence solutions, in our
U.S., Israeli, and Canadian facilities for our Video Intelligence solutions, and primarily in our German and Israeli facilities for our
Communications Intelligence solutions. These operations consist of installing our software on externally purchased hardware
components, final assembly, and testing, which involves the application of extensive quality control procedures to materials,
components, subassemblies, and systems. We also manufacture certain hardware units and perform system integration functions prior
to shipping turnkey solutions to our customers. We rely on several unaffiliated subcontractors for the supply of specific proprietary
components and assemblies that are incorporated in our products, as well as for certain operations activities that we outsource.
Although we have occasionally experienced delays and shortages in the supply of proprietary components in the past, we have, to
date, been able to obtain adequate supplies of all components in a timely manner from alternative sources, when necessary. See “Risk
Factors—Risks Related to Our Business—Competition, Markets, and Operations—For certain products and components we rely on a
limited number of suppliers, manufacturers, and partners and if these relationships are interrupted, we may not be able to obtain
substitute suppliers, manufacturers, or partners on favorable terms or at all” under Item 1A for a discussion of risks associated with
our manufacturing operations and suppliers.
Employees
As of January 31, 2012, we employed approximately 3,200 people, including part-time employees and certain contractors.
Approximately 48%, 31%, 13%, and 8% of our employees and contractors are located in the Americas, Israel, EMEA (excluding
Israel), and APAC, respectively.
We consider our relationship with our employees to be good and a critical factor in our success. Our employees in the United States
are not covered by any collective bargaining agreements. In some cases, our employees outside the United States are automatically
subject to certain protections negotiated by organized labor in those countries directly with the government or
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trade unions or are automatically entitled to severance or other benefits mandated under local laws. For example, while we are not a
party to any collective bargaining or other agreement with any labor organization in Israel, certain provisions of the collective
bargaining agreements between the Histadrut (General Federation of Laborers in Israel) and the Coordinating Bureau of Economic
Organizations (including the Manufacturers’ Association of Israel) are applicable to our Israeli employees by virtue of expansion
orders of the Israeli Ministry of Industry, Trade and Labor.
Intellectual Property Rights
General
Our success depends to a significant degree on the legal protection of our software and other proprietary technology. We rely on a
combination of patent, trade secret, copyright, and trademark laws and confidentiality and non-disclosure agreements with employees
and third parties to establish and protect our proprietary rights.
Patents
For the year ended January 31, 2012, we were allowed or granted more than 60 patents worldwide and had more than a total 520
patents and patent applications worldwide. We have accumulated a significant amount of proprietary know-how and expertise in
developing analytics solutions for enterprise workforce optimization and security intelligence products. We regularly review new
areas of technology related to our businesses to determine whether they are patentable.
Licenses
Our licenses are designed to prohibit unauthorized use, copying, and disclosure of our software technology. When we license our
software to customers, we require license agreements containing restrictions and confidentiality terms customary in the industry in
order to protect our proprietary rights in the software. These agreements generally warrant that the software and propriety hardware
will materially comply with written documentation and assert that we own or have sufficient rights in the software we distribute and
have not violated the intellectual property rights of others. We license our products in a format that does not permit users to change the
software code. See “Risk Factors—Risks Related to Our Business—Competition, Markets, and Operations —For certain products
and components, we rely on a limited number of suppliers, manufacturers, and partners and if these relationships are interrupted we
may not be able to obtain substitute suppliers, manufacturers, or partners on favorable terms or at all” under Item 1A.
We license certain software, technology, and related rights for use in the manufacture and marketing of our products and pay royalties
to third parties under such licenses and other agreements. We believe that our rights under such licenses and other agreements are
sufficient for the manufacture and marketing of our products and, in the case of licenses, extend for periods at least equal to the
estimated useful lives of the related technology and know-how.
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Trademarks and Service Marks
We use various trademarks and service marks to protect the marks used in our business. We also claim common law protections for
other marks we use in our business. Competitors and other companies could adopt similar marks or try to prevent us from using our
marks, consequently impeding our ability to build brand identity and possibly leading to customer confusion. See “Risk Factors—
Risks Related to Our Business—Intellectual Property and Data/Systems Security—Our intellectual property may not be adequately
protected” under Item 1A for a more detailed discussion regarding the risks associated with the protection of our intellectual property.
Competition
We face strong competition in all of our markets, and we expect that competition will persist and intensify. In our Enterprise
Intelligence segment, our competitors include Aspect Software, Inc., Autonomy Corp. (an HP company), Genesys
Telecommunications, NICE Systems Ltd (“NICE”), and many smaller companies, which can vary across regions. In our Video
Intelligence segment, our competitors include 3VR, American Dynamics (a business unit of Tyco), Genetec Inc., March Networks
Corporation (entered into agreement to be acquired by Infinova Ltd.), Milestone Systems A/S, NICE, and Pelco, Inc. (a division of
Schneider Electric Limited); divisions of larger companies, including Bosch Security Systems, Cisco Systems, Inc., United
Technologies Corp., Honeywell International Inc., and many smaller companies, which can vary across regions. In our
Communications Intelligence segment, our primary competitors include Aqsacom Inc., ETI (a division of BAE Systems), JSI
Telecom, NICE, Pen-Link, Ltd., RCS S.R.L., Rohde & Schwarz, Trovicor, SS8 Networks, Inc., Utimaco (a division of Sophos, Plc),
and many smaller companies, which can vary across regions. Some of our competitors have superior brand recognition and greater
financial resources than we do, which may enable them to increase their market share at our expense. Furthermore, we expect that
competition will increase as other established and emerging companies enter IP markets and as new products, services, and
technologies are introduced.
In each of our operating segments, we believe that we compete principally on the basis of:
• product performance and functionality;
• product quality and reliability;
• breadth of product portfolio and interoperability;
• global presence and high-quality customer service and support;
• specific industry knowledge, vision, and experience; and
• price.
We believe that our success depends primarily on our ability to provide technologically advanced and cost-effective solutions and
services. We expect that competition will increase as other established and emerging companies enter our market and as new products,
services, and technologies are introduced, such as SaaS. In recent years, there has
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also been significant consolidation among our competitors, which has improved the competitive position of several of these
companies. See “Risk Factors—Risks Related to Our Business—Competition, Markets, and Operations— Intense competition in our
markets and competitors with greater resources than us may limit our market share, profitability, and growth” under Item 1A for a
more detailed discussion of the competitive risks we face.
Export Regulations
We and our subsidiaries are subject to applicable export control regulations in countries from which we export goods and services.
These controls may apply by virtue of the country in which the products are located or by virtue of the origin of the content contained
in the products. If the controls of a particular country apply, the level of control generally depends on the nature of the goods and
services in question. For example, our Communications Intelligence solutions tend to be more highly controlled than our Enterprise
Intelligence solutions. Where controls apply, the export of our products generally requires an export license or authorization (either on
a per-product or per-transaction basis) or that the transaction qualify for a license exception or the equivalent, and may also be subject
to corresponding reporting requirements.
Item 1A. Risk Factors
Many of the factors that affect our business and operations involve risks and uncertainties. The factors described below are risks that
could materially harm our business, financial condition, and results of operations. These are not all the risks we face and other factors
currently considered immaterial or unknown to us may have a material adverse impact on our future operations.
Risks Related to Our Business
Competition, Markets, and Operations
Our business is impacted by changes in general economic conditions and information technology spending in particular.
Our business is subject to risks arising from adverse changes in domestic and global economic conditions. Slowdowns, recessions,
economic instability, political unrest, armed conflicts, or natural disasters around the world may cause companies and governments to
delay, reduce, or even cancel planned spending. In particular, declines in information technology spending and limited or reduced
government budgets have affected the market for our products in certain periods and in certain regions, especially in industries or
areas that are or have experienced significant cost-cutting. Customers or partners who are facing business challenges or liquidity
issues are also more likely to delay purchase decisions or cancel orders, as well as to delay or default on payments. If customers or
partners significantly reduce their spending with us or significantly delay or fail to make payments to us, our business, results of
operations, and financial condition would be materially adversely affected. During the recent recession, like
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many companies, we engaged in significant cost-saving measures. Current economic conditions are also uncertain. If economic
conditions require us to again undertake significant cost-saving measures, such measures may negatively impact our ability to execute
on our objectives and grow, particularly if we are not able to invest in our business as a result of a protracted economic downturn.
Intense competition in our markets and competitors with greater resources than us may limit our market share, profitability,
and growth.
We face aggressive competition from numerous and varied competitors in all of our markets, making it difficult to maintain market
share, remain profitable, invest, and grow. Our competitors may be able to more quickly develop or adapt to new or emerging
technologies, better respond to changes in customer requirements or preferences, or devote greater resources to the development,
promotion, and sale of their products. Some of our competitors have, in relation to us, longer operating histories, larger customer
bases, longer standing relationships with customers, greater name recognition, and significantly greater financial, technical, marketing,
customer service, public relations, distribution, or other resources. There has also been significant consolidation among our
competitors, which has improved the competitive position of several of these companies. In recent years, several companies
significantly larger than we are have also entered or increased their presence in our markets through internal development,
partnerships, and acquisitions. We also face competition from solutions developed internally by our customers or partners. To the
extent that we cannot compete effectively, our market share and, therefore, results of operations could be materially adversely
affected.
Because price and related terms are key considerations for many of our customers, we may have to accept less-favorable payment
terms, lower the prices of our products and services, and/or reduce our cost structure, including reducing headcount or investment in
research and development, in order to remain competitive. Certain of our competitors have become increasingly aggressive in their
pricing strategy, particularly in markets where they are trying to establish a foothold or defend existing installations. If we are forced
to take these kinds of actions to remain competitive in the short-term, such actions may adversely impact our ability to execute and
compete in the long-term.
The industry in which we operate is characterized by rapid technological changes and evolving industry standards, and if we
cannot anticipate and react to such changes and continually innovate our products and technologies our results may suffer.
The markets for our products are characterized by rapidly changing technology and evolving industry standards. The introduction of
products embodying new technology, new delivery platforms such as SaaS, the commoditization of older technologies, and the
emergence of new industry standards can exert pricing pressure on existing products and/or render them unmarketable or obsolete. It
is critical to our success that we are able to anticipate and respond to changes in technology and industry standards by consistently
developing new and enhanced, innovative and high-quality products and services that meet or exceed the changing needs of our
customers. We must also successfully launch and drive demand for our new and enhanced solutions. If we are unable to develop,
launch, and drive demand for our new and enhanced solutions, we may lose market share and our profitability and other results of
operations may be materially adversely affected.
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Our solutions may contain defects that could impair their market acceptance and may result in customer claims for
substantial damages if they fail to perform properly.
Our existing solutions are and future solutions are expected to be sophisticated and may develop operational problems. New products
and new product versions also give rise to the risk of defects or errors. If we are not able to remedy or do not discover such defects,
errors, or other operational problems until after a product has been released and used by customers or partners, we may incur
significant costs to correct such defects, errors, or other operational problems and/or become liable for substantial damages for product
liability claims or other contract liabilities. In addition, defects or errors in our products may result in questions regarding the integrity
of the products generally, which could cause adverse publicity and impair their market acceptance.
If we are unable to maintain our relationships with third parties that market and sell our products, our business and ability to
grow could be materially adversely affected.
Approximately half of our sales are made through partners, distributors, resellers, and systems integrators. We must often compete
with other suppliers for these relationships and our competitors often seek to establish exclusive relationships with these sales
channels or, at a minimum, to become a preferred partner for them. Our ability to procure and maintain these relationships is based on
factors that are similar to those on which we compete for end customers, including features, functionality, ease of use, installation and
maintenance, and price, among others. Even if we are able to secure such relationships on terms we find acceptable, there is no
assurance that we will be able to realize the benefits we anticipate. Some of our channel partners may also compete with us or have
affiliates that compete with us or may partner with our competitors or even offer our products and those of our competitors as
alternatives when presenting bids to end customers. Our ability to achieve our revenue goals and growth depends to a significant
extent on maintaining and adding to these sales channels, and if we are unable to do so, our business and ability to grow could be
materially adversely affected.
The sophisticated nature of our solutions, sales cycle, and sales strategy may create uncertainty in our operating results and
make such results more volatile and difficult to predict.
Although the timing of our sales cycle ranges from as little as a few weeks to more than a year, our larger sales, which we emphasize
in our sales strategy, typically require a minimum of a few months to consummate. As the length or complexity of a sales process
increases, so does the risk of successfully closing the sale. Larger sales are often made by competitive bid, which also increases the
time and uncertainty associated with such opportunities. Moreover, because many of our solutions are also sophisticated, customers
may require education on the value and functionality of our solutions as part of the sales process, further extending the time frame and
uncertainty of the process. Longer sales cycles, competitive bid processes, and the need to educate customers means that:
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• There is greater risk of customers deferring, scaling back, or cancelling sales as a result of, among other things, receipt of
competitive proposals, changes in budgets and purchasing priorities, or introduction or anticipated introduction of new or
enhanced products by us or our competitors, during the process.
• We may make a significant investment of time and money in opportunities that do not come to fruition, which
investments we may be unable to recoup or utilize in future projects.
• We may be required to bid on a project in advance of the completion of its design or required to begin implementation of
a project in advance of finalizing a sale, in either case, increasing the risk of unforeseen technological difficulties or cost
overruns.
• We face greater downside risks if we do not correctly and efficiently deploy limited human and financial resources and
convert such sales opportunities into orders.
The extended timeframe and uncertainty associated with many of our sales opportunities also makes it difficult for us to accurately
forecast our revenues (and attendant budgeting and guidance decisions) and increases the volatility of our operating results from
period to period. Our ability to forecast and the volatility of our operating results is also impacted by the fact that pricing, margins,
and other deal terms may vary substantially from transaction to transaction, especially across business lines. The terms of our
transactions, including with respect to pricing, future deliverables, delivery model (e.g., perpetual license versus SaaS), and post-
contract customer support, also impact the timing of our ability to recognize revenue. Because these transaction-specific factors are
difficult to predict in advance, this also complicates the forecasting of revenue. Additionally, because, as noted above, we emphasize
larger transactions in our sales strategy, the deferral or loss of one or more significant orders or a delay in a large implementation
could materially adversely affect our operating results, especially in any given quarter. As with other software-focused companies, a
large amount of our quarterly business tends to come in the last few weeks, or even the last few days, of each quarter. This trend has
also complicated the process of accurately predicting revenue and other operating results, particularly on a quarterly basis. Finally,
our business is subject to seasonal factors that may also cause our results to fluctuate from quarter to quarter.
For certain products and components, we rely on a limited number of suppliers, manufacturers, and partners and if these
relationships are interrupted we may not be able to obtain substitute suppliers, manufacturers, or partners on favorable terms
or at all.
Although we generally use standard parts and components in our products, we do rely on non-affiliated suppliers and OEM partners
for certain non-standard products or components which may be critical to our products, including both hardware and software, and on
manufacturers of assemblies that are incorporated into our products. We also purchase technology, license intellectual property rights,
and oversee third-party development and localization of certain products or components, in some cases, from companies that may
compete with us or work with our competitors. While we endeavor to use larger, more established suppliers, manufacturers, and
partners wherever possible, in some cases, these providers may be smaller, more early-stage companies, particularly with respect to
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suppliers of new or unique technologies that we have not developed internally. If these suppliers, manufacturers, or partners
experience financial, operational, manufacturing capacity, or quality assurance difficulties, or cease production and sale of the
products we buy from them entirely, or there is any other disruption, including loss of license, OEM, or distribution rights, in our
relationships with these suppliers, manufacturers, or partners, including as a result of the acquisition of a supplier or partner by a
competitor, we will be required to locate alternative sources of supply or manufacturing, to internally develop the applicable
technologies, to redesign our products, and/or to remove certain features from our products, any of which would be likely to increase
expenses, create delivery delays, and negatively impact our sales. Although we endeavor to put in place contracts with these key
providers, including protections such as source code escrows (where needed), warranties, and indemnities, we may not be successful
in obtaining adequate protections, these agreements may be short-term in duration, the counterparties may be unwilling or unable to
stand behind such protections, and any contractual protections offer limited practical benefits to us in the event our relationship with a
key provider is interrupted, any of which may adversely affect our business.
If we cannot recruit or retain qualified personnel, our ability to operate and grow our business may be impaired.
We depend on the continued services of our executive officers and other key personnel. In addition, in order to continue to grow
effectively, we need to attract and retain new employees who understand and have experience with our products, services, and
industry. The market for such personnel is competitive in most, if not all, of the geographies in which we operate. If we are unable to
attract and retain qualified employees, on reasonable economic and other terms or at all, our ability to operate and grow our business
could be impaired.
Because we have significant foreign operations, we are subject to geopolitical and other risks that could materially adversely
affect our business.
We have significant operations in foreign countries, including sales, research and development, manufacturing, customer support, and
administrative services. The countries in which we have our most significant foreign operations include Israel, the United Kingdom,
Canada, India, Germany, and China (Hong Kong), and we intend to continue to expand our operations internationally. We believe our
business may suffer if we are unable to successfully expand into new regions, as well as maintain and expand existing foreign
operations. Our foreign operations are, and any future foreign expansion will be, subject to a variety of risks, many of which are
beyond our control, including risks associated with:
•
•
•
•
foreign currency fluctuations;
political, security, and economic instability in foreign countries;
changes in and compliance with local laws and regulations, including export control laws, tax laws, labor laws, employee
benefits, customs requirements, currency restrictions, and other requirements;
differences in tax regimes and potentially adverse tax consequences of operating in foreign countries;
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•
•
•
•
•
customizing products for foreign countries;
preference for or policies and procedures that protect local suppliers;
legal uncertainties regarding liability and intellectual property rights;
hiring and retaining qualified foreign employees; and
difficulty in, and longer timeframes associated with, accounts receivable collection.
Any or all of these factors could materially affect our business or results of operations.
Conditions in and our relationship to Israel may materially adversely affect our operations and personnel and may limit our
ability to produce and sell our products or engage in certain transactions.
We have significant operations in Israel, including research and development, manufacturing, sales, and support.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighbors,
which in the past have led, and may in the future lead, to security and economic problems for Israel. In addition, Israel has faced and
continues to face difficult relations with the Palestinians and the risk of terrorist violence from both Palestinian as well as foreign
elements such as Hezbollah. Infighting among the Palestinians may also create security and economic risks to Israel. Current and
future conflicts and political, economic, and/or military conditions in Israel and the Middle East region have affected and may in the
future affect our operations in Israel. The exacerbation of violence within Israel or the outbreak of violent conflicts between Israel and
its neighbors, including Iran, may impede our ability to manufacture, sell, and support our products, engage in research and
development, or otherwise adversely affect our business or operations. In addition, many of our employees in Israel are required to
perform annual compulsory military service and are subject to being called to active duty at any time under emergency circumstances.
The absence of these employees may have an adverse effect on our operations. Hostilities involving Israel may also result in the
interruption or curtailment of trade between Israel and its trading partners or a significant downturn in the economic or financial
condition of Israel and could materially adversely affect our results of operations.
Restrictive laws, policies, or practices in certain countries directed toward Israel, Israeli goods, or companies having operations in
Israel may also limit our ability to sell some of our products in certain countries.
We receive grants from the OCS for the financing of a portion of our research and development expenditures in Israel. The availability
in any given year of these OCS grants depends on OCS approval of the projects and related budgets that we submit to the OCS each
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year. The Israeli law under which these OCS grants are made limits our ability to manufacture products, or transfer technologies,
developed using these grants outside of Israel. This may limit our ability to engage in certain outsourcing or business combination
transactions involving these products or require us to pay significant royalties or fees to the OCS in order to obtain any OCS consent
that may be required in connection with such transactions.
We are subject to complex, evolving regulatory requirements that may be difficult and expensive to comply with and that
could negatively impact our business.
Our business and operations are subject to a variety of regulatory requirements in the United States and abroad, including, among
other things, with respect to labor, tax, import and export, anti-corruption, data privacy and protection, and communications
monitoring and interception. Compliance with these regulatory requirements may be onerous and expensive, especially where these
requirements are inconsistent from jurisdiction to jurisdiction or where the jurisdictional reach of certain requirements is not clearly
defined or seeks to reach across national borders. Regulatory requirements in one jurisdiction may make it difficult or impossible to
do business in another jurisdiction. We may also be unsuccessful in obtaining permits, licenses, or other authorizations required to
operate our business, such as for the import or export of our products. While we have implemented policies and procedures designed
to achieve compliance with these laws and regulations, we also cannot assure you that we or our personnel will not violate applicable
laws and regulations or our policies regarding the same.
Regulatory requirements, such as laws requiring telecommunications providers to facilitate the monitoring of communications by law
enforcement, may also influence market demand for many of our products and/or customer requirements for specific functionality and
performance or technical standards. The domestic and international regulatory environment is subject to constant change, often based
on factors beyond our control or anticipation, including political climate, budgets, and current events, which could reduce demand for
our products or require us to change or redesign products to maintain compliance or competitiveness.
We are dependent on contracts with governments around the world for a significant portion of our revenue. These contracts
also expose us to additional business risks and compliance obligations.
For the year ended January 31, 2012, approximately one quarter of our business was generated from contracts with various
governments around the world, including federal, state, and local government agencies. We expect that government contracts will
continue to be a significant source of our revenue for the foreseeable future. Our business generated from government contracts may
be materially adversely affected if:
•
•
our reputation or relationship with government agencies is impaired;
we are suspended or otherwise prohibited from contracting with a domestic or foreign government or any significant law
enforcement agency, for example, as a result of our previously disclosed March 2010 consent judgment with the SEC, which
must be disclosed by us in any proposal to perform new work for U.S. federal agencies until March 2013;
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•
•
•
•
•
levels of government expenditures and authorizations for law enforcement and security related programs decrease or shift to
programs in areas where we do not provide products and services;
we are prevented from entering into new government contracts or extending existing government contracts based on violations
or suspected violations of laws or regulations, including those related to procurement;
we are not granted security clearances that are required to sell our products to domestic or foreign governments or such security
clearances are deactivated;
there is a change in government procurement procedures; or
there is a change in political climate that adversely affects our existing or prospective relationships.
In addition, we must comply with domestic and foreign laws and regulations relating to the formation, administration, and
performance of government contracts. These laws and regulations affect how we do business with government agencies in various
countries and may impose added costs on our business or defer our ability to recognize revenue from such contracts. Our government
contracts may contain, or under applicable law may be deemed to contain, unfavorable provisions not typically found in private
commercial contracts that may expose us to additional risk or liability, including provisions enabling the government party to:
•
•
•
•
terminate or cancel existing contracts for convenience without reimbursing us for incurred costs or hold us liable for cover costs
if the contract was terminated for cause;
in the case of the U.S. federal government, suspend us from doing business with a foreign government or prevent us from
selling our products in certain countries;
audit and object to our contract-related costs and expenses, including allocated indirect costs; and
unilaterally change contract terms and conditions, including warranty provisions, schedule, quantities, and scope of work, in
advance of our agreement on corresponding pricing adjustments.
Loss of security clearances or political factors may adversely affect our business.
Some of our subsidiaries maintain security clearances domestically and abroad in connection with the development, marketing, sale,
and support of our Communications Intelligence solutions. These clearances are reviewed from time to time by these countries and
could be deactivated for political reasons unrelated to the merits of our solutions, such as the list of countries we do business with or
the fact that our local entity is controlled by or affiliated with an entity based in another country. If we lose our security clearances in
a particular country, we would be unable to sell our Communications Intelligence solutions for secure projects in that
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country on a direct basis and might also experience greater challenges in selling such solutions even for non-secure projects in that
country. Even if we are able to obtain and maintain applicable security clearances, government customers may decline to purchase
our Communications Intelligence solutions if they were not developed or manufactured in that country or if they were developed or
manufactured in other countries that are considered disfavored by such country. We may also experience negative publicity or other
adverse impacts on our business if we sell our Communications Intelligence solutions to countries that are considered disfavored by
the media or political or social rights organizations even though such transactions may be permissible under applicable law. If any of
the foregoing events occur, it may have a material adverse effect on our business.
Intellectual Property and Data/Systems Security
Our intellectual property may not be adequately protected.
While much of our intellectual property is protected by patents or patent applications, we have not and cannot protect all of our
intellectual property with patents or other registrations. There can be no assurance that patents we have applied for will be issued on
the basis of our patent applications or that, if such patents are issued, they will be sufficiently broad enough to protect our
technologies, products, or services. There can be no assurance that we will file new patent, trademark, or copyright applications, that
any future applications will be approved, that any existing or future patents, trademarks or copyrights will adequately protect our
intellectual property or that any existing or future patents, trademarks, or copyrights will not be challenged by third parties. Our
intellectual property rights may not be successfully asserted in the future or may be invalidated, designed around, or challenged.
In order to safeguard our unpatented proprietary know-how, source code, trade secrets, and technology, we rely primarily upon trade
secret protection and non-disclosure provisions in agreements with employees and other third parties having access to our confidential
information. There can be no assurance that these measures will adequately protect us from improper disclosure or misappropriation
of our proprietary information.
Preventing unauthorized use or infringement of our intellectual property rights is difficult even in jurisdictions with well-established
legal protections for intellectual property such as the United States. It may be even more difficult to protect our intellectual property
in other jurisdictions where legal protections for intellectual property rights are less well-established. If we are unable to adequately
protect our intellectual property against unauthorized third-party use or infringement, our competitive position could be adversely
affected.
Our products may infringe or may be alleged to infringe on the intellectual property rights of others, which could lead to
costly disputes or disruptions for us and may require us to indemnify our customers and resellers for any damages they suffer.
The technology industry is characterized by frequent allegations of intellectual property infringement. In the past, third parties have
asserted that certain of our products infringed upon their intellectual property rights and similar claims may be made in the future. Any
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allegation of infringement against us could be time consuming and expensive to defend or resolve, result in substantial diversion of
management resources, cause product shipment delays, or force us to enter into royalty or license agreements. If patent holders or
other holders of intellectual property initiate legal proceedings against us, either with respect to our own intellectual property or
intellectual property we license from third parties, we may be forced into protracted and costly litigation, regardless of the merits of
these claims. We may not be successful in defending such litigation, in part due to the complex technical issues and inherent
uncertainties in intellectual property litigation, and may not be able to procure any required royalty or license agreements on terms
acceptable to us, or at all. Third parties may also assert infringement claims against our customers. Subject to certain limitations, we
generally indemnify our customers and resellers with respect to infringement by our products of the proprietary rights of third parties,
which, in some cases, may not be limited to a specified maximum amount and for which we may not have insurance coverage or an
adequate indemnification in the case of intellectual property licensed from a third party. If any of these claims succeed, we may be
forced to pay damages, be required to obtain licenses for the products our customers or partners use, or incur significant expenses in
developing non-infringing alternatives. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers
may be forced to stop using or, in the case of resellers and other partners, stop selling our products.
Use of free or open source software could expose our products to unintended restrictions and could materially adversely affect
our business.
Some of our products contain free or open source software (together, open source software) and we anticipate making use of open
source software in the future. Open source software is generally covered by license agreements that permit the user to use, copy,
modify, and distribute the software without cost, provided that the users and modifiers abide by certain licensing requirements. The
original developers of the open source software generally provide no warranties on such software or protections in the event the open
source software infringes a third party’s intellectual property rights. Although we endeavor to monitor the use of open source software
in our product development, we cannot assure you that past, present, or future products will not contain open source software elements
that impose unfavorable licensing restrictions or other requirements on our products, including the need to seek licenses from third
parties, to re-engineer affected products, to discontinue sales of affected products, or to release all or portions of the source code of
affected products. Any of these developments could materially adversely affect our business.
The mishandling or even the perception of mishandling of sensitive information could harm our business.
Our products are in some cases used by customers to compile and analyze highly sensitive or confidential information and data,
including, in some cases, information or data used in intelligence gathering or law enforcement activities. While our customers’ use of
our products in no way affords us access to the customer’s sensitive or confidential information or data, we or our partners may
receive or come into contact with such information or data, including personally identifiable information, when we are asked to
perform services or support functions for our customers. We or our partners may also receive or come into contact with such
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information in connection with our SaaS or other hosted or managed services offerings. We have implemented policies and
procedures and use information technology systems to help ensure the proper handling of such information and data, including
background screening of certain services personnel, non-disclosure agreements with employees and partners, access rules, and
controls on our information technology systems. Customers are also increasingly focused on the security of our products and we work
to ensure their security, including through the use of encryption, access rights, and other customary security features. However, these
measures are designed to mitigate the risks associated with handling or processing sensitive data and cannot safeguard against all risks
at all times. The improper handling of sensitive data, or even the perception of such mishandling (whether or not valid), or other
security lapses by us or our partners or within our products, could reduce demand for our products or otherwise expose us to financial
or reputational harm or legal liability.
We may be subject to information technology system failures or disruptions that could harm our operations, financial
condition, or reputation.
We rely extensively on information technology systems to operate and manage our business and to process, maintain, and safeguard
information, including information belonging to our customers, partners, and personnel. These systems may be subject to failures or
disruptions as a result of, among other things, natural disasters, accidents, power disruptions, telecommunications failures, new system
implementations, acts of terrorism or war, physical security breaches, computer viruses, or other cyber security attacks. We have
experienced cyber security attacks in the past and may experience them in the future, potentially with greater frequency. While we are
continually working to maintain secure and reliable systems, our security, redundancy, and business continuity efforts may be
ineffective or inadequate. Such system failures or disruptions could subject us to research and development or production downtimes,
delays in our ability to process orders, delays in our ability to provide products and services to customers, delays or errors in financial
reporting, compromise or loss of sensitive or confidential information or intellectual property, destruction or corruption of data,
financial losses from remedial actions, liabilities to customers or other third parties, or damage to our reputation. Any of the foregoing
could harm our competitive position, result in a loss of customer confidence, and materially and adversely affect our results of
operations or financial condition.
Risks Related to Our Finances and Capital Structure
Our internal controls over financial reporting may not prevent misstatements and material weaknesses or deficiencies could
arise in the future which could lead to restatements or filing delays.
Our system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S.
generally accepted accounting principles (“GAAP”). Because of its inherent limitations, internal control over financial reporting may
not prevent or detect every misstatement. As previously disclosed, our management has in the past concluded that our internal control
over financial reporting was not effective at prior fiscal year ends as a result of material weaknesses.
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An evaluation of effectiveness is subject to the risk that the controls may become inadequate because of changes in conditions,
because the degree of compliance with policies or procedures decreases over time, or because of unanticipated circumstances or other
factors. As a result, although our management has concluded that our internal controls are effective as of January 31, 2012, we cannot
assure you that our internal controls will prevent or detect every misstatement, that material weaknesses or other deficiencies will not
reoccur or be identified in the future, that this or future financial reports will not contain material misstatements or omissions, that
future restatements will not be required, or that we will be able to timely comply with our reporting obligations in the future.
We may be unable to timely implement new accounting pronouncements or new interpretations of existing accounting
pronouncements, which could lead to future restatements or filing delays.
Relevant accounting rules and pronouncements are subject to ongoing interpretation by the accounting profession and refinement by
various organizations responsible for promulgating and interpreting accounting principles. These ongoing interpretations or the
adoption of new rules and pronouncements could require material changes in our accounting practices or financial reporting, including
restatements, which may be expensive, time consuming, and difficult to implement. We cannot assure you that, if such changes are
required, that we will be able to timely implement them or will not experience future reporting delays.
Our stockholders do not have the same protections generally available to stockholders of other NASDAQ-listed companies
because we are currently a “controlled company” within the meaning of the NASDAQ Listing Rules.
Because Comverse holds a majority of the voting power for the election of our board of directors, we are a “controlled company”
within the meaning of NASDAQ Listing Rule 5615(c). As a controlled company, we qualify for, and our board of directors, the
composition of which is controlled by Comverse, may and intends to rely upon, exemptions from several of NASDAQ’s corporate
governance requirements, including requirements that:
•
•
•
a majority of the board of directors consist of independent directors;
compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or
by a compensation committee comprised solely of independent directors; and
director nominees be selected or recommended to the board of directors by a majority of its independent directors or by a
nominating committee that is composed entirely of independent directors.
At present, we do not have a majority independent board of directors or a compensation committee or a nominating committee
composed entirely of independent directors. Accordingly, our stockholders are not and will not be afforded the same protections
generally as stockholders of other NASDAQ-listed companies for so long as Comverse controls the composition of our board and our
board determines to rely upon such exemptions.
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Comverse can control our business and affairs, including our board of directors.
Because Comverse beneficially owns a majority of our common stock (assuming conversion of our preferred stock) and holds a
majority of the voting power for the election of our board of directors, Comverse effectively controls the outcome of all matters
submitted for stockholder action, including the approval of significant corporate transactions, such as certain equity issuances or
mergers and acquisitions. The terms of our preferred stock, all of which is held by Comverse, entitle Comverse to further control over
significant corporate transactions. As of January 31, 2012, the preferred stock was convertible into approximately 10.8 million shares
of our common stock, giving Comverse beneficial ownership of 54.4% of our common stock assuming conversion of such preferred
stock. In addition, as of January 31, 2012, Comverse’s preferred stock and common stock positions collectively entitled it to 52.7% of
the voting power for the election of our board of directors and for any other matters submitted to a vote of our common stockholders
(assuming no conversion of the preferred stock).
By virtue of its controlling stake, Comverse also has the ability, acting alone, to remove existing directors and/or to elect new directors
to our board of directors to fill vacancies. At present, Comverse has appointed individuals who are officers, executives, or directors of
Comverse as five of our nine directors. These directors have fiduciary duties to both us and Comverse and may become subject to
conflicts of interest on certain matters where Comverse’s interest as majority stockholder may not be aligned with the interests of our
minority stockholders. In addition, if we fail to repurchase the preferred stock as required upon a fundamental change, then the
number of directors constituting the board of directors will be increased by two and Comverse will have the right to elect two directors
to fill such vacancies.
As a consequence of Comverse’s control over the composition of our board of directors, Comverse can also exert a controlling
influence on our management, direction and policies, including the ability to appoint and remove our officers, engage in certain
corporate transactions, including debt financings and mergers or acquisitions, or, subject to the terms of our credit agreement, declare
and pay dividends.
We have been adversely affected as a result of being a consolidated, controlled subsidiary of Comverse and could be adversely
affected in the future.
We have been adversely affected by events at Comverse in the past and may be adversely affected by events at Comverse in the
future. Comverse’s previous extended filing delay and the circumstances underlying it materially and adversely affected us in a
number of ways, including by contributing to our own previous extended filing delay and related concerns on the part of employees,
customers, partners, service providers, and regulatory authorities, among others. If Comverse were in the future to experience further
filing delays or to discover further accounting issues, it could have an adverse impact on us and our business.
For as long as we remain a majority owned subsidiary of Comverse, Comverse’s strategic plans, and related speculation and
announcements regarding its ownership interest in our stock, may also adversely affect us and our business. For example, Comverse
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has publicly announced its intention to spin off its Comverse, Inc. subsidiary and eliminate its holding company structure either
simultaneously with or shortly after the completion of such transaction and we cannot presently predict the outcome of this Comverse
process or its impact on us.
Prior to our IPO in May 2002, we were included in Comverse’s U.S. federal income tax return and we remain party to a tax-sharing
agreement with Comverse for periods prior to our IPO. As a result, Comverse may unilaterally make decisions that could impact our
liability for income taxes for periods prior to the IPO. Under applicable federal and state laws, we could also be liable, under certain
circumstances, for taxes of other members of the Comverse consolidated group for such pre-IPO periods. Adjustments to the
consolidated group’s tax liability for periods prior to our IPO could also affect the net operating losses (“NOLs”) allocated to us by
Comverse and cause us to incur additional tax liability in future periods.
We have a significant amount of debt under our credit agreement, which exposes us to leverage risks and subjects us to
covenants which may adversely affect our operations.
At January 31, 2012, we had gross outstanding indebtedness of $597.0 million under our credit agreement, meaning that we are
significantly leveraged. Our leverage position may, among other things:
•
•
•
•
limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions, or
other general corporate purposes;
require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability of our
cash flow for other purposes;
require us to repatriate cash for debt service from our foreign subsidiaries resulting in dividend tax costs or require us to
adopt other disadvantageous tax structures to accommodate debt service payments; or
increase our vulnerability to economic downturns, limit our ability to capitalize on significant business opportunities, and
restrict our flexibility to react to changes in market or industry conditions.
In addition, because our indebtedness bears interest at a variable rate, we are exposed to risk from fluctuations in interest rates in
periods where market rates exceed the interest rate floor provided by our credit agreement.
Our credit agreement contains a financial covenant that requires us to maintain a maximum consolidated leverage ratio and a covenant
requiring us to deliver audited financial statements to the lenders each year. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and Capital Resources” under Item 7 for additional information.
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Our ability to comply with the leverage ratio covenant is highly dependent upon our ability to continue to grow earnings from quarter
to quarter, or in the alternative, to reduce expenses and/or reduce the level of our outstanding debt and we cannot assure that we will
be successful in any or all of these regards.
Our credit agreement also includes a number of restrictive covenants which limit our ability to, among other things:
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•
•
•
•
•
•
•
incur additional indebtedness or liens or issue preferred stock;
pay dividends or make other distributions or repurchase or redeem our stock or subordinated indebtedness;
engage in transactions with affiliates;
engage in sale-leaseback transactions;
sell certain assets;
change our lines of business;
make investments, loans, or advances; and
engage in consolidations, mergers, liquidations, or dissolutions.
These covenants could limit our ability to plan for or react to market conditions, to meet our capital needs, or to otherwise engage in
transactions that might be considered beneficial to us.
If an event of default occurs under the credit agreement, our lenders could declare all amounts outstanding to be immediately due and
payable. In that event, we may be forced to seek an amendment of and/or waiver under the credit agreement, raise additional capital
through securities offerings, asset sales, or other transactions, or seek to refinance or restructure our debt. In such a case, there can be
no assurance that we will be able to consummate such an amendment and/or waiver, capital raising transaction, refinancing, or
restructuring on reasonable terms or at all.
We consider other financing and refinancing options from time to time, however, we cannot assure you that such options will always
be available to us on reasonable terms or at all. If one or more rating agencies were to downgrade our credit ratings, that could also
impede our ability to refinance our existing debt or secure new debt, increase our future cost of borrowing, and create third party
concerns about our financial condition or results of operations.
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The rights of the holders of shares of our common stock are subject to, and may be adversely affected by, the rights of holders
of the preferred stock.
In connection with our 2007 acquisition of Witness Systems, Inc. (“Witness”), we issued 293,000 shares of convertible preferred stock
to Comverse at an aggregate purchase price of $293.0 million. The issuance of shares of common stock upon conversion of the
preferred stock would result in substantial dilution to the other common stockholders. As of January 31, 2012, inclusive of accrued
dividends, the preferred stock was convertible into approximately 10.8 million shares of our common stock. In addition, the terms of
the preferred stock include liquidation, dividend, and other rights that are senior to and more favorable than the rights of the holders of
our common stock.
Our business could be materially adversely affected as a result of the risks associated with acquisitions and investments.
As part of our growth strategy, we have made a number of acquisitions and investments and expect to continue to make acquisitions
and investments in the future, subject to the terms of our credit agreement and other restrictions resulting from our capital structure.
In recent periods, the market for acquisitions has become more competitive and valuations have increased. Several of our competitors
have also completed acquisitions of companies in or adjacent to our markets in recent periods. As a result, it may be more difficult for
us to identify suitable acquisition targets or to consummate acquisitions once identified on reasonable terms or at all. If we are not
able to execute on our acquisition strategy, we may not be able to achieve our growth strategy, may lose market share, or may lose our
leadership position in one or more of our markets.
Future acquisitions or investments, if any, could result in potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities, and amortization expenses related to intangible assets, any of which could have a material adverse effect on our
operating results and financial condition. In addition, investments in immature businesses with unproven track records and
technologies have a high degree of risk, with the possibility that we may lose the value of our entire investments and potentially incur
additional unexpected liabilities. Acquisitions or investments that are not immediately accretive to earnings may also make it more
difficult for us to maintain satisfactory profitability levels and compliance with the maximum leverage ratio covenant under our credit
agreement.
The process of integrating an acquired company’s business into our operations and investing in new technologies is challenging and
may result in expected or unexpected operating or compliance challenges, which may require a significant amount of our
management’s attention that would otherwise be focused on the ongoing operation of our business, as well as significant
expenditures. Other risks we may encounter with acquisitions include the effect of the acquisition on our financial and strategic
positions and our reputation, the inability to obtain the anticipated benefits of the acquisition, including synergies or economies of
scale on a timely basis or at all, or challenges in reconciling business practices, particularly in foreign geographies, combining
systems, retaining key employees, and maintaining and integrating product development. Due to rapidly changing market conditions,
we may also find the value of our acquired technologies and related intangible assets, such as goodwill, as recorded in our financial
statements, to be impaired, resulting in charges to operations.
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There can be no assurance that we will be successful in making additional acquisitions or that we will be able to effectively integrate
any acquisitions we do make or realize the expected benefits of such transactions.
Our future success depends on our ability to execute on our growth strategy and properly manage investment in our business
and operations.
Our strategy is to continue to invest in our business and operations and grow, both organically and through acquisitions. Investments
in, among other things, new products and technologies, research and development, infrastructure and systems, geographic expansion,
and headcount are critical to achieving our growth strategy and the need to continually enhance and secure our internal and external
operations. However, such investments may not be successful, and even if successful, may negatively impact our short-term
profitability. Our success depends on our ability to effectively and efficiently execute on our growth strategy, including our ability to
properly allocate limited investment dollars, balance the extent and timing of investments with the associated impact on expenses and
profitability, and capture economies of scale. If we are unable to effectively and efficiently execute on our growth strategy and
properly manage our investments and expenditures, our results of operations and stock price may be materially adversely affected.
If our goodwill or other intangible assets become impaired, our financial condition and results of operations would be
negatively affected.
Because we have historically acquired a significant number of companies, goodwill and other intangible assets have represented a
substantial portion of our assets. Goodwill and other intangible assets totaled approximately $1.0 billion, or approximately 68% of our
total assets, as of January 31, 2012. We test our goodwill for impairment at least annually, or more frequently if an event occurs
indicating the potential for impairment, and we assess on an as-needed basis whether there have been impairments in our other
intangible assets. We make assumptions and estimates in this assessment which are complex and often subjective. These assumptions
and estimates can be affected by a variety of factors, including external factors such as industry and economic trends, and internal
factors such as changes in our business strategy or our internal forecasts. To the extent that the factors described above change, we
could be required to record additional non-cash impairment charges in the future. Any significant impairment charges would
negatively affect our financial condition and results of operations.
Our international operations subject us to currency exchange risk.
Most of our revenue is denominated in U.S. dollars, while a significant portion of our operating expenses, primarily labor expenses, is
denominated in the local currencies where our foreign operations are located, principally Israel, the United Kingdom, Germany, and
Canada. As a result, we are exposed to the risk that fluctuations in the value of these currencies relative to the U.S. dollar could
increase the U.S. dollar cost of our operations in these countries, which could have a material adverse effect on our results of
operations. In addition, since a portion of our sales are made in foreign currencies, primarily the euro and the British pound,
fluctuations in the value of these currencies relative to the U.S. dollar could impact our revenue (on a U.S. dollar
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basis) and materially adversely affect our results of operations. We attempt to mitigate a portion of these risks through foreign
currency hedging, based on our judgment of the appropriate trade-offs among risk, opportunity and expense, however, our hedging
activities are limited in scope and duration and may not be effective at reducing the U.S. dollar cost of our global operations.
Changes in our tax rates, the adoption of new U.S. or international tax legislation, inability to realize value from our NOLs, or
exposure to additional tax liabilities could affect our future results.
We are subject to taxes in the United States and numerous foreign jurisdictions. Our future effective tax rates could be affected by
changes in the mix of earnings in countries with differing statutory tax rates, changes in valuation allowance on deferred tax assets
(including our NOL carryforwards), changes in unrecognized tax benefits or changes in tax laws or their interpretation. Any of these
changes could have a material adverse effect on our profitability. In addition, the tax authorities in the jurisdictions in which we
operate, including the United States, may from time to time review the pricing arrangements between us and our foreign subsidiaries.
An adverse determination by one or more tax authorities in this regard may have a material adverse effect on our financial results. In
Israel, we continue to work towards becoming compliant with our statutory accounting and tax filings as a result of our prior financial
restatement. If we are delayed further in our Israeli filings, we could be subject to certain penalties, including imposition of
withholding taxes and inability to contract with Israeli government entities.
We have significant deferred tax assets which can provide us with significant future cash tax savings if we are able to use them.
However, the extent to which we will be able to use these tax benefits may be impacted, restricted, or eliminated by a number of
factors including whether we generate sufficient future net income, adjustments to Comverse’s tax liability for periods prior to our
IPO, changes in tax rates, laws, or regulations that could have retroactive effect, or an “ownership change” under Section 382 of the
Internal Revenue Code. If an ownership change were to occur, it would impose an annual limit on the amount of pre-change NOLs
and other losses available to reduce our taxable income and could result in a reduction in the value of our NOL carryforwards or the
realizability of other deferred tax assets. To the extent that we are unable to utilize our NOLs or other losses, our results of operations,
liquidity, and financial condition could be adversely affected in a significant manner. When we cease to have NOLs available to us in
a particular tax jurisdiction, either through their expiration, disallowance, or utilization, our cash tax liability will increase in that
jurisdiction.
Our stock price has been volatile and your investment could lose value.
All of the risk factors discussed in this section could affect our stock price. The timing of announcements in the public market
regarding new products, product enhancements or technological advances by our competitors or us, and any announcements by us or
our competitors of acquisitions, major transactions, or management changes could also affect our stock price. Our stock price is
subject to speculation in the press and the analyst community, including with respect to Comverse’s strategic plans, announcements
relating to Comverse’s strategic plans, changes in recommendations or earnings estimates by financial analysts, changes
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in investors’ or analysts’ valuation measures for our stock, our credit ratings and market trends unrelated to our performance. Stock
sales by Comverse or our directors, officers, or other significant holders may also affect our stock price. A significant drop in our
stock price could also expose us to the risk of securities class actions lawsuits, which could result in substantial costs and divert
management’s attention and resources, which could adversely affect our business.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The following describes our leased and owned properties as of the date of this report.
Leased Properties
We lease a total of approximately 436,000 square feet of office space in the United States. Our corporate headquarters are located in a
leased facility in Melville, New York, and consist of approximately 45,800 square feet under a lease that expires in May 2013. The
Melville facility is used primarily by our executive management, corporate, administrative, sales, marketing, customer support, and
services groups. We lease approximately 96,500 square feet at a facility in Roswell, Georgia under a lease that expires in
November 2012. The Roswell facility is used primarily by the administrative, marketing, product development, support, and sales
groups for our Enterprise Intelligence operations. Upon expiration of the Roswell lease in November 2012, we expect to move such
operations to a 132,676 square foot facility in Alpharetta, Georgia under a lease agreement that expires in September 2026. This new
Alpharetta, Georgia facility will also include the consolidation of the Atlanta, Georgia office of Global Management Technologies
(“GMT”), the lease of which we assumed in October 2011 in connection with our acquisition of GMT.
We occupy additional leased facilities in the United States, including offices located in Columbia, Maryland and Denver, Colorado
which are primarily used for product development, sales, training, and support for our Video Intelligence operations; an office in
Gainesville, Virginia used primarily for supporting our Communications Intelligence operations; and offices in Santa Clara,
California; Lyndhurst, New Jersey; San Diego, California; Herndon, Virginia; and Rockland, Massachusetts which are primarily used
for product development, sales, training, and support for our Enterprise Intelligence operations.
Outside of the United States, we occupy approximately 176,000 square feet at a facility in Herzliya, Israel under a lease that expires in
October 2015. The Herzliya facility is used primarily for manufacturing, storage, development, sales, marketing, and support related
to our Communications Intelligence operations. We also occupy approximately 34,500 square feet at a leased facility in Laval,
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Quebec, which is used primarily for our manufacturing, product development, support, and sales for our Video Intelligence operations.
The Laval lease expires in June 2013. We occupy approximately 20,000 square feet at a facility in Weybridge, the United Kingdom
under a lease which expires in February 2021. The Weybridge facility is used primarily for administrative, marketing, product
development, support, and sales groups for our Enterprise Intelligence and Video Intelligence operations.
Additionally, we occupy leased facilities outside of the United States in Zoetermeer, the Netherlands; Sao Paulo and Florianópolis,
Brazil; Sofia, Bulgaria; Mexico City, Mexico; Letterkenney, Ireland; Hong Kong, China; Tokyo, Japan; Sydney, Australia; Pasig City,
Philippines; Singapore (through our joint venture); and Gurgaon and Bangalore, India, which are used primarily by our administrative,
product development, sales, and support functions for our Enterprise Intelligence, Communications Intelligence, and Video
Intelligence operations.
In addition to the leases noted above, we also lease smaller office space throughout the world for our local sales, support, and services
needs. For additional information regarding our lease obligations, see Note 16, “Commitments and Contingencies” to our consolidated
financial statements included elsewhere in this report.
Owned Properties
We own approximately 12.3 acres of land, including 40,000 square feet of office space, in Durango, Colorado, which we have
historically used to support our Video Intelligence operations. On October 10, 2006, we entered into a 10-year lease with a third party
for 6.5 acres of these 12.3 acres, all of which was undeveloped and not being used by us. The remaining 5.8 acres, including the office
space, are subject to a security interest under our credit agreement.
We also own approximately 35,000 square feet of office and storage space for sales, manufacturing, support, and development for our
Communications Intelligence operations in Bexbach, Germany.
We believe that our leased and owned facilities are in good operating condition and are adequate for our current requirements,
although growth in our business may require us to acquire additional facilities or modify existing facilities. We believe that alternative
locations are available in all areas where we currently do business.
Item 3. Legal Proceedings
On March 26, 2009, a motion to approve a class action lawsuit (the “Labor Motion”), and the class action lawsuit itself (the “Labor
Class Action”) (Labor Case No. 4186/09), were filed against our subsidiary, Verint Systems Limited (“VSL”), by a former employee
of VSL, Orit Deutsch, in the Tel Aviv Labor Court. Ms. Deutsch purports to represent a class of our employees and ex-employees
who were granted options to buy shares of Verint and to whom allegedly damages were caused as a result of the blocking of the ability
to exercise Verint options by our employees or ex-employees during our previous extended filing delay period. The Labor Class
Action seeks compensatory damages for the entire class in an unspecified amount. On July 9, 2009, we filed a motion for summary
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dismissal and alternatively for the stay of the Labor Motion. On February 8, 2010, the Tel Aviv Labor Court dismissed the case for
lack of material jurisdiction and ruled that it would be transferred to the District Court in Tel Aviv. On October 11, 2011, the District
Court in Tel Aviv ordered a stay of proceedings until legal proceedings in the United States with respect to related shareholder claims
against Comverse are concluded. The parties are expected to update the District Court on any developments in the cases no later than
April 4, 2012.
From time to time we or our subsidiaries may be involved in legal proceedings and/or litigation arising in the ordinary course of our
business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any current
claims will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Market Information
From the time we became publicly traded on May 16, 2002 until January 31, 2007, our common stock was traded on the NASDAQ
National Market. From February 1, 2007 until July 2, 2010 (the last trading day prior to the relisting of our common stock on the
NASDAQ Global Market) our common stock traded on the over-the-counter securities market under the symbol “VRNT.PK”, with
pricing and financial information provided by the Pink Sheets. Our common stock was re-listed on the NASDAQ Global Market and
trading in our common stock commenced on the NASDAQ Global Market on July 6, 2010 under the symbol “VRNT”.
The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by
the Pink Sheets.
Year Ended
January 31,
2011
Period
Low
High
2/1/10 — 4/30/10
5/1/10 — 7/2/10
$
$
17.73
22.20
$
$
28.00
27.00
The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by
the NASDAQ Global Market.
Year Ended
January 31,
2011
2012
Holders
Period
7/6/10 — 7/31/10
8/1/10 — 10/31/10
11/1/10 — 1/31/11
2/1/11 — 4/30/11
5/1/11 — 7/31/11
8/1/11 — 10/31/11
11/1/11 — 1/31/12
$
$
$
$
$
$
$
Low
High
19.63
22.02
30.67
32.00
32.46
22.50
25.88
$
$
$
$
$
$
$
23.80
32.93
38.10
37.92
37.99
34.33
29.42
There were 81 holders of record of our common stock at March 15, 2012. Such record holders include holders who are nominees for
an undetermined number of beneficial owners.
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Dividends
We have not declared or paid any cash dividends on our equity securities and have no current plans to pay any dividends on our equity
securities. We intend to retain our earnings to finance the development of our business, repay debt, and for other corporate purposes.
In addition, the terms of our credit agreement restrict our ability to pay cash dividends on shares of our common or preferred stock.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”
under Item 7 for a more detailed discussion of these limitations. Our ability to pay dividends on our common stock is also limited by
the terms of our outstanding shares of preferred stock which rank senior to our common stock with respect to the payment of
dividends and bear a preferred dividend which currently accrues at the rate of 3.875% per year. See Note 8, “Convertible Preferred
Stock” to our consolidated financial statements included in Item 15 of this report, for a more detailed discussion of these restrictions.
Any future determination as to the payment of dividends on our common stock will be made by our board of directors at its discretion,
subject to the limitations contained in the credit agreement and the rights of the holders of the preferred stock and will depend upon
our earnings, financial condition, capital requirements, and other relevant factors.
Stock Performance Graph
The following table compares the cumulative total stockholder return on our common stock with the cumulative total return on the
NASDAQ Composite Index and the NASDAQ Computer & Data Processing Services Index, assuming an investment of $100 on
January 31, 2007 through January 31, 2012, and the reinvestment of any dividends. The comparisons in the graph below are based
upon (i) closing sale prices on NASDAQ for our common stock on January 31, 2007 and each day from July 6, 2010 through
January 31, 2012 and (ii) the closing bid quotations (as reported by the Pink Sheets) for all other periods. This data is not indicative
of, nor intended to forecast, future performance of our common stock.
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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Verint Systems, Inc., the NASDAQ Composite Index,
and the NASDAQ Computer & Data Processing Index
*$100 invested on 1/31/07 in stock or index, including reinvestment of dividends.
Fiscal year ending January 31.
January
31, 2007
January
31, 2008
January
31, 2009
January
31, 2010
January
31, 2011
January
31, 2012
100.00
100.00
$
$
55.98
97.07
$
$
19.67
60.02
$
$
55.37
87.95
$
$
104.27 $
85.57
111.84 $
116.36
100.00
$
102.83
$
63.57
$
97.39
$
118.73 $
120.43
Verint Systems Inc.
NASDAQ Composite Index
NASDAQ Computer & Data
Processing Index
$
$
$
Recent Sales of Unregistered Securities
None.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Period
November 1 — November 30, 2011
December 1 — December 31, 2011
January 1 — January 31, 2012
(a)
Total number of
shares (or units)
purchased (1)
—
—
29,659(3)
(b)
Average price paid
per share (or
unit)(2)
—
—
$ 27.90
(c)
Total number of
shares (or units)
purchased as part of
publicly announced
plans or programs
—
—
—
(d)
Maximum number (or
approximate dollar value) of
shares (or units) that may yet
be purchased under the plans
or programs
—
—
—
(1) These shares were purchased in-open market transactions. None of these shares were purchased as a part of a publicly
announced stock repurchase plan or program.
(2) Represents the approximate weighted-average price paid per share.
(3) As previously disclosed, in connection with the resumption of option exercises following the conclusion of our previous
extended filing delay period and the vesting of restricted stock units after the relisting of our common stock on the NASDAQ
Global Market, during the summer of 2010, we issued up to an aggregate of approximately 135,000 equity securities to
certain current and former employees and a former director in transactions that did not involve public offerings and that were
made in reliance on available exemptions from registration under the Securities Act of 1933. In January 2012, we
repurchased 29,659 of these securities. We also expect to repurchase an additional 2,250 of these securities in the future.
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Item 6. Selected Financial Data
The following selected consolidated financial data has been derived from our consolidated financial statements. The data below
should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under
Item 7 and our consolidated financial statements and notes thereto included in Item 15 of this report.
Our historical results should not be viewed as indicative of results expected for any future period.
Five-Year Selected Financial Highlights:
Consolidated Statements of Operations Data
(in thousands, except per share data)
Revenue
Operating income (loss)
Net income (loss)
Net income (loss) attributable to Verint Systems
Inc.
Net income (loss) attributable to Verint Systems
Inc. common shares
Net income (loss) per common share attributable
to Verint Systems Inc.:
Basic
Diluted
Weighted-average shares:
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012
782,648
86,478
40,625
36,993
22,203
0.58
0.56
38,419
39,499
$
$
$
$
25,581
11,403
0.33
0.31
34,544
37,179
Year Ended January 31,
2010
703,633
65,679
17,100
$
$
$
2011
726,799
73,105
28,585
$
$
$
$
$
15,617
2,026
2009
669,544
$
(15,026) $
(78,577) $
2008
534,543
(114,630)
(197,545)
(80,388) $
(198,609)
(93,452) $
(207,290)
0.06
0.06
$
$
(2.88) $
(2.88) $
32,478
33,127
32,394
32,394
(6.43)
(6.43)
32,222
32,222
We have never declared a cash dividend to common stockholders.
Consolidated Balance Sheet Data
(in thousands)
Total assets
Long-term debt, including current maturities
Preferred stock
Total stockholders’ equity (deficit)
2012
$ 1,502,868
597,379
285,542
144,295
2011
$ 1,376,127
583,234
285,542
77,687
January 31,
2010
2009
$ 1,396,337 $ 1,337,393
625,000
285,542
(76,070)
620,912
285,542
(14,567)
2008
$ 1,492,275
610,000
293,663
30,325
During the five-year period ended January 31, 2012, we acquired a number of businesses, the more significant of which were the
acquisitions of Witness in May 2007, Vovici Corporation (“Vovici”) in August 2011, and GMT in October 2011. The operating
results of acquired businesses have been included in our consolidated financial statements since their respective acquisition dates and
have contributed to our revenue growth. The May 2007 acquisition of Witness significantly impacted our revenue and operating
results.
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Operating results for the year ended January 31, 2012 include:
• a loss on extinguishment of debt of $8.1 million associated with the termination of a credit agreement;
• amortization of intangible assets associated with the acquisition of Witness of $26.8 million;
• interest expense on our term loans of $28.1 million; and
• stock-based compensation expense of $27.9 million.
Operating results for the year ended January 31, 2011 include:
• amortization of intangible assets associated with the acquisition of Witness of $27.4 million;
• interest expense on our term loan and revolving credit agreement of $26.2 million;
• stock-based compensation expense of $46.8 million;
• realized losses on our interest rate swap of $3.1 million; and
• approximately $29 million in professional fees and related expenses associated with our restatement of previously filed
consolidated financial statements for periods through January 31, 2005 and our previous extended filing delay status. During
this year, we resumed filing timely periodic reports with the SEC.
Operating results for the year ended January 31, 2010 include:
• amortization of intangible assets associated with the acquisition of Witness of $28.3 million;
• interest expense on our term loan and revolving credit agreement of $22.6 million;
• stock-based compensation expense of $44.2 million;
• realized and unrealized losses on our interest rate swap of $13.6 million; and
• approximately $54 million in professional fees and related expenses associated with our restatement of previously filed
consolidated financial statements for periods through January 31, 2005 and our previous extended filing delay status.
Operating results for the year ended January 31, 2009 include:
• a full year’s revenue from Witness compared to eight months in the prior year;
• amortization of intangible assets associated with the acquisition of Witness of $31.1 million;
• integration costs of $3.2 million incurred to support and facilitate the combination of Verint and Witness into a single
• net proceeds after legal fees of approximately $4.3 million associated with the settlement of pre-existing litigation between
organization;
Witness and a competitor;
• interest expense on our term loan and revolving credit agreement of $35.2 million;
• stock-based compensation expense of $36.0 million;
• realized and unrealized losses on our interest rate swap of $11.5 million;
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• restructuring costs of $5.7 million and approximately $28 million in professional fees and related expenses associated with
our restatement of previously filed consolidated financial statements for periods through January 31, 2005 and our previous
extended filing delay status; and
• non-cash goodwill impairment charges of $26.0 million.
Operating results for the year ended January 31, 2008 include:
• an increase in revenue of $123.1 million from the Witness business, beginning in the quarter ended July 31, 2007;
• amortization of intangible assets associated with the acquisition of Witness of $22.6 million;
• a $6.7 million charge for in-process research and development;
• integration costs of $11.0 million incurred to support and facilitate the combination of Verint and Witness into a single
organization;
• legal fees of $8.7 million associated with pre-existing litigation between Witness and a competitor;
• interest expense on our term loan of $34.4 million;
• stock-based compensation expense of $31.0 million;
• realized and unrealized losses on our interest rate swap of $29.2 million;
• unrealized gains of $7.2 million on an embedded derivative financial instrument related to the variable dividend feature of
our preferred stock;
• restructuring costs of $3.3 million and approximately $26 million in professional fees and related expenses associated with
our restatement of previously filed consolidated financial statements for periods through January 31, 2005 and our previous
extended filing delay status; and
• non-cash goodwill and intangible asset impairment charges of $23.4 million.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of our financial condition and results of operations should be read in conjunction
with “Business” under Item 1, “Selected Financial Data” under Item 6, and our consolidated financial statements and the related notes
thereto included in Item 15 of this report. This discussion contains a number of forward-looking statements, all of which are based on
our current expectations and all of which could be affected by uncertainties and risks. Our actual results may differ materially from the
results contemplated in these forward-looking statements as a result of many factors including, but not limited to, those described in
“Risk Factors” under Item 1A.
Business Overview
Verint® is a global leader in Actionable Intelligence® solutions and value-added services. Our solutions enable organizations of all
sizes to make more timely and effective decisions to improve enterprise performance and make the world a safer place.
More than 10,000 organizations in over 150 countries — including over 85 percent of the Fortune 100 — use Verint solutions to
capture, distill, and analyze complex and underused information sources, such as voice, video, and unstructured text. In the enterprise
intelligence market, our workforce optimization and voice of the customer solutions help organizations enhance the customer service
experience, increase customer loyalty, enhance products and services, reduce operating costs, and drive revenue. In the security
intelligence market, our communications and cyber intelligence, video and situation intelligence, and public safety solutions help
government and commercial organizations in their efforts to protect people and property and neutralize terrorism and crime.
Verint was founded in 1994 and is headquartered in Melville, New York.
Our Business
We serve two markets through three operating segments. Our Enterprise Intelligence segment serves the enterprise intelligence
market, while our Video Intelligence segment and Communications Intelligence segment serve the security intelligence market.
In our Enterprise Intelligence segment, we are a leading provider of enterprise intelligence software and services. Our solutions enable
organizations to extract and analyze valuable information from customer interactions and related operational data in order to make
more effective, proactive decisions for optimizing the performance of their customer service operations, improving the customer
experience, and facilitating compliance, and enhancing products and services. For the years ended January 31, 2012, 2011, and 2010,
this segment represented approximately 56%, 57%, and 53% of our total revenue, respectively.
In our Video Intelligence segment, we are a leading provider of networked IP video solutions and a provider of situation intelligence
solutions designed to optimize security and enhance operations. Our Video Intelligence solutions portfolio includes IP video
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management software and services, edge devices for capturing, digitizing, and transmitting video over different types of wired and
wireless networks, video analytics, networked video recorders, and physical security information management. For the years ended
January 31, 2012, 2011, and 2010, this segment represented approximately 18%, 18%, and 21% of our total revenue, respectively.
In our Communications Intelligence segment, we are a leading provider of communications intelligence solutions and a developer of
cyber intelligence solutions that help law enforcement, national security, intelligence, and civilian government agencies effectively
detect, investigate, and neutralize criminal and terrorist threats and detect and thwart cyber-attacks. Our solutions are designed to
handle massive amounts of unstructured and structured information from different sources, quickly make sense of complex scenarios,
and generate evidence and intelligence. For the years ended January 31, 2012, 2011, and 2010, this segment represented
approximately 26%, 25%, and 26% of our total revenue, respectively.
Generally, we make business decisions by evaluating the risks and rewards of the opportunities available to us in the markets served
by each of our segments. We view each operating segment differently and allocate capital, personnel, resources, and management
attention accordingly. In reviewing each operating segment, we also review the performance of that segment by geography. Our
marketing and sales strategies, expansion opportunities, and product offerings may differ materially within a particular segment
geographically, as may our allocation of resources between segments. When making decisions regarding investment in our business,
increasing capital expenditures or making other decisions that may reduce our profitability, we also consider the leverage ratio in our
credit facility. See “— Liquidity and Capital Resources” for more information.
Key Trends and Developments in Our Business
We believe that there are many factors that affect our ability to sustain and increase both revenue and profitability, including:
•
•
•
Market acceptance of Actionable Intelligence for unstructured data, particularly analytics. We are in an early stage market
where the value of certain aspects of our products and solutions is still in the process of market acceptance. We believe that our
future growth depends in part on the continued and increasing acceptance of the value of our data analytics across our product
offerings.
Our capital structure may impact our financing activities, investments, and growth. We have a majority stockholder that can
effectively control our business and affairs. We also are subject to various restrictive covenants under our credit facility, as well
as a leverage ratio financial covenant. As a result, our current capital structure limits our ability to issue equity, incur additional
debt, engage in mergers or acquisitions, or make certain investments in our business. These limitations may impede our ability
to execute upon our business strategy.
Information technology spending. Our growth and results depend in part on general economic conditions and the pace of
growth in information technology spending.
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See also “Risk Factors” under Item 1A for a more complete description of these and other risks that may impact future revenue and
profitability.
Our Previous Extended Filing Delay and Related Matters
As previously disclosed, from March 2006 through March 2010, we did not make periodic filings with the SEC. Our previous
extended filing delay arose as a result of certain internal and external investigations and reviews of accounting matters discussed in
our prior public filings and led to the identification of material weaknesses in our internal control over financial reporting and the
delisting of our common stock from NASDAQ. In connection with the foregoing and related matters, we incurred approximately
$137 million of professional fees and related expenses during the four years ended January 31, 2011. By June 2010, we had
concluded our internal investigation and reviews, filed with the SEC annual reports for all required periods and quarterly reports for
certain quarters for which we had not previously filed reports, resumed making timely periodic filings with the SEC, relisted our
common stock on NASDAQ, settled an injunctive action by the SEC, and resolved certain other matters with the SEC. As a result,
professional fees incurred during the year ended January 31, 2012 were significantly lower than those incurred in each of the four
years ended January 31, 2011. We expect future professional fees and related expenses to continue to be significantly lower than
those incurred during our previous extended filing delay.
Critical Accounting Policies and Estimates
An appreciation of our critical accounting policies is necessary to understand our financial results. The accounting policies outlined
below are considered to be critical because they can materially affect our operating results and financial condition, as these policies
may require management to make difficult and subjective judgments regarding uncertainties. The accuracy of these estimates and the
likelihood of future changes depend on a range of possible outcomes and a number of underlying variables, many of which are beyond
our control, and there can be no assurance that our estimates are accurate.
Revenue Recognition
Our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of
accounting rules that require us to make significant judgments and estimates. We derive revenue primarily from two sources: product
revenue, which includes revenue from hardware and software products, and service and support revenue, which includes revenue from
installation services, PCS, project management, hosting services, SaaS, product warranties, and training services. Our customer
arrangements may include any combination of these elements. We follow the appropriate revenue recognition rules for each type of
revenue. For additional information, see Note 1, “Summary of Significant Accounting Policies” to our consolidated financial
statements included in Item 15 of this report. Revenue recognition for a particular arrangement is dependent upon such factors as the
level of customization within the solution and the contractual delivery, acceptance, payment, and support terms with the customer.
Significant judgment is required to conclude on each of these factors, and if we were to change any of these assumptions or
judgments, it could cause a material increase or decrease in the amount of revenue that we report in a particular period.
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We generally consider a purchase order or executed sales quote, when combined with a master license agreement, to constitute
evidence of an arrangement. Delivery occurs when the product is shipped or transmitted and title and risk of loss have transferred to
the customers. Our typical customer arrangements do not include products acceptance provisions; however, if such provisions are
provided, delivery is deemed to occur upon acceptance. We consider the fee to be fixed or determinable unless the fee is subject to
refund or adjustment or is not payable within our standard payment terms.
In October 2009, the Financial Accounting Standards Board (“FASB”) issued amended revenue recognition accounting standards that
removed tangible products containing software components and non-software components that function together to deliver the
product’s essential functionality from the scope of industry-specific software revenue recognition guidance. Also in October 2009, the
FASB amended the accounting standards for many multiple-deliverable revenue arrangements to:
(i)
provide updated guidance on when and how the deliverables in a multiple-deliverable arrangement should be separated, and
how the consideration should be allocated;
(ii)
require an entity to allocate revenue in an arrangement that has separate units of accounting, using estimated selling prices
(“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence (“VSOE”) of selling price, or third-
party evidence of selling price (“TPE”); and
(iii)
eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method to
the separate units of accounting.
We elected to prospectively adopt the provisions of this new guidance as of February 1, 2011, for new and materially modified
transactions entered into on or after that date. Since we have been able to establish VSOE for a significant amount of our service and
support offerings included in multiple-element arrangements, we do not consider the impact of implementing the guidance to be
significant for the year ended January 31, 2012. For the year ended January 31, 2012, we recognized $12.4 million and $6.3 million
of additional revenue and additional income before provision for income taxes, respectively, as a result of adopting the new guidance.
Our multiple-element arrangements consist of a combination of our product and service offerings that may be delivered at various
points in time. For arrangements within the scope of the new revenue accounting guidance, a deliverable constitutes a separate unit of
accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements. For
multiple-element arrangements comprised only of hardware products and related services, we allocate revenue to each element in an
arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its VSOE, if available, TPE, if VSOE is
not available, or ESP, if neither VSOE nor TPE is available. The total transaction revenue is allocated to the multiple elements based
on each element’s relative selling price compared to the total selling price.
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The manner in which we account for multiple-element arrangements that contain only software and software-related elements remains
unchanged by the new guidance. We allocate a portion of the total purchase price to the undelivered elements, primarily installation
services, PCS, and training, using VSOE of fair value of the undelivered elements. The remaining portion of the total transaction value
is allocated to the delivered software, referred to as the residual method. If we are unable to establish VSOE for the undelivered
elements of the arrangement, revenue recognition is deferred for the entire arrangement until all elements of the arrangement are
delivered. However, if the only undelivered element is PCS, we recognize the arrangement fee ratably over the PCS period.
For new or materially modified multiple-element arrangements entered into on or after February 1, 2011 that are comprised of a
combination of hardware and software elements, the total transaction value is bifurcated between the hardware elements and the
software elements that are not essential to the functionality of the hardware, based on the relative selling prices of the hardware
elements and the software elements as a group. Revenue is then recognized for the hardware and hardware-related services following
the hardware revenue recognition methodology outlined above and revenue for the software and software-related services is
recognized following the residual method or ratably over the PCS period if VSOE for PCS does not exist.
Our policy for establishing VSOE for installation, consulting, and training is based upon an analysis of separate sales of services. We
utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish VSOE for our PCS offerings,
depending upon the business segment, geographical region, or product line. The timing of revenue recognition on software licenses
and other revenue could be significantly impacted if we are unable to maintain VSOE on one or more undelivered elements during any
quarterly period. Loss of VSOE could result in (i) the complete deferral of all revenue or (ii) ratable recognition of all revenue under a
customer arrangement until such time as VSOE is re-established. If we are unable to re-establish VSOE on one or more undelivered
elements for an extended period of time it would impact our ability to accurately forecast the timing of quarterly revenue, which could
have a material adverse effect on our business, financial position, results of operations or cash flows.
We typically are not able to determine TPE for our products or our service and support offerings. TPE of selling price is established by
evaluating largely similar and interchangeable competitor products or services in stand-alone sales to similarly situated customers.
If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of allocating
the arrangement by considering several external and internal factors including, but not limited to, pricing practices, similar product
offerings, margin objectives, geographies in which we offer our products and services, internal costs, competition, and product
lifecycle. The determination of ESP is made through consultation with and approval by our management, taking into consideration
our go-to-market strategies. ESP for each element is updated, when appropriate, to ensure that it reflects recent pricing experience.
PCS revenue is derived from providing technical software support services and software updates and upgrades to customers on a
when-and-if-available basis. PCS revenue is recognized ratably over the term of the maintenance period which, in most cases, is one
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year. When PCS is included within a multiple-element arrangement, we utilize either the substantive renewal rate approach or the bell-
shaped curve approach to establish VSOE of the PCS, depending upon the business operating segment, geographical region, or
product line.
Under the substantive renewal rate approach, we believe it is necessary to evaluate whether both the support renewal rate and term are
substantive, and whether the renewal rate is being consistently applied to subsequent renewals for a particular customer. We establish
VSOE under this approach through analyzing the renewal rate stated in the customer agreement and determining whether that rate is
above the minimum substantive VSOE renewal rate established for that particular PCS offering. The minimum substantive VSOE rate
is determined based upon an analysis of revenue associated with historical PCS contracts. Typically, renewal rates of 15% for PCS
plans that provide when-and-if-available upgrades, and 10% for plans that do not provide for when-and-if-available upgrades, would
be deemed to be minimum substantive renewal rates. For contracts that do not contain a stated renewal rate, revenue associated with
the entire bundled arrangement is recognized ratably over the PCS term. Contracts that have a renewal rate below the minimum
substantive VSOE rate are deemed to contain a more than insignificant discount element, for which VSOE cannot be established. We
recognize revenue for these arrangements over the period that the customer is entitled to renew their PCS at the discounted rate, but
not to exceed the estimated economic life of the product.
Under the bell-shaped curve approach of establishing VSOE, we perform a VSOE compliance test to ensure that a substantial majority
(75% or over) of our actual PCS renewals are within a narrow range of plus or minus 15% of the median pricing.
Some of our arrangements require significant customization of the product to meet the particular requirements of the customer. For
these arrangements, revenue is recognized under contract accounting methods, typically using the percentage of completion (“POC”)
method. Under the POC method, revenue recognition is generally based upon the ratio of hours incurred to date to the total estimated
hours required to complete the contract. Profit estimates on long-term contracts are revised periodically based on changes in
circumstances, and any losses on contracts are recognized in the period that such losses become evident. Generally, the terms of long-
term contracts provide for progress billings based on completion of milestones or other defined phases of work. Significant judgment
is often required when estimating total hours and progress to completion on these arrangements, as well as whether a loss is expected
to be incurred on the contract due to several factors including the degree of customization required and the customer’s existing
environment. We use historical experience, project plans, and an assessment of the risks and uncertainties inherent in the arrangement
to establish these estimates. Uncertainties in these arrangements include implementation delays or performance issues that may or may
not be within our control.
We extend customary trade payment terms to our customers in the normal course of conducting business. To assess the probability of
collection for purposes of revenue recognition, we have established credit policies that establish prudent credit limits for our
customers. These credit limits are based upon our risk assessment of the customer’s ability to pay, their payment history, geographic
risk, and other factors, and are not contingent upon the resale of the product or upon the collection of payments from their customers.
These credit limits are reviewed and revised periodically on the basis of updated customer financial statement information, payment
performance, and other factors.
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We record provisions for estimated product returns in the same period in which the associated revenue is recognized. We base these
estimates of product returns upon historical levels of sales returns and other known factors. Actual product returns could be different
from our estimates and current or future provisions for product returns may differ from historical provisions. Concessions granted to
customers are recorded as reductions to revenue in the period in which they were granted and have been minimal in both amount and
frequency.
Product revenue derived from shipments to resellers and OEMs who purchase our products for resale are generally recognized when
such products are shipped (on a “sell-in” basis). This policy is predicated on our ability to estimate sales returns as well as other
criteria regarding these customers. We are also required to evaluate whether our resellers and OEMs have the ability to honor their
commitment to make fixed or determinable payments regardless of whether they collect payment from their customers. In this regard,
we assess whether our resellers and OEMs are new, poorly capitalized, or experiencing financial difficulty, and whether they have a
pattern of not paying as amounts become due on previous arrangements or seeking payment terms longer than those provided to end
customers. If we were to change any of these assumptions or judgments, it could cause a material change to the revenue reported in a
particular period. We have historically experienced insignificant product returns from resellers and OEMs, and our payment terms for
these customers are similar to those granted to our end-users. Our policy also presumes that we have no significant performance
obligations in connection with the sale of our products by our resellers and OEMs to their customers. If a reseller or OEM develops a
pattern of payment delinquency, or seeks payment terms longer than generally granted to our resellers or OEMs, we defer the
recognition of revenue from transactions with that reseller or OEM until the receipt of cash.
For multiple-element arrangements that contain software and software related elements for which we are unable to establish VSOE of
one or more elements, we use various available indicators of fair value and apply our best judgment to reasonably classify the
arrangement’s revenue into product revenue and service revenue for financial reporting purposes. Installation services associated with
our Communications Intelligence arrangements are included within product revenue as such amounts are not considered material.
Allowance for Doubtful Accounts
We estimate the collectability of our accounts receivable balances each accounting period and adjust our allowance for doubtful
accounts accordingly. We exercise a considerable amount of judgment in assessing the collectability of accounts receivable, including
consideration of the creditworthiness of each customer, their collection history, and the related aging of past due receivables balances.
We evaluate specific accounts when we learn that a customer may be experiencing a deterioration of its financial condition due to
lower credit ratings, bankruptcy, or other factors that may affect its ability to render payment.
Accounting for Business Combinations
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired, including in-process research and
development assets, and liabilities assumed, based upon their estimated fair values at the acquisition date. These fair values are
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typically estimated with assistance from independent valuation specialists. The purchase price allocation process requires our
management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets,
contractual support obligations assumed, and pre-acquisition contingencies.
Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in
part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.
Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are
not limited to:
•
•
•
•
•
future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts,
and acquired developed technologies;
expected costs to develop in-process research and development into commercially viable products and estimated cash flows
from the projects when completed;
the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand
will continue to be used in the combined company’s product portfolio;
cost of capital and discount rates; and
estimating the useful lives of acquired assets as well as the pattern or manner in which the assets will amortize.
In connection with the purchase price allocations for applicable acquisitions, we estimate the fair value of the contractual support
obligations we are assuming from the acquired business. The estimated fair value of the support obligations is determined utilizing a
cost build-up approach, which determines fair value by estimating the costs related to fulfilling the obligations plus a reasonable profit
margin. The estimated costs to fulfill the support obligations are based on the historical direct costs related to providing the support
services. The sum of these costs and operating profit represents an approximation of the amount that we would be required to pay a
third party to assume the support obligations.
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Impairment of Goodwill and Other Intangible Assets
We perform our goodwill impairment test on an annual basis, as of November 1, or more frequently if changes in facts and
circumstances indicate that impairment in the value of goodwill may exist. We review goodwill for impairment utilizing either a
qualitative assessment or a two-step process. If we decide that it is appropriate to perform a qualitative assessment and conclude that
the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. For reporting units
where we perform the two-step process, the first step requires us to estimate the fair value of each reporting unit and compare that fair
value to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the
goodwill is not considered impaired and no further evaluation is necessary. If the carrying value is higher than the estimated fair
value, there is an indication that impairment may exist and the second step is required. In the second step, the implied fair value of
goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the
implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an
impairment charge.
For reporting units where we decide to perform a qualitative assessment, our management assesses and makes judgments regarding a
variety of factors which potentially impact the fair value of a reporting unit, including general economic conditions, industry and
market-specific conditions, customer behavior, cost factors, our financial performance and trends, our strategies and business plans,
capital requirements, management and personnel issues, and our stock price, among others. Management then considers the totality of
these and other factors, placing more weight on the events and circumstances that are judged to most affect a reporting unit’s fair
value or the carrying amount of its net assets, to reach a qualitative conclusion regarding whether it is more likely than not that the fair
value of a reporting unit exceeds its carrying amount.
For reporting units where we perform the two-step process, we utilize three primary approaches to assess fair value: (a) an income
based approach, using projected discounted cash flows, (b) a market based approach, using multiples of comparable companies, and
(c) a transaction based approach, using multiples for recent acquisitions of similar businesses made in the marketplace.
Our estimate of fair value of each reporting unit is based on a number of subjective factors, including: (a) appropriate consideration of
valuation approaches (income approach, comparable public company approach, and comparable transaction approach), (b) estimates
of our future cost structure, (c) discount rates for our estimated cash flows, (d) selection of peer group companies for the comparable
public company and the comparable transaction approaches, (e) required levels of working capital, (f) assumed terminal value, and (g)
time horizon of cash flow forecasts.
The determination of reporting units also requires management judgment. We assess whether a reporting unit exists within a
reportable segment by identifying the unit, determining whether the unit qualifies as a business under GAAP, and assessing the
availability and regular review by segment management of discrete financial information for the unit.
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We review intangible assets that have finite useful lives and other long-lived assets when an event occurs indicating the potential for
impairment. If any indicators are present, we perform a recoverability test by comparing the sum of the estimated undiscounted future
cash flows attributable to the assets in question to their carrying amounts. If the undiscounted cash flows used in the test for
recoverability are less than the long-lived assets carrying amount, we determine the fair value of the long-lived asset and recognize an
impairment loss if the carrying amount of the long-lived asset exceeds its fair value. The impairment loss recognized is the amount by
which the carrying amount of the long-lived asset exceeds its fair value.
We did not record any impairments of goodwill for the years ended January 31, 2012, 2011 or 2010, as the fair values of all of our
reporting units significantly exceeded their carrying values.
Since the estimated fair values of our reporting units significantly exceeded their carrying values as of November 1, 2011, and no
indicators of potential impairment were identified between November 1, 2011 and January 31, 2012, we currently do not believe that
our reporting units are at risk of impairment.
The assumptions and estimates used in this process are complex and often subjective. They can be affected by a variety of factors,
including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our
internal forecasts. Although we believe the assumptions, judgments, and estimates we have used in our assessments are reasonable and
appropriate, a material change in any of our assumptions or external factors could lead to future goodwill or other intangible asset
impairment charges.
Income Taxes
We account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this
approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and
liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus
deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our assets and liabilities, and
are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates
are not anticipated.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our tax provision involves
the application of complex tax laws and requires significant judgment and estimates.
We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and we
establish a valuation allowance when it is more likely than not that all or a portion of our deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the
same jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to,
the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where
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there is sufficient negative evidence indicating that our deferred tax assets are not more likely than not realizable, we establish a
valuation allowance.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or
expected to be taken in a tax return by assessing whether they are more likely than not sustainable, based solely on their technical
merits, upon examination, and including resolution of any related appeals or litigation process. The second step is to measure the
associated tax benefit of each position as the largest amount that we believe is more likely than not realizable. Differences between the
amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our
financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred
tax assets. Our policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax
expense.
Contingencies
We recognize an estimated loss from a claim or loss contingency when and if information available prior to issuance of the financial
statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial
statements and the amount of the loss can be reasonably estimated. Accounting for claims and contingencies requires the use of
significant judgment and estimates. One notable potential source of loss contingencies is pending or threatened litigation. Legal
counsel and other advisors and experts are consulted on issues related to litigation as well as on matters related to contingencies
occurring in the ordinary course of business.
Accounting for Stock-Based Compensation
We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value
of the award.
We estimate the fair value of stock-based payment awards on the date of grant using an option-pricing model. We use the Black-
Scholes option-pricing model, which requires the input of significant assumptions including an estimate of the average period of time
employees will retain stock options before exercising them, the estimated volatility of our common stock price over the expected term,
the number of options that will ultimately be forfeited before completing vesting requirements, and the risk-free interest rate. Changes
in the assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related expense
recognized. The assumptions we use in calculating the fair value of stock-based payment awards represent our best estimates, which
involve inherent uncertainties and the application of judgment. As a result, if factors change and we use different assumptions, our
stock-based compensation expense could be materially different in the future.
Cost of Revenue
We have made an accounting policy election whereby the product cost of revenue, including hardware and third-party software license
fees, are capitalized and amortized over the same period that product revenue is recognized, while installation and other service costs
are generally expensed as incurred, except for certain contracts recognized according to contract accounting.
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For example, in a multiple-element arrangement where revenue is recognized over the PCS support period, the cost of revenue
associated with the product is capitalized upon product delivery and amortized over that same period. However, the cost of revenue
associated with the services is expensed as incurred in the period in which the services are performed. In addition, we expense
customer acquisition and origination costs to selling, general and administrative expense, including sales commissions, as incurred,
with the exception of certain sales referral fees in our Communications Intelligence segment which are capitalized and amortized
ratably over the revenue recognition period.
Results of Operations
Financial Overview
The following table sets forth a summary of certain key financial information for the years ended January 31, 2012, 2011, and 2010:
(in thousands, except per share data)
Revenue
Operating income
Net income attributable to Verint Systems Inc. common shares
Net income per common share attributable to Verint Systems Inc.:
Basic
Diluted
$
$
$
$
$
2012
782,648
86,478
22,203
0.58
0.56
Year Ended January 31,
2011
$
$
$
$
$
726,799
73,105
11,403
$
$
$
0.33
0.31
$
$
2010
703,633
65,679
2,026
0.06
0.06
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Our revenue increased approximately 8%, or $55.8 million,
to $782.6 million in the year ended January 31, 2012 from $726.8 million in the year ended January 31, 2011. In our Enterprise
Intelligence segment, revenue increased $27.5 million, or 7%. The increase was primarily due to a $30.1 million increase in service
revenue due primarily to an increase in our customer install base and the related support revenue generated from this customer base
during the year ended January 31, 2012 and, to a lesser extent, acquisitions in our Enterprise Intelligence segment during the year
ended January 31, 2012 (primarily Vovici). We continue to see expansion of our implementation services revenue due to the growth of
our professional services organization to meet the demands of our customer base. The increase in service revenue was partially offset
by a $2.6 million decrease in product revenue, which relates to a large transaction whereby product delivery occurred in the year
ended January 31, 2012 but a significant portion of the product revenue was not able to be recognized in the year ended January 31,
2012 due to certain contractual terms which required the remaining product revenue to be recognized in future periods. There were no
comparable transactions in the prior year. In our Communications Intelligence segment, revenue increased $24.4 million, or 13%,
primarily due to a $15.0 million increase in service revenue. Approximately $6.7 million of the increase is attributable to an increase
in our customer install base and the related support revenue generated from this customer install base. The remaining increase is due
primarily to the progress realized during the current-year period on certain large projects, some of which commenced in the previous
fiscal year, which resulted in an increase in service revenue during the year ended January 31, 2012 compared to the year ended
January 31, 2011. Product revenue in our Communications Intelligence segment increased $9.4 million, or 8%, primarily due to new
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communications intelligence product offerings. In our Video Intelligence segment, revenue increased $4.0 million, or 3%, primarily
due to increased product deliveries to customers compared to the prior year and recognition of revenue associated with the completion
of an implementation of a project for a large customer during the year ended January 31, 2012 compared to the prior year, partially
offset by a reduction in revenue recognized from prior fiscal years’ multiple-element arrangements. These arrangements are being
recognized ratably over several quarters or years primarily due to the prior business practice of providing implied PCS to Video
Intelligence customers for which VSOE did not exist. For more details on our revenue by segment, see “—Revenue by Operating
Segment”. Revenue in the Americas, EMEA, and APAC represented approximately 53%, 27%, and 20% of our total revenue,
respectively, in the year ended January 31, 2012 compared to approximately 53%, 26%, and 21%, respectively, in the year ended
January 31, 2011.
Operating income was $86.5 million in the year ended January 31, 2012 compared to operating income of $73.1 million in the year
ended January 31, 2011. The increase in operating income was primarily due to an increase in gross profit of $25.8 million to $514.3
million, from $488.5 million, partially offset by an increase in operating expenses of $13.6 million to $429.0 million, from $415.4
million. The increase in gross profit was primarily due to increases in our Enterprise Intelligence and Communication Intelligence
segments as a result of increases in our customer install base and the related support revenue generated from this customer base during
the year ended January 31, 2012, which carry higher margins than our implementation services. The increase in operating expenses
was primarily due to a $14.5 million increase in research and development costs, net, due primarily to an increase in employee
headcount and the impact of the weakening U.S. dollar against the Israeli shekel and the Canadian dollar on research and development
wages in our Israeli and Canadian research and development facilities, partially offset by a $3.5 million decrease in selling, general
and administrative expenses. The $3.5 million decrease is primarily due a $27.9 million decrease in professional fees, excluding fees
associated with business combinations, following the completion of our restatement of previously filed financial statements and the
conclusion of our previous extended filing delay period in June 2010, a $12.0 million decrease in stock-based compensation primarily
due to a decrease in the number of outstanding stock-based compensation arrangements accounted for as liability awards, and lower
average amounts of outstanding restricted stock units compared to the year ended January 31, 2011. These decreases were partially
offset by increases of $19.2 million in employee compensation and related expenses, a $4.0 million increase in employee travel
expenses, both of which were due to an increase in headcount, a $2.8 million increase in facilities expenses, partially due to business
combinations which closed during the year ended January 31, 2012, a $1.8 million increase in sales and marketing costs, and a $3.2
million increase in contractor costs primarily due to increased use of contractors resulting from acquisitions, as well as other internal
support activities. In addition, costs associated with business combinations increased by $4.8 million, primarily due to $6.8 million of
higher legal and other professional fees and $1.6 million of other acquisition-related costs, both resulting principally from business
combinations which closed during the year ended January 31, 2012, partially offset by a $3.6 million net decrease in the change in fair
value of contingent consideration arrangements. Further discussion surrounding our business combinations appears in Note 4,
“Business Combinations” to our consolidated financial statements included in Item 15 of this report.
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Net income attributable to Verint Systems Inc. common shares was $22.2 million and diluted net income per common share was $0.56
in the year ended January 31, 2012 compared to net income attributable to Verint Systems Inc. common shares of $11.4 million and
diluted net income per common share of $0.31 in the year ended January 31, 2011. The increase in net income attributable to Verint
Systems Inc. common shares and diluted net income per common share in the year ended January 31, 2012 was due to our increased
operating income, as described above, partially offset by $5.7 million of higher other expense, net, which was primarily driven by an
$8.1 million loss on extinguishment of debt recorded in connection with the termination of our prior credit agreement (“Prior Credit
Agreement”) during the year ended January 31, 2012 and a $2.5 million increase in interest expense due to a higher interest rate on
our borrowings associated with a July 2010 amendment to our Prior Credit Agreement as compared to our new Credit Agreement,
which was effective April 2011, offset by a $4.7 million decrease in other expense, net, due primarily to a $5.0 million decrease in
losses on derivative financial instruments. Also contributing to the increase in net income attributable to Verint Systems Inc. common
shares is a $4.4 million decrease in the provision for income taxes. For additional information on other expenses, net, and the
provision for income taxes, see “- Other Income (Expense), Net,” and “— Provision for Income Taxes” below.
A portion of our business is conducted in currencies other than the U.S. dollar, and therefore our revenue and operating expenses are
affected by fluctuations in applicable foreign currency exchange rates as noted above. When comparing average exchange rates for
the year ended January 31, 2012 to average exchange rates for the year ended January 31, 2011, the U.S. dollar weakened relative to
the British pound sterling, euro, Israeli shekel, Canadian dollar, Australian dollar, Singapore dollar, and Brazilian real, which are the
major foreign currencies in which we transacted business, resulting in increases in our revenue, cost of revenue and operating
expenses on a dollar-denominated basis. For the year ended January 31, 2012, had foreign exchange rates remained unchanged from
rates in effect for the year ended January 31, 2011, our revenue would have been approximately $12.9 million lower and our cost of
revenue and operating expenses would also have been approximately $12.9 million lower, which would have resulted in a minimal
impact on operating income.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Our revenue increased approximately 3%, or $23.2
million, to $726.8 million in the year ended January 31, 2011 from $703.6 million in the year ended January 31, 2010. The increase
was due to a revenue increase in our Enterprise Intelligence segment, partially offset by a revenue decrease in our Video Intelligence
and Communications Intelligence segments. In our Enterprise Intelligence segment, revenue increased by $35.7 million, or 10%,
primarily due to an increase in our customer install base and the related support revenue generated from this customer base during the
year ended January 31, 2011. In addition, our implementation service revenue increased as a result of the growth of our professional
services organization to meet the demand of our customer base, and our product revenue increased as a result of increased customer
order activity. In our Communications Intelligence segment, revenue decreased $1.6 million, or 1%, primarily due to substantially
completing our deliverables for certain large projects during the prior fiscal year, partially offset by a higher volume of projects
completed during the year ended January 31, 2011. In our Video Intelligence segment, revenue decreased $11.0 million, or 8%,
primarily due to a reduction of product deliveries to a major customer in the year ended January 31, 2011, partially offset by an
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increase in revenue from other customers. For more details on our revenue by segment, see “—Revenue by Operating Segment”.
Revenue in the Americas, EMEA, and APAC represented approximately 53%, 26%, and 21% of our total revenue, respectively, in the
year ended January 31, 2011 compared to approximately 55%, 25%, and 20%, respectively, in the year ended January 31, 2010.
Operating income was $73.1 million in the year ended January 31, 2011 compared to $65.7 million in the year ended January 31,
2010. The increase in operating income was primarily due to an increase in gross profit of $24.8 million to $488.5 million from
$463.7 million, partially offset by an increase in operating expenses of $17.4 million to $415.4 million from $398.0 million. The
increase in gross profit was primarily due to higher revenue in our Enterprise Intelligence operating segment. The increase in
operating expenses was primarily due to an increase in employee compensation of $27.4 million as a result of an increase in employee
headcount and salary increases as well as the foreign currency impact as described below. Other increases to operating expenses
included an increase in stock-based compensation expense of $2.2 million primarily due to the impact of the increase in our stock
price on certain stock-based compensation arrangements accounted for as liability awards, an increase in employee sales commissions
of $1.9 million and travel expenses of $2.1 million. These increases were partially offset by a reduction in professional fees of $17.1
million following the completion of our restatement of previously filed financial statements and our previous extended filing delay.
Net income attributable to Verint Systems Inc. common shares was $11.4 million and diluted net income per common share was $0.31
in the year ended January 31, 2011 compared to net income attributable to Verint Systems Inc. common shares of $2.0 million and
diluted net income per common share of $0.06 in the year ended January 31, 2010. The increase in net income attributable to Verint
Systems Inc. common shares and diluted net income per common share in the year ended January 31, 2011 was due to our increased
operating income as described above, lower other expense, net of $6.9 million and a $2.8 million increase in provision for income
taxes.
The U.S. dollar strengthened relative to the British pound sterling and euro and weakened relative to the Israeli shekel, Canadian
dollar, Australian dollar, Singapore dollar and Brazilian real, which are the major foreign currencies in which we transacted business,
during the year ended January 31, 2011 compared to the year ended January 31, 2010, resulting in a decrease in our revenue and an
increase in our cost of revenue and our operating expenses. Had foreign exchange rates remained constant in these periods, our
revenue would have been approximately $1.0 million higher and our operating expenses and cost of revenue would have been
approximately $6.0 million lower, which would have resulted in approximately $7.0 million of higher operating income.
As of January 31, 2012, we employed approximately 3,200 employees, including part-time employees and certain contractors, as
compared to approximately 2,800 as of January 31, 2011.
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Revenue by Operating Segment
The following table sets forth revenue for each of our three operating segments for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Enterprise Intelligence
Video Intelligence
Communications Intelligence
Total revenue
Enterprise Intelligence Segment
$
$
2012
438,018
138,016
206,614
782,648
$
Year Ended January 31,
2011
410,529
134,012
182,258
726,799
$
$
$
2010
374,778
144,970
183,885
703,633
% Change
2012 - 2011
7%
3%
13%
8%
2011 - 2010
10%
(8)%
(1)%
3%
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Enterprise Intelligence revenue increased approximately
7%, or $27.5 million, to $438.0 million in the year ended January 31, 2012 from $410.5 million in the year ended January 31, 2011.
The increase was primarily due to a $30.1 million increase in service revenue due primarily to an increase in our customer install base
and the related support revenue generated from this customer base during the year ended January 31, 2012 and, to a lesser extent,
acquisitions in our Enterprise Intelligence segment (primarily Vovici) during the year ended January 31, 2012. We continue to see
expansion of our implementation services revenue due to the growth of our professional services organization to meet the demands of
our customer base. The increase in service revenue was partially offset by a $2.6 million decrease in product revenue, which primarily
relates to a large transaction whereby product delivery occurred in the year ended January 31, 2012 but a significant portion of the
product revenue was not able to be recognized in the year ended January 31, 2012 due to certain contractual terms which required the
remaining product revenue to be recognized in future periods. There were no comparable transactions in the prior year.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Enterprise Intelligence revenue increased approximately
10%, or $35.7 million, to $410.5 million in the year ended January 31, 2011 from $374.8 million in the year ended January 31, 2010.
The increase was primarily due to an increase in our customer install base and the related support revenue generated from this
customer base during the year ended January 31, 2011. In addition, our implementation service revenue increased as a result of the
growth of our professional services organization to meet the demand of our customer base, and our product revenue increased as a
result of increased customer order activity.
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Video Intelligence Segment
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Video Intelligence revenue increased approximately 3%, or
$4.0 million, to $138.0 million in the year ended January 31, 2012 from $134.0 million in the year ended January 31, 2011. The
increase was primarily due to an $8.5 million increase in product revenue attributable to an increase in product deliveries to customers
and recognition of revenue associated with the completion of a project for a large customer during the year ended January 31, 2012,
partially offset by a reduction in product revenue recognized from prior years’ multiple-element arrangements. These arrangements
are being recognized ratably and allocated between product and service revenue over several quarters or years primarily due to the
prior business practice of providing implied PCS to Video Intelligence customers for which VSOE did not exist. The increase in
product revenue was partially offset by a $4.5 million decrease in service revenue due to a reduction in service revenue recognized
from prior years’ multiple-element arrangements where the entire arrangement was being recognized ratably over several quarters or
years primarily due to the prior business practice of providing implied PCS to Video Intelligence customers for which VSOE did not
exist.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Video Intelligence revenue decreased approximately 8%,
or $11.0 million, to $134.0 million in the year ended January 31, 2011 from $145.0 million in the year ended January 31, 2010. The
decrease was primarily due to a reduction of product deliveries to a major customer in the year ended January 31, 2011, partially offset
by an increase in revenue from other customers.
Communications Intelligence Segment
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Communications Intelligence revenue increased
approximately 13%, or $24.4 million, to $206.6 million in the year ended January 31, 2012 from $182.3 million in the year ended
January 31, 2011. This increase was primarily due to a $15.0 million increase in service revenue. Approximately $6.7 million of the
increase was attributable to an increase in our customer install base and the related support revenue generated from this customer
install base. The remaining increase was primarily attributable to the progress realized during the current-year period on certain large
projects, some of which commenced in the previous fiscal year, which resulted in an increase in service revenue during the year ended
January 31, 2012 compared to the year ended January 31, 2011. Product revenue increased $9.4 million, or 8%, primarily due to new
communications intelligence product offerings.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Communications Intelligence revenue decreased
approximately 1%, or $1.6 million, to $182.3 million in the year ended January 31, 2011 from $183.9 million in the year ended
January 31, 2010. This decrease was primarily a result of substantially completing our deliverables for certain large projects during
the year ended January 31, 2010 partially offset by a higher volume of projects completed during the year ended January 31, 2011. In
addition, we established professional services VSOE in the three months ended April 30, 2010, thereby allowing revenue recognition
upon product delivery.
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Volume and Price
We sell products in multiple configurations, and the price of any particular product varies depending on the configuration of the
product sold. Due to the variety of customized configurations for each product we sell, we are unable to quantify the amount of any
revenue increases attributable to a change in the price of any particular product and/or a change in the number of products sold.
Revenue by Product Revenue and Service and Support Revenue
We categorize and report our revenue in two categories — product revenue and service and support revenue. For multiple-element
arrangements for which we are unable to establish VSOE of one or more elements, we use various available indicators of fair value
and apply our best judgment to reasonably classify the arrangement’s revenue into product revenue and service and support revenue.
For additional information see Note 1, “Summary of Significant Accounting Policies” to our consolidated financial statements
included in Item 15 of this report.
The following table sets forth revenue for products and service and support for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Product revenue
Service and support revenue
Total revenue
Product Revenue
$
$
2012
390,392
392,256
782,648
Year Ended January 31,
2011
375,164
351,635
726,799
$
$
$
$
2010
374,272
329,361
703,633
% Change
2012 - 2011
4%
12%
8%
2011 - 2010
0%
7%
3%
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Product revenue increased approximately 4%, or $15.2
million, to $390.4 million in the year ended January 31, 2012 from $375.2 million in the year ended January 31, 2011 due to increases
in product revenue in our Video Intelligence and Communication Intelligence segments of $8.5 million and $9.4 million, respectively,
offset by a decrease in product revenue in our Enterprise Intelligence segment of $2.6 million. For additional information see “—
Revenue by Operating Segment”.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Product revenue increased $0.9 million, to $375.2 million
in the year ended January 31, 2011 from $374.3 million in the year ended January 31, 2010. The product revenue increases in our
Enterprise Intelligence and Communications Intelligence segments were partially offset by a decrease in our Video Intelligence
segment. For additional information see “— Revenue by Operating Segment”.
Service and Support Revenue
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Service and support revenue increased approximately 12%,
or $40.6 million, to $392.3 million for the year ended January 31, 2012 from $351.6 million for the year ended January 31, 2011. The
increase was primarily attributable to increases of $30.1 million and $15.0 million in our Enterprise
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Intelligence and Communications Intelligence segments, respectively, partially offset by a $4.5 million decrease in our Video
Intelligence segment. For additional information see “— Revenue by Operating Segment”.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Service and support revenue increased approximately 7%,
or $22.2 million, to $351.6 million for the year ended January 31, 2011 from $329.4 million for the year ended January 31, 2010. The
increase was in our Enterprise Intelligence segment due to higher support revenue as well as higher professional services revenue
associated with installation, consulting and training, partially offset by decreases in our Video Intelligence and Communications
Intelligence segments. For additional information see “— Revenue by Operating Segment”.
Cost of Revenue
The following table sets forth cost of revenue by product and service and support, as well as amortization of acquired technology for
the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Product cost of revenue
Service and support cost of revenue
Amortization of acquired technology
Total cost of revenue
Product Cost of Revenue
$
$
2012
126,050
129,911
12,400
268,361
$
Year Ended January 31,
2011
111,989
117,261
9,094
238,344
$
$
$
2010
122,961
108,953
8,021
239,935
% Change
2012 - 2011
13%
11%
36%
13%
2011 - 2010
(9)%
8%
13%
(1)%
Product cost of revenue primarily consists of hardware material costs and royalties due to third parties for software components that
are embedded in our software solutions. When revenue is deferred, we also defer hardware material costs and third-party software
royalties and recognize those costs over the same period that the product revenue is recognized. Product cost of revenue also includes
amortization of capitalized software development costs, employee compensation and related expenses associated with our global
operations, facility costs, and other allocated overhead expenses. In our Communications Intelligence segment, product cost of
revenue also includes employee compensation and related expenses, contractor and consulting expenses, and travel expenses, in each
case for resources dedicated to project management and associated product delivery.
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Product cost of revenue increased approximately 13% to
$126.1 million in the year ended January 31, 2012 from $112.0 million in the year ended January 31, 2011. Our overall product gross
margins decreased to 68% in the year ended January 31, 2012 from 70% in the year ended January 31, 2011. Product gross margins in
our Communications Intelligence segment decreased to 59% for the year ended January 31, 2012 from 68% in the year ended
January 31, 2011 as a result of higher profit margins on projects recognized in the year ended January 31, 2011 as compared to the
year ended January 31, 2012 due to an increase in projects requiring customized implementation services, which carry lower gross
margins than our standard implementation services. Product gross margins in our Enterprise Intelligence segment increased to 90% in
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the year ended January 31, 2012 from 87% in the year ended January 31, 2011 as a result of growth in sales of software licenses, as
we continue to transition to a more software-based solution within the Enterprise Intelligence segment. Product gross margins in our
Video Intelligence segment decreased to 56% in the year ended January 31, 2012 from 58% in the year ended January 31, 2011
primarily due to a change in product mix.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Product cost of revenue decreased approximately 9% to
$112.0 million in the year ended January 31, 2011 from $123.0 million in the year ended January 31, 2010. Our overall product
margins increased to 70% in the year ended January 31, 2011 from 67% in the year ended January 31, 2010 primarily as a result of an
increase in product revenue and product margins in our Enterprise Intelligence and Communications Intelligence segments. Product
costs in our Communications Intelligence segment decreased $8.9 million resulting in an increase in product margins to 68% for the
year ended January 31, 2011 from 60% in the year ended January 31, 2010 as a result of a higher profitability of projects recognized in
the year ended January 31, 2011 as compared to the year ended January 31, 2010. Product costs in our Enterprise Intelligence
segment decreased $1.6 million resulting in an increase in product margins to 87% in the year ended January 31, 2011 from 86% in
the year ended January 31, 2010. Product margins in our Video Intelligence segment decreased to 58% in the year ended January 31,
2011 from 61% in the year ended January 31, 2010 primarily due to a decrease in revenue, resulting in less efficient utilization of
overhead costs, as well as a change in product mix.
Service and Support Cost of Revenue
Service and support cost of revenue primarily consists of employee compensation and related expenses, contractor costs, and travel
expenses relating to installation, training, consulting, and maintenance services. Service and support cost of revenue also includes
stock-based compensation expenses, facility costs, and other overhead expenses. In accordance with GAAP and our accounting policy,
the cost of revenue associated with the services is generally expensed as incurred in the period in which the services are performed,
with the exception of certain transactions accounted for under the Percentage of Completion Method.
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Service and support cost of revenue increased
approximately 11% to $129.9 million in the year ended January 31, 2012 from $117.3 million in the year ended January 31, 2011.
Employee compensation and related expenses increased $14.0 million primarily in our Enterprise Intelligence and Communication
Intelligence segments due to an increase in employee headcount required to deliver the increased implementation services. Our
overall service and support gross margins remained constant at 67% in each of the years ended January 31, 2012 and 2011.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Service and support cost of revenue increased
approximately 8% to $117.3 million in the year ended January 31, 2011 from $109.0 million in the year ended January 31, 2010.
Employee compensation and related expenses increased $8.0 million primarily in our Enterprise Intelligence segment due to an
increase in employee headcount required to support increased implementation services, as well as salary increases. Our overall
service and support margins remained constant at 67% in the year ended January 31, 2011.
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Amortization of Acquired Technology
Amortization of acquired technology consists of amortization of technology assets acquired in connection with business combinations.
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Amortization of acquired technology increased
approximately 36% to $12.4 million in the year ended January 31, 2012, from $9.1 million in the year ended January 31, 2011
primarily due to an increase in amortization expense of acquired technology-based intangible assets associated with business
combinations that closed during the year ended January 31, 2012. Further discussion regarding our business combinations appears in
Note 4, “Business Combinations” to our consolidated financial statements included in Item 15 of this report.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Amortization of acquired technology increased
approximately 13% to $9.1 million in the year ended January 31, 2011 from $8.0 million in the year ended January 31, 2010 primarily
due to an increase in amortization expense of acquired technology associated with the Iontas Limited (“Iontas”) acquisition.
Research and Development, Net
Research and development expenses primarily consist of personnel and subcontracting expenses, facility costs, and other allocated
overhead, net of certain software development costs that are capitalized as well as reimbursements under government programs.
Software development costs are capitalized upon the establishment of technological feasibility and continue to be capitalized through
the general release of the related software product.
The following table sets forth research and development, net expense for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Research and development, net
$
2012
111,001
Year Ended January 31,
2011
2010
$
96,525
$
83,797
% Change
2012 - 2011
15%
2011 - 2010
15%
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Research and development, net increased approximately
15%, or $14.5 million, to $111.0 million in the year ended January 31, 2012 from $96.5 million in the year ended January 31, 2011.
Employee compensation and related expenses increased $16.0 million, which was attributable to an increase in employee headcount as
well as an increase due to the impact of the weakening U.S. dollar against the Israeli shekel and Canadian dollar on research and
development wages in our Israeli and Canadian research and development facilities. Also contributing to the increase in research and
development costs was a $2.0 million increase in contractor costs primarily due to additional headcount required for R&D efforts in
the twelve months ended January 31, 2012 compared to the twelve months ended January 31, 2011. The increases were partially
offset by a decrease in stock-based compensation of $4.0 million due to a decrease in the number of outstanding stock-based
compensation arrangements accounted for as liability awards compared to the year ended January 31, 2011 and lower average
amounts of outstanding restricted stock units, in each case associated with our research and development employees.
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Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Research and development, net increased approximately
15% to $96.5 million in the year ended January 31, 2011 from $83.8 million in the year ended January 31, 2010. Employee
compensation and related expenses increased $15.6 million due to an increase in employee headcount and salary increases, and higher
expenses in our Communications Intelligence segment as a result of a higher portion of employees’ time devoted to generic product
development rather than specific customization work for projects accounted for under the Contract Accounting Method, as well as the
impact of the weakening U.S. dollar against the Israeli shekel and Canadian dollar on research and development wages in our Israeli
and Canadian research and development facilities. This increase was partially offset by an increase in research and development
reimbursements from government programs of $1.4 million primarily due to new programs approved by the OCS of Israel received
during the year ended January 31, 2011 as well as a decrease in contractor costs of $1.0 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs and related expenses, professional fees, sales and
marketing expenses, including travel, sales commissions and sales referral fees, facility costs, communication expenses, and other
administrative expenses.
The following table sets forth selling, general and administrative expenses for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Selling, general and administrative
$
2012
293,906
Year Ended January 31,
2011
297,365
$
$
2010
291,954
% Change
2012 - 2011
(1)%
2011 - 2010
2%
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Selling, general and administrative expenses decreased
approximately 1%, or $3.5 million, to $293.9 million in the year ended January 31, 2012 from $297.4 million in the year ended
January 31, 2011. Professional fees, excluding fees associated with business combinations, decreased by $27.9 million following the
completion of our restatement of previously filed financial statements and the conclusion of our previous extended filing delay period
in June 2010. Stock-based compensation decreased by $12.0 million primarily due to a decrease in the number of outstanding stock-
based compensation arrangements accounted for as liability awards and lower average amounts of outstanding restricted stock units
compared to the year ended January 31, 2011. These decreases were partially offset by increases of $19.3 million in employee
compensation and related expenses, a $4.0 million increase in employee travel expenses, both of which were due to an increase in
headcount, a $2.8 million increase in facilities expenses, partially due to business combinations which closed during the year ended
January 31, 2012, a $1.8 million increase in sales and marketing costs, and a $3.2 million increase in contractor costs primarily due to
increased use of contractors resulting from acquisitions, as well as other internal support activities. In addition, costs associated with
business combinations increased by $4.8 million, primarily due to $6.8 million of higher legal and other professional fees and $1.6
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million of other acquisition-related costs, both resulting principally from business combinations which closed during the year ended
January 31, 2012, offset by a $3.6 million net decrease in the change in fair value of contingent consideration arrangements. Further
discussion surrounding our business combinations appears in Note 4, “Business Combinations” to our consolidated financial
statements included in Item 15 of this report.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Selling, general and administrative expenses increased
approximately 2% to $297.4 million in the year ended January 31, 2011 from $291.8 million in the year ended January 31, 2010.
Employee compensation and related expenses increased $11.8 million due to an increase in headcount, as well as salary increases.
Stock-based compensation increased $3.1 million primarily due to the impact of the increase in our stock price on certain stock-based
compensation arrangements accounted for as liability awards. Sales commissions increased $2.0 million due to an increase in
headcount as well as an increase in customer orders received during the year ended January 31, 2011. Marketing expenses increased
$0.7 million primarily due to our global brand awareness marketing campaign. Other expense increases include increases in travel
and entertainment expenses of $2.1 million, recruitment and other personnel expenses totaling $1.4 million primarily as a result of the
increase in headcount and other expenses totaling $1.2 million. These increases were partially offset by a reduction in professional
fees of $17.1 million following the completion of our restatement of previously filed financial statements and our previous extended
filing delay in June 2010.
Amortization of Other Acquired Intangible Assets
Amortization of other acquired intangible assets consists of amortization of certain intangible assets acquired in connection with
business combinations, including customer relationships, distribution networks, trade names and non-compete agreements.
The following table sets forth amortization of other acquired intangible assets for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Amortization of other acquired intangible assets $
2012
Year Ended January 31,
2011
2010
22,902
$
21,460
$
22,268
% Change
2012 - 2011
7%
2011 - 2010
(4)%
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Amortization of other acquired intangible assets increased
approximately 7% to $22.9 million in the year ended January 31, 2012 from $21.5 million in the year ended January 31, 2011
primarily due to an increase in amortization associated with business combinations that closed during the year ended January 31,
2012. Further discussion regarding our business combinations appears in Note 4, “Business Combinations” to our consolidated
financial statements included in Item 15 of this report.
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Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Amortization of other acquired intangible assets decreased
approximately 4% to $21.5 million in the year ended January 31, 2011 from $22.3 million in the year ended January 31, 2010
primarily due to certain intangible assets becoming fully amortized during the year ended January 31, 2011, as well as certain
intangible assets impacted by the weakening British pound sterling. These decreases were partially offset by an increase in
amortization expense of acquired intangible assets associated with the Iontas acquisition.
Other Income (Expense), Net
The following table sets forth total other expense, net for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Interest income
Interest expense
Loss on extinguishment of debt
Other income (expense):
Foreign currency gains (losses), net
Losses on derivatives, net
Other, net
Total other income (expense)
Total other expense, net
2012
Year Ended January 31,
2011
2010
$
661
(32,358)
(8,136)
1,382
(896)
(974)
(488)
(40,321) $
$
454
(29,896)
—
857
(5,864)
(131)
(5,138)
(34,580) $
616
(24,964)
—
(1,898)
(14,709)
(516)
(17,123)
(41,471)
$
$
2012 - 2011
46%
8%
*
61%
(85)%
644%
(91)%
17%
% Change
2011 - 2010
(26)%
20%
*
(145)%
(60)%
(75)%
(70)%
(17)%
* Percentage is not meaningful.
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Total other expense, net, increased by $5.7 million, to
$40.3 million in the year ended January 31, 2012 from $34.6 million in the year ended January 31, 2011. Interest expense increased to
$32.4 million in the year ended January 31, 2012 from $29.9 million in the year ended January 31, 2011 primarily due to a higher
interest rate on our borrowings associated with a July 2010 amendment to our Prior Credit Agreement as compared to our new Credit
Agreement, which was effective April 2011. We recorded a $1.4 million gain on foreign currency in the year ended January 31, 2012
compared to a $0.9 million gain in the year ended January 31, 2011. Foreign currency gains in the year ended January 31, 2012
resulted from the weakening of the U.S. dollar against the British pound sterling, euro, and Singapore dollar during such period, which
resulted in gains on U.S. dollar-denominated net liabilities in certain entities which use those functional currencies.
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In the year ended January 31, 2012, there was a net loss on derivative financial instruments (not designated as hedging instruments) of
$0.9 million. This loss was primarily attributable to losses on foreign currency forward contracts due to the weakening of the U.S.
dollar against the Singapore dollar and euro during such period. In the year ended January 31, 2011, net loss on derivative financial
instruments was $5.9 million. This loss was primarily attributable to a loss in connection with our $450.0 million interest rate swap
agreement entered into concurrently with our Prior Credit Agreement. This interest rate swap agreement was not designated as a
hedging instrument under derivative accounting guidance, and accordingly, gains and losses from changes in the fair value were
recorded in other income (expense), net.
During the year ended January 31, 2012, we recorded an $8.1 million loss upon termination of our Prior Credit Agreement and
repayment of the prior term loan. Further discussion regarding our credit agreements appears in Note 6, “Long-term Debt” to our
consolidated financial statements included in Item 15 of this report.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Total other expense, net, decreased $6.9 million, to an
expense of $34.6 million in the year ended January 31, 2011 compared to an expense of $41.5 million in the year ended January 31,
2010. Interest expense increased to $29.9 million in the year ended January 31, 2011 from $25.0 million in the year ended January 31,
2010 primarily due to a higher interest rate associated with the amendment to our Prior Credit Agreement we entered into in July
2010. We recorded a $0.9 million foreign currency gain in the year ended January 31, 2011 compared to a $1.9 million loss in the
year ended January 31, 2010. The foreign currency gain in the year ended January 31, 2011 primarily resulted from the weakening of
the U.S. dollar against the Singapore dollar during the year ended January 31, 2011.
In the year ended January 31, 2011, net loss on derivative financial instruments was $5.9 million. This loss was primarily attributable
to a loss in connection with our $450.0 million interest rate swap agreement entered into concurrently with our Prior Credit
Agreement. This interest rate swap agreement was not designated as a hedging instrument under derivative accounting guidance, and
accordingly, gains and losses from changes in the fair value are recorded in other income (expense), net. In the year ended
January 31, 2010, net loss on derivative financial instruments was $14.7 million primarily attributable to fair value adjustments on our
interest rate swap agreement.
Provision for Income Taxes
The following table sets forth our provision for income taxes for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Provision for income taxes
2012
Year Ended January 31,
2011
2010
5,532
$
9,940
$
7,108
$
% Change
2012 - 2011
(44)%
2011 - 2010
40%
Year Ended January 31, 2012 compared to Year Ended January 31, 2011. Our effective tax rate was 12.0% for the year ended
January 31, 2012, compared to 25.8% for the year ended January 31, 2011. For the year ended January 31, 2012, our effective income
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tax rate was lower than the U.S. federal statutory rate of 35% primarily due to the level and mix of income and losses by jurisdiction,
the recognition of unrecognized tax benefits and the partial release of a valuation allowance. We recorded an income tax provision on
income from certain foreign subsidiaries taxed at rates lower than the U.S. federal statutory rate, but we do not recognize a U.S.
federal income tax benefit on losses incurred by certain domestic operations where we maintain valuation allowances. We recorded
deferred tax liabilities related to a business combination with a corresponding release of valuation allowance in the U.S, resulting in an
income tax benefit. The result was an income tax provision of $5.5 million on $46.2 million of pre-tax income, which represents an
effective tax rate of 12.0%. For the year ended January 31, 2011, our effective income tax rate was lower than the U.S. federal
statutory rate of 35%. The rate was decreased because pre-tax income in our profitable jurisdictions, where we recorded tax
provisions, was partially offset by our domestic losses where we maintain valuation allowances and did not record the related tax
benefits. The result was an income tax provision of $9.9 million on $38.5 million of pre-tax income, which represents an effective tax
rate of 25.8%. The comparison of our effective tax rates between periods is impacted by the level and mix of earnings and losses by
tax jurisdiction, foreign income tax rate differentials, amount of permanent book to tax differences, and the effects of valuation
allowances on certain loss jurisdictions.
Year Ended January 31, 2011 compared to Year Ended January 31, 2010. Our effective tax rate was 25.8% for the year ended
January 31, 2011, as compared to 29.4% for the year ended January 31, 2010. For the year ended January 31, 2011, our overall
effective tax rate was lower than the U.S. federal statutory rate of 35% primarily due to the mix of income and losses by jurisdiction.
In addition, we maintain valuation allowances and did not record significant income tax expense or income tax benefit in the United
States, but recorded an income tax provision on income from our foreign subsidiaries. Our effective tax rate for the year ended
January 31, 2010 was lower than the U.S. federal statutory rate because we recorded an income tax provision on income from certain
foreign subsidiaries taxed at rates lower than the U.S. federal statutory rate. The impact of lower foreign tax rates is partially offset
because we did not record a significant U.S. federal income tax because we maintain a valuation allowance. The comparison of our
effective tax rate between periods is impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate
differentials, relative impacts of permanent book to tax differences, and the effects of valuation allowances on certain loss
jurisdictions.
The manner in which we evaluate the need for valuation allowances is described in “— Critical Accounting Policies and Estimates”
and in Note 1, “Summary of Significant Accounting Policies” to our consolidated financial statements included in Item 15 of this
report.
Backlog
The delivery cycles of most of our products are generally very short, ranging from days to several months, with the exception of
certain projects with multiple deliverables over a longer period of time. Therefore, we do not view backlog as a meaningful indicator
of future business activity and do not consider it a meaningful financial metric for evaluating our business.
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Liquidity and Capital Resources
Overview
Our primary source of cash is the collection of proceeds from the sale of products and services to our customers, including cash
periodically collected in advance of delivery or performance.
In April 2011, we entered into a new credit agreement and terminated our Prior Credit Agreement. The new credit agreement includes
a term loan facility, with an outstanding balance of $597.0 million at January 31, 2012, and a $170.0 million revolving line of credit,
which was unused at January 31, 2012. Further discussion of our credit agreements appears below, under “Credit Agreements”.
Our primary recurring use of cash is payment of our operating costs, which consist primarily of employee-related expenses, such as
compensation and benefits, as well as general operating expenses for marketing, facilities and overhead costs, and capital
expenditures. We also utilize cash for debt service under our credit agreement and periodically for business acquisitions. Cash
generated from operations is our primary source of operating liquidity, and we believe that internally generated cash flows are
sufficient to support our current business operations, including debt service and capital expenditure requirements.
We have historically expanded our business in part by investing in strategic growth initiatives, including acquisitions of products,
technologies, and businesses. We have used cash as consideration for substantially all of our historical business acquisitions, including
$109.8 million of net cash expended for business acquisitions during the year ended January 31, 2012. To the extent that we continue
this strategy, our future cash requirements and liquidity may be impacted. We may utilize external capital sources, including debt and
equity, to supplement our internally generated sources of liquidity as necessary and if available. We also may consider initiatives to
modify the debt and equity components of our current capitalization, as we did during the year ended January 31, 2012 by entering
into a new credit agreement and terminating our Prior Credit Agreement.
A considerable portion of our operating income is earned outside the United States. Cash and cash equivalents held by our
subsidiaries outside the United States are generally used to fund the subsidiaries’ operating requirements and to invest in company
growth initiatives, including business acquisitions. Other than for potential business acquisition transactions, we currently do not
anticipate that we will need funds generated from foreign operations to fund our domestic operations for the next 12 months and for
the foreseeable future.
Should other circumstances arise whereby we require more capital in the United States than is generated by our domestic operations,
or should we otherwise consider it in our best interests, we could repatriate future earnings from foreign jurisdictions, which could
result in higher effective tax rates. We have not provided for deferred taxes on the excess of the amount for financial reporting over
the tax basis of investments in our foreign subsidiaries because we currently plan to indefinitely reinvest such earnings outside the
United States.
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In the past, we have periodically reported a working capital deficit (current liabilities in excess of current assets), due largely to the
impact of changes in our deferred revenue balances. Because deferred revenue is not a cash-settled liability, working capital in this
case may not be a meaningful indicator of our liquidity. We believe our liquidity is better measured and assessed by our operating
cash flow.
The following table sets forth, for the years ended January 31, 2012 and 2011, cash and cash equivalents, preferred stock and long-
term debt:
(in thousands)
Cash and cash equivalents
Preferred stock (at carrying value)
Long-term debt
January 31,
2012
2011
150,662
285,542
591,151
$
$
$
169,906
285,542
583,234
$
$
$
At January 31, 2012, our cash and cash equivalents totaled $150.7 million, a decrease of $19.2 million from $169.9 million at
January 31, 2011. We generated $106.5 million of operating cash flow during the year ended January 31, 2012, which was more than
offset by $109.8 million paid for business acquisitions and $16.5 million of payments for capital expenditures and capitalized software
development costs. Further discussion of these items appears below.
Statements of Cash Flows
The following table summarizes selected items from our statements of cash flows for the years ended January 31, 2012, 2011, and
2010:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Net Cash Provided by Operating Activities
2012
Year Ended January 31,
2011
2010
$
$
$
106,498
(126,848)
2,078
(972)
(19,244) $
70,520 $
(77,833)
(6,937)
(179)
(14,429) $
100,837
(24,599)
(10,491)
2,660
68,407
Net cash provided by operating activities is driven primarily by our net income or loss, adjusted for non-cash items, and working
capital changes. Operating activities generated $106.5 million of net cash during the year ended January 31, 2012, compared to $70.5
million of cash provided by operating activities during the year ended January 31, 2011. Part of the improved operating cash flow in
the current year resulted from our improved operating results, including a $13.4 million increase in operating income compared to the
prior year. Operating cash flow for the prior year included significant payments for professional fees and related expenses associated
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with our restatement of previously filed financial statements and our previous extended filing delay, and such significant payments
were not incurred during the current year.
Operating activities generated $70.5 million of net cash during the year ended January 31, 2011 compared to $100.8 million in the
prior year. Our operating cash flow in the year ended January 31, 2011 was adversely impacted by several factors. During the year
ended January 31, 2011, we filed our comprehensive annual report on Form 10-K for the years ended January 31, 2008, 2007 and
2006, our annual reports on Form 10-K for the years ended January 31, 2009 and 2010, and our quarterly reports on Form 10-Q for the
quarters ended April 30, July 31, and October 31, 2009. Payments of professional fees and related costs, primarily associated with the
completion and filing of these financial statements, were approximately $22 million higher in the year ended January 31, 2011
compared to the prior year. Beginning with our Quarterly Report on Form 10-Q for the three months ended April 30, 2010, filed in
June 2010, we resumed making timely periodic filings with the SEC after our previous extended filing delay. In addition, payments
made upon vesting of cash-settled equity awards, the amount of which is dependent upon our stock price on the vesting date, were
$20.4 million higher in the year ended January 31, 2011 compared to the prior year, resulting primarily from increases in our stock
price. Payments for compensation and benefits were also higher in the year ended January 31, 2011 compared to the prior year,
reflecting the combination of an increase in headcount, salary increases, and higher benefit costs per employee.
Operating activities generated $100.8 million of cash in the year ended January 31, 2010 compared to $53.6 million in the prior year.
This $47.2 million increase is primarily due to our improved operating performance for the year ended January 31, 2010, during which
we generated operating income of $65.7 million compared to an operating loss of $15.0 million in the prior year. Lower expenses,
largely due to lower staff levels and other cost reduction initiatives, improved our operating cash flow. In addition, payments for
professional fees and interest on debt were approximately $14 million and $12 million lower, respectively, in the year ended January
31, 2010 compared to the prior year.
Net Cash Used in Investing Activities
During the year ended January 31, 2012, our investing activities used $126.8 million of net cash, of which the most significant use was
$109.8 million of net cash utilized for business acquisitions, including $56.0 million of net cash paid to acquire Vovici in
August 2011, and $24.6 million of net cash paid to acquire GMT in October 2011. In addition, we made $16.5 million of payments
for property, equipment, and capitalized software development costs during this year.
During the year ended January 31, 2011, our investing activities used $77.8 million of net cash, including $15.2 million of net cash
utilized to acquire Iontas, and $34.8 million paid for settlements of derivative financial instruments not designated as hedges, $21.7
million of which was paid in August 2010 in connection with the termination of our interest rate swap agreement. We also increased
our restricted cash and bank time deposit balances by $8.5 million during the year, primarily reflecting short-term deposits to secure
bank guarantees in connection with sales contracts. In addition, we made $11.1 million of payments for property, equipment, and
capitalized software development costs during this year.
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During the year ended January 31, 2010, our investing activities used $24.6 million of net cash, primarily due to settlements of
derivative financial instruments not designated as hedges of $19.4 million and payments for property, equipment, and capitalized
software development costs of $7.7 million.
Currently, we have no significant commitments for capital expenditures.
Net Cash Provided by (Used in) Financing Activities
During the year ended January 31, 2012, our financing activities provided $2.1 million of net cash. During this year, we borrowed
$597.0 million under our new credit agreement (consisting of gross borrowings of $600.0 million, reduced by a $3.0 million original
issuance discount), repaid $583.2 million of outstanding borrowings under our Prior Credit Agreement, and paid $15.3 million of debt
issuance and other debt-related costs. The net impact of this debt refinancing activity was a use of $1.5 million of cash for the year.
We also received $12.5 million of proceeds from exercises of stock options during the year.
During the year ended January 31, 2011, our financing activities used $6.9 million of net cash. Financing activities during the year
included $38.2 million in repayments of financing arrangements, including a $22.1 million “excess cash flow” payment on our term
loan in May 2010 and the December 2010 repayment of $15.0 million previously borrowed under our revolving credit agreement. We
also acquired, at market value, $4.1 million of treasury stock from directors and officers during the year, for purposes of providing
funds for the recipient’s obligation to pay associated income taxes in connection with the vesting of stock awards. In addition, we
paid $4.0 million of fees and expenses related to our Prior Credit Agreement during the year, $3.6 million of which were consideration
for amendments to the agreement. Partially offsetting these uses of cash was $40.8 million of proceeds from exercises of stock
options. Following the completion of certain delayed SEC filings in June 2010, stock option holders were permitted to resume
exercising vested stock options. Stock option exercises had been suspended during our previous extended filing delay period.
During the year ended January 31, 2010, our financing activities used $10.5 million of net cash, resulting from repayments of
borrowings and other financing obligations of $6.1 million and $4.1 million of dividends paid to the noncontrolling stockholders of
our joint venture.
Liquidity and Capital Resources Requirements
Based on past performance and current expectations, we believe that our cash, cash equivalents, and cash generated from operations
will be sufficient to meet anticipated operating costs, required payments of principal and interest, working capital needs, ordinary
course capital expenditures, research and development spending, and other commitments for at least the next 12 months. Currently, we
have no plans to pay any cash dividends on our preferred or common stock, which are not permitted under our credit agreement.
Our liquidity could be negatively impacted by a decrease in demand for our products and service and support, including the impact of
changes in customer buying behavior due to the economic environment. If we determine to make acquisitions or otherwise require
additional funds, we may need to raise additional capital, which could involve the issuance of equity or debt securities.
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Credit Agreements
In May 2007, we entered into a $675.0 million secured credit agreement (“Prior Credit Agreement”) comprised of a $650.0 million
seven-year term loan facility and a $25.0 million six-year revolving line of credit. The borrowing capacity under the revolving line of
credit was increased to $75.0 million in July 2010.
In April 2011, we entered into a new credit agreement (“Credit Agreement”) and concurrently terminated the Prior Credit Agreement.
The Credit Agreement provides for $770.0 million of secured credit facilities, comprised of a $600.0 million term loan maturing in
October 2017 and a $170.0 million revolving credit facility maturing in April 2016, subject to increase (up to a maximum increase of
$300.0 million) and reduction from time to time according to the terms of the Credit Agreement.
The majority of the new term loan proceeds were used to repay all $583.2 million of outstanding term loan borrowings under the Prior
Credit Agreement at the closing date of the Credit Agreement. There were no outstanding borrowings under the prior revolving credit
facility at the closing date.
The Credit Agreement included an original issuance term loan discount of 0.50%, or $3.0 million, resulting in net term loan proceeds
of $597.0 million. This discount is being amortized as interest expense over the term of the term loan using the effective interest
method.
Loans under the Credit Agreement bear interest, payable quarterly or, in the case of Eurodollar loans with an interest period of three
months or shorter, at the end of any interest period, at a per annum rate of, at our election:
(a) in the case of Eurodollar loans, the Adjusted LIBO Rate plus 3.25% (or if our corporate ratings are at least BB- and Ba3 or
better, 3.00%). The “Adjusted LIBO Rate” is the greater of (i) 1.25% per annum and (ii) the product of the LIBO Rate and
Statutory Reserves (both as defined in the Credit Agreement), and
(b) in the case of Base Rate loans, the Base Rate plus 2.25% (or if our corporate ratings are at least BB- and Ba3 or better,
2.00%). The “Base Rate” is the greatest of (i) the administrative agent’s prime rate, (ii) the Federal Funds Effective Rate (as
defined in the Credit Agreement) plus 0.50% and (iii) the Adjusted LIBO Rate for a one-month interest period plus 1.00%.
We are required to pay a commitment fee equal to 0.50% per annum on the undrawn portion of the revolving credit facility, payable
quarterly, and customary administrative agent and letter of credit fees.
The Credit Agreement requires us to make term loan principal payments of $1.5 million per quarter through August 2017, beginning
in August 2011, with the remaining balance due in October 2017. Optional prepayments of the loans are permitted without premium
or penalty, other than customary breakage costs associated with the prepayment of loans bearing interest based on LIBO Rates and a
1.0% premium applicable in the event of a Repricing Transaction (as defined in the Credit Agreement) prior to April 30, 2012. The
loans are also subject to mandatory prepayment requirements with respect to certain asset sales, excess cash flow (as defined in the
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Credit Agreement), and certain other events. Prepayments are applied first to the eight immediately following scheduled term loan
principal payments, then pro rata to other remaining scheduled term loan principal payments, if any, and thereafter as otherwise
provided in the Credit Agreement.
Obligations under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and certain foreign
subsidiaries that have elected to be disregarded for U.S. tax purposes and are secured by security interests in substantially all of our
and their assets, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.
The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, and also contains a
financial covenant that requires us to maintain a Consolidated Total Debt to Consolidated EBITDA (each as defined in the Credit
Agreement) leverage ratio until July 31, 2013 of no greater than 5.00 to 1 and thereafter of no greater than 4.50 to 1. At January 31,
2012, our consolidated leverage ratio was approximately 2.7 to 1 compared to a permitted consolidated leverage ratio of 5.00 to 1, and
our EBITDA for the twelve-month period then ended exceeded by at least $80.0 million the minimum EBITDA required to satisfy the
leverage ratio covenant given our outstanding debt as of such date.
The Credit Agreement provides for customary events of default with corresponding grace periods. Upon an event of default, all of our
indebtedness under the Credit Agreement may be declared immediately due and payable, and the lenders’ commitments to provide
loans under the Credit Agreement may be terminated.
We incurred debt issuance costs of $14.8 million associated with the Credit Agreement, which we have deferred and are classified
within Other assets. We are amortizing these deferred costs as interest expense over the term of the Credit Agreement. At the closing
date of the Credit Agreement, there were $9.0 million of unamortized deferred costs associated with the Prior Credit Agreement.
Upon termination of the Prior Credit Agreement and repayment of the prior term loan, $8.1 million of these fees were expensed as a
loss on extinguishment of debt. The remaining $0.9 million of these fees were associated with lenders that provided commitments
under both the new and the prior revolving credit facilities, which remained deferred and are being amortized over the term of the
Credit Agreement.
Convertible Preferred Stock
Our capitalization includes convertible preferred stock originally issued in May 2007 which, as of January 31, 2012, has a carrying
value of $285.5 million and a liquidation preference and redemption value of $352.0 million. All of the convertible preferred stock
was originally issued to, and continues to be held by, Comverse.
Further details regarding the convertible preferred stock’s various rights and preferences, including dividend and conversion rights,
appear in Note 8, “Convertible Preferred Stock” to our consolidated financial statements included in Item 15 of this report.
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Contractual Obligations
At January 31, 2012, our contractual obligations were as follows:
(in thousands)
Long-term debt obligations, including interest $
Operating lease obligations
Capital lease obligations
Purchase obligations
Other long-term obligations
Total contractual obligations
$
Total
749,238
78,876
755
47,545
641
877,055
$
$
Payments Due by Period
1-3 years
< 1 year
33,209
13,212
210
44,497
513
91,641
$
$
65,448
18,914
545
3,048
128
88,083
$
$
3-5 years
> 5 years
64,425 $
14,155
—
—
—
78,580
$
586,156
32,595
—
—
—
618,751
The long-term debt obligations reflected above include projected interest payments over the term of the debt, assuming an interest rate
of 4.50%, which was the interest rate in effect for our term loan borrowings as of January 31, 2012. The terms of our long-term debt
obligations are further discussed in Note 6, “Long-term Debt” to our consolidated financial statements included in Item 15 of this
report.
Operating lease obligations reflected above exclude future sublease income from certain space we have subleased to third parties. As
of January 31, 2012, total expected future sublease income is $2.8 million and ranges from $0.5 million to $0.6 million on an annual
basis through February 2017.
Our purchase obligations are associated with agreements for purchases of goods or services generally including agreements that are
enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed,
minimum, or variable price provisions; and the approximate timing of the transactions. Agreements to purchase goods or services that
have cancellation provisions with no penalties are excluded from these purchase obligations.
Our consolidated balance sheet at January 31, 2012 includes $23.4 million of non-current tax reserves, net of related benefits
(including interest and penalties of $8.2 million, net of federal benefit) for uncertain tax positions. However these amounts are not
included in the table above because it is not possible to predict or estimate the timing of payments for these obligations. We do not
expect to make any significant payments for these uncertain tax positions within the next 12 months.
Contingent Payments Associated with Business Combinations
In connection with certain of our business combinations, we have agreed to make contingent cash payments to the former shareholders
of the acquired companies based upon achievement of performance targets following the acquisition dates. During the year ended
January 31, 2012, we completed seven business combinations, all of which included contingent cash consideration arrangements.
Please refer to Note 4, “Business Combinations” to our consolidated financial statements included in Item 15 of this report for
information regarding our business combinations.
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As of January 31, 2012, potential future cash payments under contingent consideration arrangements total $79.2 million, the estimated
fair value of which was $38.6 million, of which $10.1 million is included within accrued expenses and other current liabilities, and
$28.5 million is included within other liabilities. The performance periods associated with these potential payments extend through
January 2015.
Off Balance Sheet Arrangements
We lease certain of our current facilities, furniture, and equipment under non-cancelable operating lease agreements. We are typically
required to pay property taxes, insurance, and normal maintenance costs for these facilities.
In the normal course of business, we provide certain customers with financial performance guarantees, which are generally backed by
standby letters of credit or surety bonds. In general, we would only be liable for the amounts of these guarantees in the event that our
nonperformance permits termination of the related contract by our customer, which we believe is remote. At January 31, 2012, we had
approximately $41.2 million of outstanding letters of credit and surety bonds relating primarily to these performance guarantees. As of
January 31, 2012, we believe we were in compliance with our performance obligations under all contracts for which there is a
financial performance guarantee, and the ultimate liability, if any, incurred in connection with these guarantees will not have a
material adverse effect on our consolidated results of operations, financial position, or cash flows. Our historical noncompliance with
our performance obligations has been insignificant.
In the normal course of business, we provide indemnifications of varying scopes to customers against claims of intellectual property
infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions
have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our
future results of operations.
To the extent permitted under Delaware law or other applicable law, we indemnify our directors, officers, employees, and agents
against claims they may become subject to by virtue of serving in such capacities for us. We also have contractual indemnification
agreements with our directors, officers, and certain senior executives. The maximum amount of future payments we could be required
to make under these indemnification arrangements and agreements is potentially unlimited; however, we have insurance coverage that
limits our exposure and enables us to recover a portion of any future amounts paid. We are not able to estimate the fair value of these
indemnification arrangements and agreements in excess of applicable insurance coverage, if any.
As of January 31, 2012, we do not have any off-balance sheet arrangements that we believe have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors.
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Recent Accounting Pronouncements
Accounting Pronouncements Implemented:
In January 2010, the FASB issued amended standards that require additional fair value disclosures. These disclosure requirements
were effective in two phases. The initial phase, which was effective for us as of February 1, 2010, requires enhanced disclosures
about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers. The second phase,
which was effective for us as of February 1, 2011, requires presentation of disaggregated activity within the reconciliation for fair
value measurements using significant unobservable inputs (Level 3). The adoption of these standards did not have a material impact
on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance to clarify that pro forma disclosures should be presented as if a
business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting period
and the prior reporting period pro forma financial information. These disclosures should be accompanied by a narrative description
about the nature and amount of material, nonrecurring pro forma adjustments. This new accounting guidance is effective for business
combinations consummated in periods beginning after December 15, 2010 and should be applied prospectively as of the date of
adoption, although early adoption is permitted. We adopted this new guidance effective February 1, 2011. The adoption of this
guidance did not have a material impact on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance related to the calculation of the carrying amount of a reporting unit
when performing the first step of a goodwill impairment test. This update modifies Step 1 of the goodwill impairment test for
reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than
not that a goodwill impairment exists, an entity should consider and assess whether there are any adverse qualitative factors indicating
that impairment may exist. For public companies, this new accounting guidance is effective for impairment tests performed during
fiscal years (and interim periods within those years) that began after December 15, 2010. We adopted this new guidance effective
February 1, 2011. The adoption of this new guidance did not have a material impact on our November 1, 2011 tests for goodwill
impairment, and we do not believe that it will materially impact future tests for goodwill impairment.
In September 2011, the FASB issued amended standards intended to simplify how tests for potential goodwill impairment are
performed. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit in which goodwill resides is less than its carrying value. For reporting units in which this assessment
concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the
requirement to perform further goodwill impairment testing as required under the previous standards. We adopted these standards on
November 1, 2011 and they did not materially impact our consolidated financial statements. We do not expect these new standards to
materially impact our future consolidated financial statements.
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New Accounting Pronouncements to be Implemented:
In May 2011, the FASB issued updated accounting guidance to amend existing requirements for fair value measurements and
disclosures. The guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair
value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value but whose
fair value must be disclosed. It also clarifies and expands upon existing requirements for fair value measurements of financial assets
and liabilities as well as instruments classified in stockholders’ equity. The guidance is effective for us beginning with our three-
month period ending April 30, 2012. We are assessing the impact that the application of this guidance may have on our consolidated
financial statements.
In June 2011, the FASB issued amended standards regarding the presentation of comprehensive income. These amendments eliminate
the option to present components of other comprehensive income as part of the statement of stockholders’ equity and require the
presentation of comprehensive income, the components of net income, and the components of other comprehensive income in either a
single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB
updated this guidance to indefinitely defer the requirement to present items that are reclassified from accumulated other
comprehensive income to net income separately with their respective components of net income and other comprehensive income.
This guidance does not change the items that must be reported within other comprehensive income and the criteria for determining
when an item of other comprehensive income must be reclassified to net income. These amended standards are effective for us
beginning with our three-month period ending April 30, 2012 and must be applied retrospectively. Other than the change in
presentation, these changes will not have an impact on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial condition due to adverse changes in financial market prices and
rates. We are exposed to market risk related to changes in interest rates and foreign currency exchange rate fluctuations. To manage
the volatility relating to interest rate and foreign currency risks, we periodically enter into derivative instruments including foreign
currency forward exchange contracts and interest rate swap agreements. It is our policy to enter into derivative transactions only to the
extent considered necessary to meet our risk management objectives. We use derivative instruments solely to reduce the financial
impact of these risks and do not use derivative instruments for speculative purposes.
Interest Rate Risk on Our Debt
In April 2011, we entered into our new Credit Agreement and concurrently terminated our Prior Credit Agreement. The Credit
Agreement provides for $770.0 million of secured credit facilities, comprised of a $600.0 million term loan maturing in October 2017
and a $170.0 million revolving credit facility maturing in April 2016, subject to increase (up to a maximum
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increase of $300.0 million) and reduction from time to time according to the terms of the Credit Agreement.
The majority of the new term loan proceeds were used to repay all $583.2 million of outstanding term loan borrowings under our prior
credit agreement at the closing date of the Credit Agreement.
Loans under the Credit Agreement bear interest, payable quarterly or, in the case of Eurodollar loans with an interest period of three
months or shorter, at the end of any interest period, at a per annum rate of, at our election:
(a) in the case of Eurodollar loans, the Adjusted LIBO Rate plus 3.25% (or if our corporate ratings are at least BB- and Ba3 or
better, 3.00%). The “Adjusted LIBO Rate” is the greater of (i) 1.25% per annum and (ii) the product of the LIBO Rate and
Statutory Reserves (both as defined in the Credit Agreement), and
(b) in the case of Base Rate loans, the Base Rate plus 2.25% (or if our corporate ratings are at least BB- and Ba3 or better,
2.00%). The “Base Rate” is the greatest of (i) the administrative agent’s prime rate, (ii) the Federal Funds Effective Rate (as
defined in the Credit Agreement) plus 0.50% and (iii) the Adjusted LIBO Rate for a one-month interest period plus 1.00%.
Because the interest rates applicable to borrowings under the Credit Agreement are variable, we are exposed to market risk from
changes in the underlying index rates, which affect our cost of borrowing. The periodic interest rate on our term loan is currently a
function of several factors, most importantly the LIBO Rate and the applicable interest rate margin. However, borrowings are subject
to a 1.25% LIBO Rate floor in the interest rate calculation, which currently reduces the likelihood of increases in the periodic interest
rate, because current short-term LIBO Rates are well below 1.25%. Although the periodic interest rate may still fluctuate based upon
our corporate ratings, which determine the interest rate margin, changes in short-term LIBO Rates will not impact the calculation
unless those rates increase above 1.25%. Based upon our January 31, 2012 borrowings, for each 1% increase in the applicable LIBO
Rate above 1.25%, our annual interest payments would increase by approximately $6.0 million.
We had utilized a pay-fixed/receive-variable interest rate swap agreement to partially mitigate the variable interest rate risk associated
with our prior credit agreement. We terminated that agreement in July 2010. We may consider utilizing interest rate swap agreements,
or other agreements intended to mitigate variable interest rate risk, in the future.
Interest Rate Risk on Our Investments
We invest in cash, cash equivalents, and bank time deposits. Interest rate changes could result in an increase or decrease in interest
income we generate from these interest-bearing assets. Our cash, cash equivalents, and bank time deposits are primarily maintained at
high credit-quality financial institutions around the world. We have not invested in marketable debt or equity securities during the
three-year period ended January 31, 2012, but may do so in the future as permitted under our investment guidelines.
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The primary objective of our investment activities is the preservation of principal while maximizing investment income and
minimizing risk. We have investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.
As of January 31, 2012 and 2011, we had cash and cash equivalents totaling approximately $150.7 million and $169.9 million,
respectively, consisting of demand deposits and bank time deposits having maturities of three months or less. At such dates we also
held $12.9 million and $13.6 million, respectively, of cash equivalents which were restricted and were not available for general
operating use. These balances primarily represent short-term deposits to secure bank guarantees in connection with sales contracts.
The amounts of these deposits can vary depending upon the terms of the underlying contracts.
To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity
analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming, during the
year ended January 31, 2013, average short-term interest rates increase or decrease by 50 basis points relative to average rates realized
during the year ended January 31, 2012. Such a change would cause our projected interest income from cash, cash equivalents, and
bank time deposits to increase or decrease by approximately $0.8 million, assuming a similar level of investments in the year ended
January 31, 2013 as in the year ended January 31, 2012.
Due to the short-term nature of our cash and cash equivalents and time deposits, the carrying values approximate market values and
are not generally subject to price risk due to fluctuations in interest rates. See Note 3, “Investments” to our consolidated financial
statements included in Item 15 of this report for more information regarding our short-term investments.
Foreign Currency Exchange Risk
The functional currency for most of our foreign subsidiaries is the respective local currency, of which the notable exceptions are our
subsidiaries in Israel and Canada, whose functional currencies are the U.S. dollar. We are exposed to foreign exchange rate
fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars for consolidated reporting purposes. If
there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars
results in a gain or loss which is recorded as a component of accumulated other comprehensive income (loss) within stockholders’
equity (deficit).
Our international operations subject us to risks associated with currency fluctuations. While most of our revenue and expenses are
denominated in U.S. dollars, we do have a significant portion of our operating expenses, primarily labor expenses, that is denominated
in the local currencies where our foreign operations are located, primarily Israel, the United Kingdom, Germany, and Canada. We also
generate some of our revenue in foreign currencies, mainly the British pound sterling and euro. As a result, our consolidated U.S.
dollar operating results are subject to the potentially adverse impact of fluctuations in foreign currency exchange rates between the
U.S. dollar and the other currencies in which we transact.
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In addition, we have certain assets and liabilities that are denominated in currencies other than the respective entity’s functional
currency. Changes in the functional currency value of these assets and liabilities create fluctuations that result in gains or losses. We
recorded $1.4 million and $0.9 million of net foreign currency gains for the years ended January 31, 2012 and 2011, respectively, and
$1.9 million of net foreign currency losses for the year ended January 31, 2010.
From time to time, we enter into foreign currency forward contracts in an effort to reduce the volatility of cash flows primarily related
to forecasted payroll and payroll-related expenses denominated in Israeli shekels and Canadian dollars. These contracts are generally
limited to durations of approximately 12 months or less. Our 50% owned joint venture in Singapore enters into foreign currency
forward contracts in an effort to reduce the volatility of cash flows primarily related to forecasted U.S. dollar payments to its suppliers.
These contracts are generally limited to durations of approximately 12 months or less. We have also periodically entered into foreign
currency forward contracts to manage exposures resulting from forecasted customer collections denominated in currencies other than
the respective entity’s functional currency.
We have not entered into any foreign currency forward contracts for trading or speculative purposes.
During the years ended January 31, 2012, 2011 and 2010, we realized net losses of $1.3 million, $0.7 million and $2.6 million,
respectively, on settlements of foreign currency forward contracts not designated as hedges. We had $0.4 million of net unrealized
gains on outstanding foreign currency forward contracts as of January 31, 2012, with notional amounts totaling $94.1 million. We had
$1.8 million of net unrealized losses on outstanding foreign currency forward contracts as of January 31, 2011, with notional amounts
totaling $51.1 million.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of January 31, 2012. This sensitivity analysis was
based on a modeling technique that measures the hypothetical market value resulting from a 10% shift in the value of exchange rates
relative to the U.S. dollar, and assuming no changes in interest rates. A 10% increase in the value of the U.S. dollar would lead to a
decrease in the fair value of our hedging instruments by $6.0 million. Conversely, a 10% decrease in the value of the U.S. dollar
would result in an increase in the fair value of these financial instruments by $7.3 million.
The counterparties to these foreign currency forward contracts are multinational commercial banks. While we believe the risk of
counterparty nonperformance is not material, the disruption in the global financial markets in recent years has impacted some of the
financial institutions with which we do business. A sustained decline in the financial stability of financial institutions as a result of the
disruption in the financial markets could affect our ability to secure creditworthy counterparties for our foreign currency hedging
programs.
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Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item 8 are included in Item 15 of this report.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
The information contained in this section covers management’s evaluation of our disclosure controls and procedures and
management’s assessment of our internal control over financial reporting in each case as of January 31, 2012.
Evaluation of Disclosure Controls and Procedures
Management conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, as of January 31, 2012. Disclosure controls and procedures are those controls and other procedures that are designed to
ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported, within the time periods specified by the rules and forms promulgated by the SEC. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. As a result of this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of January 31, 2012.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in
Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our system of internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements
for external reporting purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect every misstatement. An
evaluation of effectiveness is subject to the risk that the controls
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may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may decrease
over time.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our
internal control over financial reporting as of January 31, 2012. In making this assessment, our management utilized the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated
Framework. As a result of this evaluation, our management concluded that our internal control over financial reporting was effective
as of January 31, 2012.
Our independent registered accounting firm, Deloitte & Touche LLP, has audited the effectiveness of our internal control over
financial reporting as stated in their report included herein.
Changes in Internal Control Over Financial Reporting
Under applicable SEC rules (Exchange Act Rules 13a-15(c) and 15d-15(c)) management is required to evaluate any change in internal
control over financial reporting that occurred during each fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
In evaluating whether there were any reportable changes in our internal control over financial reporting during the quarter ended
January 31, 2012, management determined, with the participation of our Chief Executive Officer and Chief Financial Officer, that
there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Verint Systems Inc.
Melville, New York
We have audited the internal control over financial reporting of Verint Systems Inc. and subsidiaries (the “Company”) as of January
31, 2012, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on that risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal
executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods
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are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31,
2012, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of and for the year ended January 31, 2012 of the Company and our report dated April 2, 2012
expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the adoption of the
Financial Accounting Standards Board’s Accounting Standards Update (“ASU”) 2009-13, Multiple Deliverable Revenue
Arrangements and ASU 2009-14, Certain Revenue Arrangements That Include Software Elements.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 2, 2012
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Item 9B. Other Information
Not applicable.
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PART III
PART III
Except as set forth below, the information required by Items 10 through 14 is included in our definitive proxy statement under the
captions “Election of Directors”, “Corporate Governance”, “Executive Officers”, “Executive Compensation”, “Compensation
Committee Interlocks and Insider Participation”, “Security Ownership of Certain Beneficial Owners and Management”, “Section 16
(a) Beneficial Ownership Reporting Compliance”, “Certain Relationships and Related Person Transactions”, and “Audit Matters”.
Such information is incorporated herein by reference.
Corporate Governance Guidelines
All of our employees, including our executive officers, are required to comply with our Code of Conduct. Additionally, our Chief
Executive Officer, Chief Financial Officer, and senior officers must comply with our Code of Business Conduct and Ethics for Senior
Officers. The purpose of these corporate policies is to ensure to the greatest possible extent that our business is conducted in a
consistently legal and ethical manner. The text of the Code of Conduct and the Code of Business Conduct and Ethics for Senior
Officers is available on our website (www.verint.com). We intend to disclose on our website any amendment to, or waiver from, a
provision of our policies as required by law.
Securities Authorized for Issuance Under Equity Compensation Plans.
The following table sets forth certain information regarding our equity compensation plans as of January 31, 2012.
Plan Category
Equity compensation plans approved by security
holders
Equity compensation plans not approved by
security holders
Total
(a)
Number of Securities to
be Issued upon Exercise
of Outstanding Options,
Warrants, and Rights
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights (1)
(c)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
3,033,956(2)
$ 30.41
—
3,033,956
—
$ 30.41
1,640,446
—
1,640,446
(1) The weighted-average price relates to outstanding stock options only (as of the applicable date). Other outstanding awards
carry no exercise price and are therefore excluded from the weighted-average price.
(2) Consists of 1,114,343 stock options and 1,919,613 restricted stock units.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Documents filed as part of this report
(1)
Financial Statements.
The consolidated financial statements filed as part of this report are listed on the Index to Consolidated Financial
Statements on page F-1.
(2)
Financial Statement Schedules.
All financial statement schedules have been omitted here because they are not applicable, not required, or the
information is shown in the consolidated financial statements or notes thereto.
(3) Exhibits.
See (b) below.
(b) Exhibits
Number
2.1
3.1
3.2
3.3
4.1
4.2
Description
Filed Herewith /
Incorporated by
Reference from
Agreement and Plan of Merger, dated as of February 11, 2007, among Verint
Systems Inc., White Acquisition Corporation and Witness Systems, Inc.
Amended and Restated Certificate of Incorporation of Verint Systems Inc.
Certificate of Designation, Preferences and Rights of the Series A Convertible
Perpetual Preferred Stock
Amended and Restated By-laws of Verint Systems Inc.
Specimen Common Stock certificate
Specimen Series A Convertible Perpetual Preferred Stock certificate
Form 8-K filed on February 15, 2007
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form 8-K filed on May 30, 2007
Form 8-K filed on January 7, 2011
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form 10-K filed on March 17, 2010
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Table of Contents
Number
10.1
Form of Indemnification Agreement
Description
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Verint Systems Inc. 2002 Employee Stock Purchase Plan
Verint Systems Inc. Stock Incentive Compensation Plan (as amended through
December 12, 2002)
Amendment No. 1 to Verint Systems Inc. Stock Incentive Compensation Plan
(dated December 23, 2008)
Amendment No. 2 to Verint Systems Inc. Stock Incentive Compensation Plan
(dated March 4, 2009)
Verint Systems Inc. 2004 Stock Incentive Compensation Plan, as amended and
restated
Amendment No. 1 to Verint Systems Inc. 2004 Stock Incentive Compensation
Plan, as amended and restated (dated December 23, 2008)
Witness Systems Amended and Restated Stock Incentive Plan
Amendment No. 1 to Witness Systems Amended and Restated Stock Incentive
Plan (dated May 29, 2001)
Amendment No. 2 to Witness Systems Amended and Restated Stock Incentive
Plan (dated January 15, 2004)
Amendment No. 3 to Witness Systems Amended and Restated Stock Incentive
Plan (dated December 6, 2007)
Amendment No. 4 to Witness Systems Amended and Restated Stock Incentive
Plan (dated December 23, 2008)
Verint Systems Inc. 2010 Stock Incentive Plan
Vovici Corporation Amended and Restated Stock Plan
Form of Stock Option Award Agreement*
Form of Time-Based Restricted Stock Unit Award Agreement*
94
Filed Herewith /
Incorporated by
Reference from
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form 10-K filed on May 1, 2003
Form 10-K filed on March 17, 2010
Form 10-K filed on March 17, 2010
Form 8-K filed on January 10, 2006
Form 10-K filed on March 17, 2010
Witness Systems, Inc. Form 10-Q for
the period ended June 30, 2005
Witness Systems, Inc. Form 10-K
filed on March 17, 2006
Witness Systems, Inc. Form 10-K
filed on March 15, 2004
Form 10-K filed on March 17, 2010
Form 10-K filed on March 17, 2010
Form S-8 (Commission File No. 333-
169768) effective on October 5, 2010
Filed herewith
Form 8-K filed on December 7, 2004
Form 10-K filed on March 17, 2010
Table of Contents
Number
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Description
Filed Herewith /
Incorporated by
Reference from
Form of Performance-Based Restricted Stock Unit Award Agreement*
Form of Time-Based Deferred Stock Award Agreement*
Form of Performance-Based Deferred Stock Award Agreement*
Form of Amendment to Time-Based and Performance-Based Equity Award
Agreements*
Form of Time-Based Restricted Stock Unit Award Agreement Solely Related
to 2010 Grant*
Form of Performance-Based Restricted Stock Unit Award Agreement Solely
Related to 2010 Grant*
Form of Time-Based Deferred Stock Award Agreement Solely Related to 2010
Grant*
Form of Performance-Based Deferred Stock Award Agreement Solely Related
to 2010 Grant*
Form 10-K filed on March 17, 2010
Form 10-K filed on March 17, 2010
Form 10-K filed on March 17, 2010
Form 10-K filed on March 17, 2010
Form 10-K filed on April 8, 2010
Form 10-K filed on April 8, 2010
Form 10-K filed on April 8, 2010
Form 10-K filed on April 8, 2010
Form of Global Performance-Based Restricted Stock Unit Award*
Form of Global Time-Based Restricted Stock Unit Award*
Form of Performance-Based Restricted Stock Unit Award Agreement for
Grants Subsequent to March 2012*
Form of Time-Based Restricted Stock Unit Award Agreement for Grants
Subsequent to March 2012*
Credit Agreement dated as of May 25, 2007 among Verint Systems Inc., as
Borrower, the Lenders as parties thereto and Lehman Commercial Paper Inc.,
as Administrative Agent
Amendment, Waiver, and Consent, dated April 27, 2010, to Credit Agreement
among Verint Systems Inc., as Borrower, the Lenders, as parties thereto, and
Credit Suisse AG, Cayman Islands Branch, as Administrative Agent
Amendment No. 3 to Credit Agreement, dated July 27, 2010, among Verint
Systems Inc., the lenders from time to time party thereto, and the
administrative agent party thereto, to the Credit Agreement, dated as of May
25, 2007, among Verint Systems Inc., the lenders from time to time party
thereto, and the administrative agent party thereto.
Form 10-K filed on April 6, 2011
Form 10-K filed on April 6, 2011
Filed herewith
Filed herewith
Form 8-K filed on May 30, 2007
Form 8-K filed on May 3, 2010
Form 8-K filed on August 2, 2010
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Table of Contents
Number
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
Description
Incremental Amendment and Joinder Agreement, dated July 30, 2010, among
Verint Systems Inc., the additional lenders party thereto, and the administrative
agent.
Credit Agreement dated as of April 29, 2011 among Verint Systems Inc., as
Borrower, the lenders from time to time party thereto, and Credit Suisse AG, as
administrative agent and collateral agent.
Employment Agreement, dated February 23, 2010, between Verint Systems
Inc. and Dan Bodner*
Amended and Restated Employment Agreement, dated July 13, 2011, between
Verint Systems Inc. and Douglas Robinson*
Second Amended and Restated Employment Agreement, dated July 13, 2011,
between Verint Systems Inc. and Elan Moriah*
Contract of Employment, dated July 10, 2011, by and among Meir Sperling,
Verint Systems Ltd., and Verint Systems Inc. *
Employment Agreement, dated April 16, 2001, between Comverse Infosys UK
Limited and David Parcell*
Amended and Restated Supplemental Employment Agreement, dated July 13,
2011, between Verint Systems UK Limited and David Parcell*
Second Amended and Restated Employment Agreement, dated July 13, 2011,
between Verint Systems Inc. and Peter Fante*
Summary of the Terms of Verint Systems Inc. Executive Officer Annual
Bonus Plan*
Filed Herewith /
Incorporated by
Reference from
Form 8-K filed on August 2, 2010
Form 8-K filed on May 2, 2011
Form 8-K filed on February 23, 2010
Form 8-K filed on July 14, 2011
Form 8-K filed on July 14, 2011
Form 8-K filed on July 14, 2011
Form 10-K filed on March 17, 2010
Form 8-K filed on July 14, 2011
Form 8-K filed on July 14, 2011
Form 10-K filed on May 19, 2010
2009 Executive Officer Retention Letter*
Federal Income Tax Sharing Agreement, dated as of January 31, 2002,
between Comverse and Verint Systems Inc.
Business Opportunities Agreement dated as of March 19, 2002, between
Comverse and Verint Systems Inc.
Form 10-K filed on March 17, 2010
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
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Filed Herewith /
Incorporated by
Reference from
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form S-1 (Commission File No. 333-
82300) effective on May 16, 2002
Form 8-K filed on May 30, 2007
Form 8-K filed on May 30, 2007
Form 8-K filed on July 19, 2010
Number
10.45
10.46
10.47
10.48
10.49
10.50
21.1
23.1
31.1
31.2
32.1
32.2
Description
Contribution Agreement, dated as of February 1, 2001, between Comverse and
Verint Systems Inc.
Stock Purchase Agreement, dated as of January 31, 2002, between Comverse,
Inc. and Verint Systems Inc.
Registration Rights Agreement, dated as of January 31, 2002, between
Comverse and Verint Systems Inc.
Registration Rights Agreement, by and between Verint Systems Inc. and
Comverse Technology, Inc., dated May 25, 2007
Securities Purchase Agreement, by and between Verint Systems Inc. and
Comverse Technology, Inc., dated May 25, 2007
Letter Agreement, dated July 16, 2010, between Comverse Technology, Inc.
and Verint Systems Inc.
Subsidiaries of Verint Systems Inc.
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting
Firm
Certification of Dan Bodner, Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Certification of Douglas E. Robinson, Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer pursuant to Securities Exchange
Act Rule 13a-14(b) and 18 U.S.C. Section 1350(1)
Certification of the Chief Financial Officer pursuant to Securities Exchange
Act Rule 13a-14(b) and 18 U.S.C. Section 1350(1)
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
97
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Table of Contents
Number
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
Description
Filed Herewith /
Incorporated by
Reference from
Filed herewith
Filed herewith
(1) These exhibits are being “furnished” with this periodic report and are not deemed “filed” with the Securities and Exchange
Commission and are not incorporated by reference in any filing of the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
* Denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item
15(b) of this report.
**In accordance with Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed
for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under
those sections.
(c) Financial Statement Schedules
None.
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Item 15A. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets as of January 31, 2012 and 2011
Consolidated Statements of Operations for the Years Ended January 31, 2012, 2011, and 2010
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended January 31, 2012, 2011, and 2010
Consolidated Statements of Cash Flows for the Years Ended January 31, 2012, 2011, and 2010
Notes to Consolidated Financial Statements
Investments
Stockholders’ Equity (Deficit)
Intangible Assets and Goodwill
Summary of Significant Accounting Policies
Supplemental Consolidated Financial Statement Information
1.
2. Net Income Per Common Share Attributable to Verint Systems Inc.
3.
4. Business Combinations
5.
6. Long-term Debt
7.
8. Convertible Preferred Stock
9.
10. Research and Development, Net
11. Income Taxes
12. Fair Value Measurements
13. Derivative Financial Instruments
14. Stock-Based Compensation and Other Benefit Plans
15. Related Party Transactions
16. Commitments and Contingencies
17. Segment, Geographic, and Significant Customer Information
18. Selected Quarterly Financial Information (Unaudited)
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-23
F-24
F-24
F-34
F-37
F-40
F-42
F-45
F-47
F-48
F-53
F-56
F-60
F-69
F-71
F-75
F-79
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Verint Systems Inc.
Melville, New York
We have audited the accompanying consolidated balance sheets of Verint Systems Inc. and subsidiaries (the “Company”) as of
January 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for
each of the three years in the period ended January 31, 2012. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Verint Systems
Inc. and subsidiaries as of January 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 2012, in conformity with accounting principles generally accepted in the United States of
America.
As noted in Note 1 to the consolidated financial statements, the Company changed its method of recognizing revenue for multiple
element arrangements for the year ended January 31, 2012 in accordance with the Financial Accounting Standards Board’s
Accounting Standards Update (“ASU”) 2009-13, Multiple Deliverable Revenue Arrangements and ASU 2009-14, Certain Revenue
Arrangements That Include Software Elements.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of January 31, 2012, based on the criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April
2, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 2, 2012
F-2
Table of Contents
Financial Statements
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of January 31, 2012 and 2011
(in thousands, except share and per share data)
Assets
Current Assets:
Cash and cash equivalents
Restricted cash and bank time deposits
Accounts receivable, net of allowance for doubtful accounts of $2.9 million and $5.4 million,
respectively
Inventories
Deferred cost of revenue
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Capitalized software development costs, net
Long-term deferred cost of revenue
Long-term deferred income taxes
Other assets
Total assets
Liabilities, Preferred Stock, and Stockholders’ Equity
Current Liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current maturities of long-term debt
Deferred revenue
Deferred income taxes
Liabilities to affiliates
Total current liabilities
Long-term debt
Long-term deferred revenue
Long-term deferred income taxes
Other liabilities
Total liabilities
Preferred Stock - $0.001 par value; authorized 2,500,000 shares. Series A convertible preferred
stock; 293,000 shares issued and outstanding; aggregate liquidation preference and redemption
value of $352,034 at January 31, 2012.
Commitments and Contingencies
Stockholders’ Equity:
Common stock - $0.001 par value; authorized 120,000,000 shares. Issued 39,265,000 and
37,349,000 shares, respectively; outstanding 38,982,000 and 37,089,000 shares as of January
31, 2012 and 2011, respectively.
Additional paid-in capital
Treasury stock, at cost — 283,000 and 260,000 shares as of January 31, 2012 and 2011,
respectively.
Accumulated deficit
Accumulated other comprehensive loss
Total Verint Systems Inc. stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
Total liabilities, preferred stock, and stockholders’ equity
See notes to consolidated financial statements.
F-3
January 31,
2012
2011
$
150,662
12,863
$
169,906
13,639
$
$
154,753
14,414
11,951
13,060
42,987
400,690
28,289
831,687
184,873
5,846
13,285
9,237
28,961
1,502,868
49,411
168,125
6,228
156,772
1,056
1,760
383,352
591,151
25,987
13,353
59,188
1,073,031
$
$
150,769
16,987
6,269
13,179
31,195
401,944
23,176
738,674
157,071
6,787
21,715
6,700
20,060
1,376,127
36,861
162,650
—
142,465
379
1,847
344,202
583,234
40,424
13,226
31,812
1,012,898
285,542
285,542
40
554,351
(7,466)
(357,764)
(47,736)
141,425
2,870
144,295
1,502,868
$
38
519,834
(6,639)
(394,757)
(42,069)
76,407
1,280
77,687
1,376,127
$
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended January 31, 2012, 2011, and 2010
Table of Contents
(in thousands, except per share data)
Revenue:
Product
Service and support
Total revenue
Cost of revenue:
Product
Service and support
Amortization of acquired technology
Total cost of revenue
Gross profit
Operating expenses:
Research and development, net
Selling, general and administrative
Amortization of other acquired intangible assets
Total operating expenses
Operating income
Other income (expense), net:
Interest income
Interest expense
Loss on extinguishment of debt
Other income (expense), net
Total other expense, net
Income before provision for income taxes
Provision for income taxes
Net income
Net income attributable to noncontrolling interest
Net income attributable to Verint Systems Inc.
Dividends on preferred stock
Net income attributable to Verint Systems Inc. common shares
Net income per common share attributable to Verint Systems Inc.
Basic
Diluted
Weighted-average common shares outstanding
Basic
Diluted
See notes to consolidated financial statements.
F-4
$
$
$
$
2012
Year Ended January 31,
2011
2010
$
$
$
$
390,392
392,256
782,648
126,050
129,911
12,400
268,361
514,287
111,001
293,906
22,902
427,809
86,478
661
(32,358)
(8,136)
(488)
(40,321)
46,157
5,532
40,625
3,632
36,993
(14,790)
22,203
0.58
0.56
38,419
39,499
$
$
$
$
375,164
351,635
726,799
111,989
117,261
9,094
238,344
488,455
96,525
297,365
21,460
415,350
73,105
454
(29,896)
—
(5,138)
(34,580)
38,525
9,940
28,585
3,004
25,581
(14,178)
11,403
0.33
0.31
34,544
37,179
374,272
329,361
703,633
122,961
108,953
8,021
239,935
463,698
83,797
291,954
22,268
398,019
65,679
616
(24,964)
—
(17,123)
(41,471)
24,208
7,108
17,100
1,483
15,617
(13,591)
2,026
0.06
0.06
32,478
33,127
Table of Contents
(in thousands)
Balances as of January 31, 2009
Comprehensive income:
Net income
Unrealized gains on derivative financial
instruments, net
Unrealized gains on available-for-sale
securities, net
Foreign currency translation adjustments
Total comprehensive income
Stock-based compensation - equity portion
Common stock issued for stock awards
Forfeitures of restricted stock awards
Purchases of treasury stock
Dividends to noncontrolling interest
Balances as of January 31, 2010
Comprehensive income:
Net income
Unrealized losses on derivative financial
instruments, net
Foreign currency translation adjustments
Total comprehensive income
Stock-based compensation - equity portion
Common stock issued for stock awards
Exercises of stock options
Purchases of treasury stock
Dividends to noncontrolling interest
Tax effects from stock award plans
Balances as of January 31, 2011
Comprehensive income (loss):
Net income
Unrealized gains on derivative financial
instruments and other, net
Foreign currency translation adjustments
Total comprehensive income (loss)
Stock-based compensation - equity portion
Common stock issued for stock awards
Exercises of stock options
Purchases of treasury stock
Treasury stock retired
Stock options issued in business combination
Dividends to noncontrolling interest
Tax effects from stock award plans
Balances as of January 31, 2012
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)
For the Years Ended January 31, 2012, 2011, and 2010
Verint Systems Inc. Stockholders’ Equity (Deficit)
Common Stock
Shares
Par
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interest
Total
Stockholders’
Equity (Deficit)
Value
32 $
—
—
—
—
—
—
1
—
—
—
33
—
—
—
—
—
3
2
—
—
—
38
—
—
—
—
—
1
1
—
—
—
—
—
$
40
32,535 $
—
—
—
—
—
—
64
(4)
(11)
—
32,584
—
—
—
—
—
2,498
2,164
(157)
—
—
37,089
—
—
—
—
—
1,323
623
(53)
—
—
—
—
$
38,982
419,937 $
(2,353) $
(435,955) $
—
—
—
—
—
31,195
—
34
—
—
451,166
—
—
—
—
—
—
—
(34)
(106)
—
(2,493)
15,617
—
—
—
15,617
—
—
—
—
—
(420,338)
—
—
25,581
—
—
25,581
—
—
—
—
—
—
(394,757)
36,993
—
—
36,993
—
—
—
—
—
—
—
—
(357,764) $
—
—
—
28,784
(3)
40,833
—
—
(946)
519,834
—
—
—
—
—
—
(4,146)
—
—
(6,639)
—
—
—
—
—
21,781
(52)
12,843
—
(777)
60
—
662
554,351
$
—
—
—
—
51
—
(1,655)
777
—
—
—
(7,466) $
F-5
Total Verint
Stockholders’
Systems Inc.
Equity (Deficit)
(76,743) $
15,617
5
34
15,231
30,887
31,195
1
—
(106)
—
(14,766)
25,581
(351)
1,416
26,646
28,784
—
40,835
(4,146)
—
(946)
76,407
36,993
906
(6,573)
31,326
21,781
—
12,844
(1,655)
—
60
—
662
$
141,425
(58,404) $
—
5
34
15,231
15,270
—
—
—
—
—
(43,134)
—
(351)
1,416
1,065
—
—
—
—
—
—
(42,069)
—
906
(6,573)
(5,667)
—
—
—
—
—
—
—
—
(47,736) $
673 $
(76,070)
1,483
—
—
46
1,529
—
—
—
—
(2,003)
199
3,004
—
268
3,272
—
—
—
—
(2,191)
—
1,280
3,632
—
(112)
3,520
—
—
—
—
—
—
(1,930)
—
2,870
$
17,100
5
34
15,277
32,416
31,195
1
—
(106)
(2,003)
(14,567)
28,585
(351)
1,684
29,918
28,784
—
40,835
(4,146)
(2,191)
(946)
77,687
40,625
906
(6,685)
34,846
21,781
—
12,844
(1,655)
—
60
(1,930)
662
144,295
See notes to consolidated financial statements.
Table of Contents
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2012, 2011, and 2010
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Provision for doubtful accounts
Stock-based compensation - equity portion
Provision (benefit) for deferred income taxes
Excess tax benefits from stock award plans
Non-cash losses on derivative financial instruments, net
Loss on extinguishment of debt
Other non-cash items, net
Changes in operating assets and liabilities, net of effects of business
combinations:
Accounts receivable
Inventories
Deferred cost of revenue
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue
Other liabilities
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Cash paid for business combinations, net of cash acquired
Purchases of property and equipment
Sales and maturities of investments
Settlements of derivative financial instruments not designated as hedges
Cash paid for capitalized software development costs
Change in restricted cash and bank time deposits
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings, net of original issuance discount
Repayments of borrowings and other financing obligations
Proceeds from exercises of stock options
Payment of debt issuance and other debt-related costs
Dividends paid to noncontrolling interest
Purchases of treasury stock
Excess tax benefits from stock award plans
Other financing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See notes to consolidated financial statements.
$
F-6
2012
Year Ended January 31,
2011
2010
$
40,625
$
28,585
$
17,100
53,040
1,055
21,781
(11,101)
(847)
896
8,136
(802)
(2,942)
1,080
3,199
6,339
(7,192)
(3,424)
(3,326)
(19)
106,498
(109,780)
(13,080)
245
(1,313)
(3,399)
479
(126,848)
597,136
(587,549)
12,474
(15,276)
(1,930)
(1,655)
847
(1,969)
2,078
(972)
(19,244)
169,906
150,662
$
48,951
1,863
28,784
(1,092)
(815)
5,863
—
1,139
(24,574)
(3,471)
16,616
9,924
15,839
(51,226)
(5,933)
67
70,520
(23,485)
(8,536)
—
(34,783)
(2,527)
(8,502)
(77,833)
—
(38,163)
40,787
(4,039)
(2,191)
(4,146)
815
—
(6,937)
(179)
(14,429)
184,335
169,906
$
49,290
849
31,195
(62)
—
14,709
—
1,443
(13,910)
5,686
14,082
(11,542)
12,912
(21,143)
471
(243)
100,837
(96)
(4,965)
—
(19,414)
(2,715)
2,591
(24,599)
—
(6,088)
—
(152)
(4,145)
—
—
(106)
(10,491)
2,660
68,407
115,928
184,335
€Table of Contents
VERINT SYSTEMS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Unless the context otherwise requires, the terms “Verint”, “we”, “us”, and “our” in these notes to consolidated financial statements
refer to Verint® Systems Inc. and its consolidated subsidiaries.
Verint is a global leader in Actionable Intelligence® solutions and value-added services. Our solutions enable organizations of all
sizes to make more timely and effective decisions to improve enterprise performance and make the world a safer place. Our solutions
are used to capture, distill, and analyze complex and underused information sources, such as voice, video, and unstructured text. In
the enterprise intelligence market, our workforce optimization and voice of the customer 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, our communications and
cyber intelligence, video and situation intelligence, and public safety solutions help government and commercial organizations in their
efforts to protect people and property and neutralize terrorism and crime.
Significant Ownership
Comverse Technology, Inc. (“Comverse”), beneficially owns a majority of our common stock (assuming the conversion of
Comverse’s preferred stock holdings into common stock) and holds a majority of the voting power of our common stock. During the
three years ended January 31, 2012, Comverse did not provide us with material levels of corporate or administrative services.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Verint Systems Inc., our wholly owned subsidiaries, and
a joint venture in which we hold a 50% equity interest. This joint venture functions as a systems integrator for Asian markets and is a
variable interest entity in which we are the primary beneficiary and is therefore included within our consolidated financial statements.
Investments in companies in which we have less than a 20% ownership interest and do not exercise significant influence are accounted
for at cost. We have included the results of operations of acquired companies from the date of acquisition. All significant
intercompany transactions and balances have been eliminated.
F-7
Table of Contents
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires our management to make estimates and assumptions, which may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash primarily consists of cash on hand and bank deposits. Cash equivalents primarily consist of interest-bearing money market
accounts and other highly liquid investments with an original maturity of three months or less when purchased.
Restricted Cash and Bank Time Deposits
Restricted cash and restricted bank time deposits are pledged as collateral or otherwise restricted as to use for vendor payables, general
liability insurance, workers’ compensation insurance, warranty programs, and other obligations. Restricted bank time deposits
generally consist of certificates of deposit with original maturities of between 30 and 360 days.
Investments
As of January 31, 2012 and 2011, all of our excess funds are cash, cash equivalents, restricted cash, or restricted time deposits.
Historically, investments generally consist of marketable debt securities of corporations, the U.S. government, and agencies of the
U.S. government. We do not invest in auction rate securities as a matter of policy.
Our investments in marketable securities are classified as available-for-sale, and are stated at fair value based on market quotes.
Investments with stated maturities beyond one year are classified as short-term if the securities are highly marketable and readily
convertible into cash for current operations. Unrealized gains and losses, net of deferred taxes, are recorded as a component of
accumulated other comprehensive income (loss) in stockholders’ equity (deficit). We recognize realized gains and losses upon sale of
short-term investments and declines in value deemed to be other than temporary using the specific identification method. Interest on
short-term investments is recognized within income when earned.
We periodically review our investments for indications of possible impairment in value. Factors considered in determining whether a
loss is other than temporary include the length of time and extent to which fair value has been below the cost basis, the financial
condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to
allow for any anticipated recovery in market value. Upon sale, the cumulative unrealized gain or loss associated with the sold security
that was previously recorded in accumulated other comprehensive income (loss) is reclassified into the consolidated statement of
operations as a realized gain (loss), which is included in other income (expense), net.
F-8
Table of Contents
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, bank
time deposits, short-term investments, and trade accounts receivable. We invest our cash in bank accounts, certificates of deposit, and
money market accounts with major financial institutions, in U.S. Treasury and agency obligations, and in debt securities of
corporations. By policy, we seek to limit credit exposure on investments through diversification and by restricting our investments to
highly rated securities.
We grant credit terms to our customers in the ordinary course of business. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of customers comprising our customer base and their dispersion across different
industries and geographic areas.
Accounts Receivable, Net
Trade accounts receivable are recorded at the invoiced amount and are not interest-bearing.
Accounts receivable, net, includes costs in excess of billings and estimated earnings on arrangements recognized under contract
accounting methods, representing revenue recognized on contracts for which billing will occur in subsequent periods, in accordance
with the terms of the contracts. Costs in excess of billings and estimated earnings on such contracts was $11.2 million and $4.4
million as of January 31, 2012 and 2011, respectively.
The application of our revenue recognition policies sometimes results in circumstances for which we are unable to recognize revenue
relating to sales transactions that have been billed, but the related account receivable has not been collected. For consolidated balance
sheet presentation purposes, we do not recognize the deferred revenue or the related account receivable and no amounts appear in our
consolidated balance sheets for such transactions. Only to the extent that we have received cash for a given deferred revenue
transaction is the amount included in deferred revenue on the consolidated balance sheets.
Allowance for Doubtful Accounts
We estimate the collectability of our accounts receivable balances each accounting period and adjust our allowance for doubtful
accounts accordingly. We exercise a considerable amount of judgment in assessing the collectability of accounts receivable, including
consideration of the creditworthiness of each customer, their collection history, and the related aging of past due receivables balances.
We evaluate specific accounts when we learn that a customer may be experiencing a deterioration of its financial condition due to
lower credit ratings, bankruptcy, or other factors that may affect its ability to render payment.
F-9
Table of Contents
The following table summarizes the activity in our allowance for doubtful accounts for the years ended January 31, 2012, 2011, and
2010:
(in thousands)
Balance at beginning of year
Provisions charged to expense
Amounts written off
Other (1)
Balance at end of year
2012
Year Ended January 31,
2011
2010
$
$
5,395 $
399
(2,912)
47
2,929 $
4,706 $
1,832
(1,126)
(17)
5,395 $
5,989
801
(2,210)
126
4,706
(1) Includes balances from acquisitions and changes in balances due to foreign currency exchange rates.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the weighted-average method of inventory accounting.
The valuation of our inventories requires us to make estimates regarding excess or obsolete inventories, including making estimates of
the future demand for our products. Although we make every effort to ensure the accuracy of our forecasts of future product demand,
any significant unanticipated changes in demand, price, or technological developments could have a significant impact on the value of
our inventory and reported operating results. Charges for excess and obsolete inventories are included within cost of revenue.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the
straight-line method based over the estimated useful lives of the assets. We depreciate buildings over periods ranging from twenty-
five to thirty years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term.
Software is depreciated over periods ranging from three to four years. Equipment, furniture and other are depreciated over periods
ranging from three to ten years.
The cost of maintenance and repairs of property and equipment is charged to operations as incurred. When assets are retired or
disposed of, the cost and accumulated depreciation or amortization thereon are removed from the consolidated balance sheet and any
resulting gain or loss is recognized in the consolidated statement of operations.
Goodwill, Other Acquired Intangible Assets, and Long-lived Assets
We record goodwill when the purchase price of net tangible and intangible assets we acquire exceeds their fair value. Other acquired
intangible assets include identifiable acquired technologies, in-process research and development (“IPR&D”), trade names, customer
relationships, distribution networks, non-competition agreements, and sales backlog. We amortize the cost of finite-lived identifiable
F-10
Table of Contents
intangible assets on a straight-line basis, which approximates the pattern in which the economic benefits of the assets are expected to
be realized, over their estimated useful lives, which are periods of ten years or less.
We regularly perform reviews to determine if the carrying values of our goodwill and other intangible assets are impaired. We review
goodwill for impairment at least annually on November 1, or more frequently if an event occurs indicating the potential for
impairment. We review goodwill for impairment utilizing either a qualitative assessment or a two-step process. If we decide that it is
appropriate to perform a qualitative assessment and conclude that the fair value of a reporting unit more likely than not exceeds its
carrying value, no further evaluation is necessary. For reporting units where we perform the two-step process, the first step requires us
to estimate the fair value of each reporting unit and compare that fair value to the respective carrying value, which includes goodwill.
If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired and no further evaluation is
necessary. If the carrying value is higher than the estimated fair value, there is an indication that impairment may exist and the second
step is required. In the second step, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit
over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the
reporting unit’s goodwill, the difference is recognized as an impairment charge.
For reporting units where we decide to perform a qualitative assessment, our management assesses and makes judgments regarding a
variety of factors which potentially impact the fair value of a reporting unit, including general economic conditions, industry and
market-specific conditions, customer behavior, cost factors, our financial performance and trends, our strategies and business plans,
capital requirements, management and personnel issues, and our stock price, among others. Management then considers the totality of
these and other factors, placing more weight on the events and circumstances that are judged to most affect a reporting unit’s fair
value or the carrying amount of its net assets, to reach a qualitative conclusion regarding whether it is more likely than not that the fair
value of a reporting unit exceeds its carrying amount.
For reporting units where we perform the two-step process, we utilize three primary approaches to assess fair value: (a) an income
based approach, using projected discounted cash flows, (b) a market based approach, using multiples of comparable companies, and
(c) a transaction based approach, using multiples for recent acquisitions of similar businesses made in the marketplace.
Our estimate of fair value of each reporting unit is based on a number of subjective factors, including: (a) appropriate consideration of
valuation approaches (income approach, comparable public company approach, and comparable transaction approach), (b) estimates
of our future cost structure, (c) discount rates for our estimated cash flows, (d) selection of peer group companies for the public
company and the market transaction approaches, (e) required levels of working capital, (f) assumed terminal value, and (g) time
horizon of cash flow forecasts.
We did not record any impairment of goodwill for the years ended January 31, 2012, 2011, and 2010.
Acquired IPR&D projects which have not reached technological feasibility at the date of acquisition are considered indefinite-lived
intangible assets and are not subject to amortization until the completion or abandonment of the associated research and development
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efforts. Upon completion of the development process, the IPR&D assets are amortized over their estimated useful lives. If a project is
abandoned rather than completed, the IPR&D asset is written-off. IPR&D assets are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the assets might be impaired. The impairment test compares the fair
value of the IPR&D asset with its carrying amount. If the carrying amount of the IPR&D asset exceeds its fair value, an impairment
loss is recognized in an amount equal to that excess.
Our IPR&D assets were acquired during the fourth quarter of the year ended January 31, 2012, and we did not record any impairment
of these IPR&D assets for the year ended January 31, 2012.
We review intangible assets that have finite useful lives and other long-lived assets when an event occurs indicating the potential for
impairment. If any indicators are present, we perform a recoverability test by comparing the sum of the estimated undiscounted future
cash flows attributable to the assets in question to their carrying amounts. If the undiscounted cash flows used in the test for
recoverability are less than the long-lived assets carrying amount, we determine the fair value of the long-lived asset and recognize an
impairment loss if the carrying amount of the long-lived asset exceeds its fair value. The impairment loss recognized is the amount by
which the carrying amount of the long-lived asset exceeds its fair value.
No impairments of long-lived assets were recorded during the years ended January 31, 2012, 2011, and 2010.
Fair Values of Financial Instruments
Our recorded amounts of cash and cash equivalents, accounts receivable, investments, and accounts payable approximate fair value,
due to the short-term nature of these instruments. We measure certain financial assets and liabilities at fair value based on the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants. Fair value disclosures regarding our money
market funds, derivative financial instruments, and long-term debt are included in Note 12, “Fair Value Measurements”.
Derivative Financial Instruments
As part of our risk management strategy, when considered appropriate, we use derivative financial instruments including forward
contracts and interest rate swap agreements to hedge against certain foreign currency and interest rate exposures. Our intent is to
mitigate gains and losses caused by the underlying exposures with offsetting gains and losses on the derivative contracts. By policy,
we do not enter into speculative positions with derivative instruments. The criteria we use for designating a derivative as a hedge
include contemporaneous and ongoing documentation of the instrument’s effectiveness in risk reduction and direct matching of the
financial instrument to the underlying transaction. We record all derivatives in other assets or other liabilities on our consolidated
balance sheets at their fair values. Gains and losses from the changes in values of these derivatives are accounted for based on the use
of the derivative and whether it qualifies for hedge accounting.
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For the years ended January 31, 2012, 2011, and 2010, certain foreign currency forward contracts qualified for accounting as hedges
and accordingly, the effective portions of the changes in fair value of these instruments were recorded in accumulated other
comprehensive income (loss) in our consolidated balance sheets, net of applicable income taxes. The ineffective portion, if any, of
these contracts is reported in other income (expense), net. For derivative financial instruments not accounted for as hedges, gains and
losses from changes in their fair values are reported in other income (expense), net. See Note 13, “Derivative Financial Instruments”,
for further details regarding our hedging activities and related accounting policies.
Long-term Debt
We capitalize debt issuance costs, as well as costs incurred for subsequent modification of debt, incurred in connection with our long-
term borrowings and credit facilities. We amortize these costs as an adjustment to interest expense over the remaining contractual life
of the associated long-term borrowing or credit facility using the effective interest method for long-term borrowings and the straight-
line method for revolving credit facilities. When unscheduled principal payments are made, we adjust the amortization of our deferred
debt-related costs to reflect the expected remaining terms of the borrowing.
Segment Reporting
We have three operating segments, which are also our reportable segments, Enterprise Intelligence Solutions (“Enterprise
Intelligence”), Video and Situation Intelligence Solutions (“Video Intelligence”), and Communications and Cyber Intelligence
Solutions (“Communications Intelligence”). Our Enterprise Intelligence segment was previously referred to as our Workforce
Optimization segment. We determine our reportable segments based on a number of factors our management uses to evaluate and run
our business operations, including similarities of customers, products and technology. Our Chief Executive Officer is our chief
operating decision maker, who utilizes segment revenue and segment operating contribution as the primary basis for assessing
financial results of segments and for the allocation of resources. See Note 17, “Segment, Geographic, and Significant Customer
Information”, for a full description of our segments and related accounting policies.
Revenue Recognition
In October 2009, the Financial Accounting Standards Board (“FASB”) issued amended revenue recognition accounting standards that
removed tangible products containing software components and non-software components that function together to deliver the
product’s essential functionality from the scope of industry-specific software revenue recognition guidance. Also in October 2009, the
FASB amended the accounting standards for many multiple-deliverable revenue arrangements to:
(i) provide updated guidance on when and how the deliverables in a multiple-deliverable arrangement should be separated, and
how the consideration should be allocated;
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(ii) require an entity to allocate revenue in an arrangement that has separate units of accounting, using estimated selling prices
(“ESP”) of deliverables if a vendor does not have vendor-specific objective evidence (“VSOE”) of selling price, or third-party
evidence of selling price (“TPE”); and
(iii) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method to the
separate units of accounting.
This guidance was effective for fiscal years beginning on or after June 15, 2010, although early adoption was permitted. We elected
to prospectively adopt the provisions of this new guidance as of February 1, 2011, for new and materially modified transactions
entered into on or after that date. Since we have been able to establish VSOE for a significant amount of our service and support
offerings included in multiple-element arrangements, we do not consider the impact of implementing the guidance to be significant for
the year ended January 31, 2012. For the year ended January 31, 2012, we recognized $12.4 million and $6.3 million of additional
revenue and income before provision for income taxes, respectively, as a result of adopting the new guidance.
Our revenue recognition policies, reflecting the impact of the new guidance, are described below.
We derive and report our revenue in two categories: (a) product revenue, including sale of hardware products (which include software
that works together with the hardware to deliver the product’s essential functionality) and licensing of software products, and (b)
service and support revenue, including revenue from installation services, post-contract customer support (“PCS”), project
management, hosting services, software-as-a-service (“SaaS”), product warranties, and training services.
Our revenue recognition policy is a critical component of determining our operating results and is based on a complex set of
accounting rules that require us to make significant judgments and estimates. Our customer arrangements typically include several
elements, including products, services, and support. Revenue recognition for a particular arrangement is dependent upon such factors
as the level of customization within the solution and the contractual delivery, acceptance, payment, and support terms with the
customer. Significant judgment is required to conclude whether collectability of fees is reasonably assured and whether fees are fixed
and determinable.
For arrangements that do not require significant modification or customization of the underlying products, we recognize revenue when
we have persuasive evidence of an arrangement, the product has been delivered or the services have been provided to the customer,
the sales price is fixed or determinable and collectability is reasonably assured. In addition, our multiple-element arrangements must
be carefully reviewed to determine the selling price of each element.
Our multiple-element arrangements consist of a combination of our product and service offerings that may be delivered at various
points in time. For arrangements within the scope of the new revenue accounting guidance, a deliverable constitutes a separate unit of
accounting when it has stand-alone value and there are no customer-negotiated refunds or return rights for the delivered elements. For
multiple-element arrangements comprised only of hardware products and related services, we allocate revenue to each element in an
arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its VSOE, if available, TPE, if VSOE is
not available, or ESP, if neither VSOE nor TPE is available. The total transaction revenue is
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allocated to the multiple elements based on each element’s relative selling price compared to the total selling price.
Our policy for establishing VSOE for installation, consulting, and training is based upon an analysis of separate sales of services. We
utilize either the substantive renewal rate approach or the bell-shaped curve approach to establish VSOE for our PCS offerings,
depending upon the business segment, geographical region, or product line.
TPE of selling price is established by evaluating largely similar and interchangeable competitor products or services in stand-alone
sales to similarly situated customers.
If we are unable to determine the selling price because VSOE or TPE does not exist, we determine ESP for the purposes of allocating
the arrangement by considering several external and internal factors including, but not limited to, pricing practices, similar product
offerings, margin objectives, geographies in which we offer our products and services, internal costs, competition, and product
lifecycle. The determination of ESP is made through consultation with and approval by our management, taking into consideration
our go-to-market strategies. ESP for each element is updated, when appropriate, to ensure that it reflects recent pricing experience.
For multiple-element arrangements comprised only of software products and related services, a portion of the total purchase price is
allocated to the undelivered elements, primarily installation services, PCS, and training, using VSOE of fair value of the undelivered
elements. The remaining portion of the total transaction value is allocated to the delivered software, referred to as the residual
method. If we are unable to establish VSOE for the undelivered elements of the arrangement, revenue recognition is deferred for the
entire arrangement until all elements of the arrangement are delivered. However, if the only undelivered element is PCS, we
recognize the arrangement fee ratably over the PCS period.
For multiple-element arrangements that contain software and software related elements for which we are unable to establish VSOE of
one or more elements, we use various available indicators of fair value and apply our best judgment to reasonably classify the
arrangement’s revenue into product revenue and service revenue for financial reporting purposes. Installation services associated with
our Communications Intelligence arrangements are included within product revenue as such amounts are not considered material.
For new or materially modified multiple-element arrangements entered into on or after February 1, 2011 that are comprised of a
combination of hardware and software elements, the total transaction value is bifurcated between the hardware elements and the
software elements that are not essential to the functionality of the hardware, based on the relative selling prices of the hardware
elements and the software elements as a group. Revenue is then recognized for the hardware and hardware-related services following
the hardware revenue recognition methodology outlined above and revenue for the software and software-related services is
recognized following the residual method or ratably over the PCS period if VSOE for PCS does not exist.
PCS revenue is derived from providing technical software support services and unspecified software updates and upgrades to
customers on a when-and-if-available basis. PCS revenue is recognized ratably over the term of the maintenance period, which in
most cases is one year.
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Under the substantive renewal rate approach, we believe it is necessary to evaluate whether both the support renewal rate and term are
substantive and whether the renewal rate is being consistently applied to subsequent renewals for a particular customer. We establish
VSOE under this approach through analyzing the renewal rate stated in the customer agreement and determining whether that rate is
above the minimum substantive VSOE renewal rate established for that particular PCS offering. The minimum substantive VSOE
rate is determined based upon an analysis of renewal rates associated with historical PCS contracts. For multiple-element software
arrangements that do not contain a stated renewal rate, revenue associated with the entire bundled arrangement is recognized ratably
over the PCS term. Multiple-element software arrangements that have a renewal rate below the minimum substantive VSOE rate are
deemed to contain a more than insignificant discount element, for which VSOE cannot be established. We recognize aggregate
contractual revenue for these arrangements over the period that the customer is entitled to renew its PCS at the discounted rate, but not
to exceed the estimated economic life of the product. We evaluate many factors in determining the estimated economic life of our
products, including the support period of the product, technological obsolescence, and customer expectations. We have concluded
that our software products have estimated economic lives ranging from five to seven years.
Under the bell-shaped curve approach of establishing VSOE, we perform VSOE compliance tests to ensure that a substantial majority
of our actual PCS renewals are within a narrow range of pricing.
For certain of our products, we do not have an explicit obligation to provide PCS but as a matter of business practice have provided
implied PCS. The implied PCS is accounted for as a separate element for which VSOE does not exist. Arrangements comprised of
software only elements that contain implied PCS are recognized over the period the implied PCS is provided, but not to exceed the
estimated economic life of the product.
Some of our arrangements require significant customization of the product to meet the particular requirements of the customer. For
these arrangements, revenue is recognized under contract accounting methods, typically using the percentage-of-completion (“POC”)
method. Under the POC method, revenue recognition is generally based upon the ratio of hours incurred to date to the total estimated
hours required to complete the contract. Profit estimates on long-term contracts are revised periodically based on changes in
circumstances, and any losses on contracts are recognized in the period that such losses become evident. If the range of profitability
cannot be estimated, but some level of profit is assured, revenue is recognized to the extent of costs incurred, until such time that the
project’s profitability can be estimated or the services have been completed. In the event some level of profitability on a contract
cannot be assured, the completed-contract method of revenue recognition is applied.
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If an arrangement includes customer acceptance criteria, revenue is not recognized until we can objectively demonstrate that the
software or services meet the acceptance criteria, or the acceptance period lapses, whichever occurs earlier. If an arrangement
containing software elements obligates us to deliver specified future software products or upgrades, revenue related to the software
elements under the arrangement is initially deferred and is recognized only when the specified future software products or upgrades
are delivered, or when the obligation to deliver specified future software products expires, whichever occurs earlier.
We record provisions for estimated product returns in the same period in which the associated revenue is recognized. We base these
estimates of product returns upon historical levels of sales returns and other known factors. Actual product returns could be different
from our estimates, and current or future provisions for product returns may differ from historical provisions. Concessions granted to
customers are recorded as reductions to revenue in the period in which they were granted. The vast majority of our contracts are
successfully completed, and concessions granted to customers are minimal in both dollar value and frequency.
Product revenue derived from shipments to resellers and original equipment manufacturers (“OEMs”) who purchase our products for
resale are generally recognized when such products are shipped (on a “sell-in” basis). We have historically experienced insignificant
product returns from resellers and OEMs, and our payment terms for these customers are similar to those granted to our end-users. If
a reseller or OEM develops a pattern of payment delinquency, or seeks payment terms longer than generally accepted, we defer the
recognition of revenue until the receipt of cash. Our arrangements with resellers and OEMs are periodically reviewed as our business
and products change.
In instances where revenue is derived from sale of third-party vendor services and we are a principal in the transaction, we generally
record revenue on a gross basis and record costs related to a sale within cost of revenue. In those cases where we are acting as an
agent between the customer and the vendor, revenue is recorded net of costs.
We record reimbursements from customers for out-of-pocket expenses as revenue. Shipping and handling fees and expenses that are
billed to customers are recognized in revenue and the costs associated with such fees and expenses are recorded in cost of revenue.
Historically, these fees and expenses have not been material. Taxes collected from customers and remitted to government authorities
are excluded from revenue.
Cost of Revenue
Our cost of revenue includes costs of materials, compensation and benefit costs for operations and service personnel, subcontractor
costs, royalties and license fees, depreciation of equipment used in operations and service, amortization of capitalized software
development costs and certain purchased intangible assets, and related overhead costs.
Where revenue is recognized over multiple periods in accordance with our revenue recognition policies, we have made an accounting
policy election whereby cost of product revenue, including hardware and third-party software license fees, are capitalized and
recognized in the same period that product revenue is recognized, while installation and other service costs are
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generally expensed as incurred, except for certain contracts that are accounted for using contract accounting principles. Deferred cost
of revenue is classified in its entirety as current or long-term assets based on whether the related revenue will be recognized within
twelve months of the origination date of the arrangement.
For certain contracts accounted for using contract accounting principles, revisions in estimates of costs and profits are reflected in the
accounting period in which the facts that require the revision become known, if such facts become known subsequent to the issuance
of the consolidated financial statements. If such facts become known before the issuance of the consolidated financial statements, the
requisite revisions in estimates of costs and profits are reflected in the consolidated financial statements. At the time a loss on a
contract becomes evident, the entire amount of the estimated loss is accrued. Related contract costs include all direct material and
labor costs and those indirect costs related to contract performance.
Customer acquisition and origination costs, including sales commissions, are recorded in selling, general and administrative expenses.
These costs are expensed as incurred, with the exception of certain sales referral fees in our Communication Intelligence segment
which are capitalized and amortized ratably over the revenue recognition period.
Research and Development, net
With the exception of certain software development costs, all research and development costs are expensed as incurred, and consist
primarily of personnel and consulting costs, travel, depreciation of research and development equipment, and related overhead and
other costs associated with research and development activities.
We receive non-refundable grants from the Israel Office of the Chief Scientist (“OCS”) that fund a portion of our research and
development expenditures. We currently only enter into non-royalty-bearing arrangements with the OCS which do not require us to
pay royalties. Funds received from the OCS are recorded as a reduction to research and development expense. Royalties, to the
extent paid, are recorded as part of our cost of revenue.
Software Development Costs
Costs incurred to acquire or develop software to be sold, leased or otherwise marketed are capitalized after technological feasibility is
established, and continue to be capitalized through the general release of the related software product. Amortization of capitalized
costs begins in the period in which the related product is available for general release to customers and is recorded on a straight-line
basis, which approximates the pattern in which the economic benefits of the capitalized costs are expected to be realized, over the
estimated economic lives of the related software products, generally four years.
Internal-Use Software
We capitalize costs associated with internal-use software systems that have reached the application development stage. These
capitalized costs include external direct costs utilized in developing or obtaining the applications and expenses for employees who are
directly associated with the development of the applications. Capitalization of such costs begins when the
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preliminary project stage is complete and continues until the project is substantially complete and is ready for its intended purpose.
The costs are amortized over a period of four years.
Capitalization of such costs was not material during the years ended January 31, 2012, 2011, and 2010.
Income Taxes
We account for income taxes under the asset and liability method which includes the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in our consolidated financial statements. Under this
approach, deferred taxes are recorded for the future tax consequences expected to occur when the reported amounts of assets and
liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus
deferred taxes. Deferred taxes result from differences between the financial statement and tax bases of our assets and liabilities, and
are adjusted for changes in tax rates and tax laws when changes are enacted. The effects of future changes in income tax laws or rates
are not anticipated.
We are subject to income taxes in the United States and numerous foreign jurisdictions. The calculation of our tax provision involves
the application of complex tax laws and requires significant judgment and estimates.
We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate at each reporting date, and establish
valuation allowances when it is more likely than not that all or a portion of our deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same
jurisdiction. We consider all available positive and negative evidence in making this assessment, including, but not limited to, the
scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. In circumstances where
there is sufficient negative evidence indicating that our deferred tax assets are not more-likely-than-not realizable, we establish a
valuation allowance.
We use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or
expected to be taken in a tax return by assessing whether they are more-likely-than-not sustainable, based solely on their technical
merits, upon examination and including resolution of any related appeals or litigation process. The second step is to measure the
associated tax benefit of each position as the largest amount that we believe is more-likely-than-not realizable. Differences between
the amount of tax benefits taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our
financial statements represent our unrecognized income tax benefits, which we either record as a liability or as a reduction of deferred
tax assets. Our policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax
expense.
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Functional Currency and Foreign Currency Transaction Gains and Losses
The functional currency for most of our foreign subsidiaries is the respective local currency, of which the notable exceptions are our
subsidiaries in Israel and Canada, whose functional currencies are the U.S. dollar. Most of our revenue and materials purchased from
suppliers are denominated in or linked to the U.S. dollar. Transactions denominated in currencies other than a functional currency
(primarily compensation and benefits costs of foreign operations) are converted to the functional currency on the transaction date, and
any resulting assets or liabilities are further translated at each reporting date and at settlement. Gains and losses recognized upon such
translations are included within other income (expense), net in the consolidated statements of operations. We recorded $1.4 million
and $0.9 million of net foreign currency gains for the years ended January 31, 2012 and 2011, respectively, and $1.9 million of net
foreign currency losses for the year ended January 31, 2010.
In those instances where a foreign subsidiary has a functional currency other than the U.S. dollar, revenue and expenses are translated
into U.S. dollars using average exchange rates for the reporting period, while assets and liabilities are translated into U.S. dollars using
period-end rates. The effects of foreign currency translation adjustments are included in stockholders’ equity (deficit) as a component
of accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.
Stock-Based Compensation
We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value
of the award. We use the Black-Scholes option-pricing model to estimate the fair value of certain of our stock-based awards. We
recognize the fair value of the award over the period during which an employee is required to provide service in exchange for the
award.
Net Income Per Common Share Attributable to Verint Systems Inc.
Shares used in the calculation of basic net income per common share are based on the weighted-average number of shares outstanding
during the accounting period. Shares used in the calculation of basic net income per common share exclude unvested shares of
restricted stock because they are contingent upon future service conditions. Shares used in the calculation of diluted net income per
common share are based on the weighted-average number of shares outstanding, adjusted for the assumed exercise of all potentially
dilutive stock options and other stock-based awards outstanding using the treasury stock method. Shares used in the calculation of
diluted net income per common share also include the assumed conversion of our convertible preferred stock, if dilutive. In periods
for which we report a net loss, basic net loss per common share and diluted net loss per common share are identical since the effect of
potential common shares is anti-dilutive and therefore excluded.
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Recent Accounting Pronouncements
Other Accounting Pronouncements Implemented:
In January 2010, the FASB issued amended standards that require additional fair value disclosures. These disclosure requirements
were effective in two phases. The initial phase, which was effective for us as of February 1, 2010, requires enhanced disclosures
about inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers. The second phase,
which was effective for us as of February 1, 2011, requires presentation of disaggregated activity within the reconciliation for fair
value measurements using significant unobservable inputs (Level 3). The adoption of these standards did not have a material impact
on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance to clarify that pro forma disclosures should be presented as if a
business combination occurred at the beginning of the prior annual period for purposes of preparing both the current reporting period
and the prior reporting period pro forma financial information. These disclosures should be accompanied by a narrative description
about the nature and amount of material, nonrecurring pro forma adjustments. This new accounting guidance is effective for business
combinations consummated in periods beginning after December 15, 2010 and should be applied prospectively as of the date of
adoption, although early adoption is permitted. We adopted this new guidance effective February 1, 2011. The adoption of this
guidance did not have a material impact on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance related to the calculation of the carrying amount of a reporting unit
when performing the first step of a goodwill impairment test. This update modifies Step 1 of the goodwill impairment test for
reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than
not that a goodwill impairment exists, an entity should consider and assess whether there are any adverse qualitative factors indicating
that impairment may exist. For public companies, this new accounting guidance is effective for impairment tests performed during
fiscal years (and interim periods within those years) that began after December 15, 2010. We adopted this new guidance effective
February 1, 2011. The adoption of this new guidance did not have a material impact on our November 1, 2011 tests for goodwill
impairment, and we do not believe that it will materially impact future tests for goodwill impairment.
In September 2011, the FASB issued amended standards intended to simplify how tests for potential goodwill impairment are
performed. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit in which goodwill resides is less than its carrying value. For reporting units in which this assessment
concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the
requirement to perform further goodwill impairment testing as required under the previous standards. We adopted these standards on
November 1, 2011 and they did not materially impact our consolidated financial statements. We do not expect these new standards to
materially impact our future consolidated financial statements.
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New Accounting Pronouncements to be Implemented:
In May 2011, the FASB issued updated accounting guidance to amend existing requirements for fair value measurements and
disclosures. The guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair
value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value but whose
fair value must be disclosed. It also clarifies and expands upon existing requirements for fair value measurements of financial assets
and liabilities as well as instruments classified in stockholders’ equity. The guidance is effective for us beginning with our three-
month period ending April 30, 2012. We are assessing the impact that the application of this guidance may have on our consolidated
financial statements.
In June 2011, the FASB issued amended standards regarding the presentation of comprehensive income. These amendments eliminate
the option to present components of other comprehensive income as part of the statement of stockholders’ equity and require the
presentation of comprehensive income, the components of net income, and the components of other comprehensive income in either a
single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB
updated this guidance to indefinitely defer the requirement to present items that are reclassified from accumulated other
comprehensive income to net income separately with their respective components of net income and other comprehensive income.
This guidance does not change the items that must be reported within other comprehensive income and the criteria for determining
when an item of other comprehensive income must be reclassified to net income. These amended standards are effective for us
beginning with our three-month period ending April 30, 2012 and must be applied retrospectively. Other than the change in
presentation, these changes will not have an impact on our consolidated financial statements.
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2. NET INCOME PER COMMON SHARE ATTRIBUTABLE TO VERINT SYSTEMS INC.
The following table summarizes the calculation of basic and diluted net income per common share attributable to Verint Systems Inc.
for the years ended January 31, 2012, 2011, and 2010:
(in thousands, except per share amounts)
Net income
Net income attributable to noncontrolling interest
Net income attributable to Verint Systems Inc.
Dividends on preferred stock
Net income attributable to Verint Systems Inc. for basic net income per
common share
Dilutive effect of dividends on preferred stock
Net income attributable to Verint Systems Inc. for diluted net income
per common share
Weighted-average shares outstanding:
Basic
Dilutive effect of employee equity award plans
Dilutive effect of assumed conversion of preferred stock
Diluted
Net income per common share attributable to Verint Systems Inc.
Basic
Diluted
2012
Year Ended January 31,
2011
2010
$
$
40,625
3,632
36,993
(14,790)
22,203
—
$
28,585
3,004
25,581
(14,178)
11,403
—
$
22,203
$
11,403
$
38,419
1,080
—
39,499
34,544
2,635
—
37,179
$
$
0.58
0.56
$
$
0.33
0.31
$
$
17,100
1,483
15,617
(13,591)
2,026
—
2,026
32,478
649
—
33,127
0.06
0.06
We excluded the following weighted-average shares underlying stock-based awards and convertible preferred stock from the
calculations of diluted net income per common share because their inclusion would have been anti-dilutive:
(in thousands)
Shares excluded from calculation:
Stock options and restricted stock-based awards
Convertible preferred stock
2012
Year Ended January 31,
2011
2010
813
10,625
1,158
10,223
4,714
9,836
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3. INVESTMENTS
As of January 31, 2012 and 2011, all of our excess funds are in cash, cash equivalents, restricted cash, or restricted time deposits. We
have not invested in marketable debt or equity securities during the three-year period ended January 31, 2012, but may do so in the
future as permitted under our investment guidelines. We have historically invested in a variety of securities, including U.S.
Government, corporation, agency bonds, and auction rate securities, which typically provide higher yields than money market and
other cash equivalent investments. As a matter of policy, we no longer invest in auction rate securities.
We received no proceeds from sales of available for sale securities during the years ended January 31, 2012, 2011 and 2010, because
all of our available operating funds and our restricted cash were held in the form of cash and cash equivalents during those entire
years.
4. BUSINESS COMBINATIONS
Year Ended January 31, 2012
Vovici Corporation
On August 4, 2011, we 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 our 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. We have included the financial results of Vovici in our
consolidated financial statements since August 4, 2011.
We acquired Vovici for approximately $56.1 million in cash at closing, including $0.4 million to repay Vovici’s bank debt. In
addition, the consideration also included the exchange of certain unvested Vovici stock options for options to acquire approximately
42,000 shares of Verint 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. We also agreed to make potential additional cash payments to the
former Vovici shareholders 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, we revalue the contingent consideration
obligation to its fair value and record increases and decreases in fair value within selling, general and administrative expenses in our
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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.
For the year ended January 31, 2012, we recorded a benefit of approximately $2.7 million for the change in the fair value of the
contingent consideration obligation between the acquisition date and January 31, 2012, which primarily reflected the impact of revised
assessments of the probabilities of payment. As of January 31, 2012, the fair value of this contingent consideration obligation was
approximately $7.2 million.
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 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 we believe 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 has been assigned to our Enterprise Intelligence segment and 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 that we believe 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 we believe
best approximates our operating profit margin to fulfill these support obligations. As a result, in allocating the purchase price, we
recorded an adjustment 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, we will recognize
revenue at the full contract value over the remaining term of the contracts.
Revenue attributable to Vovici from August 4, 2011 through January 31, 2012 was $5.0 million. The impact of Vovici on net income
for this period was not significant.
Transaction and related costs, consisting primarily professional fees and integration expenses, directly related to the acquisition of
Vovici, totaled $3.4 million for the year ended January 31, 2012, and were expensed as incurred.
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Global Management Technologies
On October 7, 2011, we acquired all of the outstanding shares of Global Management Technologies (“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 our Enterprise Intelligence product suite. We have included
the financial results of GMT in our consolidated financial statements since October 7, 2011.
We acquired GMT for approximately $24.6 million in cash at closing. We also agreed to make potential additional cash payments to
the former GMT shareholders of up to approximately $17.4 million, contingent upon the achievement of certain performance targets
over the period ending January 31, 2014. The fair value of this contingent obligation was estimated to be $12.0 million at October 7,
2011.
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, we revalue the contingent
consideration obligation to its fair value and record increases and decreases in fair value within selling, general and administrative
expenses in our 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.
For the year ended January 31, 2012, we recorded a benefit of approximately $2.4 million for the change in the fair value of the
contingent consideration obligation between the acquisition date and January 31, 2012, which primarily reflected the impact of revised
assessments of the probabilities of payment. As of January 31, 2012, the fair value of this contingent consideration obligation was
approximately $9.6 million.
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 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 we believe 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 has been assigned to our Enterprise Intelligence segment and is deductible
for income tax purposes.
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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 we believe 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 October 7, 2011. The estimated profit margin was 20%, which we believe best approximates
our operating profit margin to fulfill these support obligations. As a result, in allocating the purchase price, we recorded an adjustment
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, we will recognize revenue 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 January 31, 2012 were not significant.
Transaction and related costs, primarily professional fees and integration expenses, directly related to the acquisition of GMT, totaled
$1.6 million for the year ended January 31, 2012, and were expensed as incurred.
Other Business Combinations
During the year ended January 31, 2012, we executed the following additional business combinations:
• On March 30, 2011, we acquired all of the outstanding shares of a privately held company, based in Israel, that has been
integrated into our Video Intelligence operating segment. This acquisition broadened our Video Intelligence product line.
• On August 2, 2011, we 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
our Communications Intelligence product portfolio and increases our presence in this region.
• On November 1, 2011, we acquired certain technology and other assets for use in our Communications Intelligence operating
segment in a transaction that qualified as a business combination.
• On November 10, 2011, we acquired certain technology and other assets for use in our Enterprise Intelligence operating segment
in a transaction that qualified as a business combination.
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• On January 5, 2012, we acquired all of the outstanding shares of a privately held provider of web intelligence technology, based
in the EMEA region, that is being integrated into our Communications Intelligence operating segment.
The combined consideration for these business combinations was approximately $55.1 million, including $33.8 million of combined
cash paid at the closings. We also agreed to make potential additional cash payments to the respective former shareholders
aggregating up to approximately $41.0 million contingent upon the achievement of certain performance targets over periods ending
through January 31, 2015. The combined fair values of these contingent consideration obligations were estimated to be $20.5 million
as of the respective acquisition dates.
We recorded net benefits of $0.4 million within selling, general and administrative expenses for the year ended January 31, 2012 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
January 31, 2012, the combined fair values of these contingent consideration obligations were $20.1 million.
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 finite-lived intangible assets are being amortized on a straight-line basis, which we believe
approximates the pattern in which the assets are utilized, over their estimated useful lives.
Intangible assets acquired in these business combinations included several IPR&D assets with estimated fair values totaling $2.5
million. IPR&D assets are considered indefinite-lived intangible assets until the completion or abandonment of the associated
research and development efforts. The fair values of the IPR&D assets were estimated by projecting the costs required to develop the
IPR&D assets into commercially viable products, estimating the resulting net cash flows from the projects when completed and
discounting the net cash flows to their present values. We will amortize these intangible assets once the projects are complete.
Currently, we expect to complete these projects within the next two years. IPR&D assets are subject to impairment testing at least
annually, or more frequently if circumstances are identified indicating the potential for impairment.
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 $33.5 million of goodwill associated with these business combinations, $10.1
million was assigned to our Video Intelligence segment and is not deductible for income tax purposes, $2.0 million was assigned to
our Enterprise Intelligence segment and is not deductible for income tax purposes, and $21.4 million was assigned to our
Communications Intelligence segment, the tax deductibility of which is still being assessed.
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In connection with the foregoing August 2, 2011 Communications Intelligence acquisition, we have evaluated and continue to
evaluate the impact of certain liabilities associated with pre-acquisition business activities of the acquired company. Based upon our
initial evaluation of these matters, we originally recorded liabilities of approximately $10.7 million, of which $5.5 million was
classified as current and $5.2 million was 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 our then best
estimates of these amounts at the acquisition date. The indemnification assets recognized the selling shareholders’ contractual
obligation to indemnify us for these pre-acquisition liabilities and were measured on the same basis as the corresponding liabilities.
These amounts, as adjusted for currency exchange rate fluctuations, were reflected on our October 31, 2011 consolidated balance
sheet. Subsequently, based upon an assessment of additional information obtained during the three months ended January 31, 2012
about facts and circumstances that existed as of the acquisition date regarding these matters, we reduced the estimated acquisition-date
liabilities by $0.8 million, and recorded a corresponding acquisition-date reduction in the associated indemnification assets.
As of January 31, 2012, the current and long-term liabilities for these matters are $4.3 million and $4.7 million, respectively, with
corresponding indemnification assets reflected within current and long-term assets. We are 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 our results of operations.
Revenue and the impact on net income attributable to these acquisitions for the year ended January 31, 2012 were not significant.
Transaction and related costs, primarily professional fees and integration expenses, directly related to these acquisitions totaled $5.0
million for the year ended January 31, 2012, and were expensed as incurred.
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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 year ended January 31, 2012:
(in thousands)
Components of Purchase Price:
Cash
Fair value of contingent consideration
Fair value of stock options
Bank debt, repaid at closing
Other purchase price adjustments
Total purchase price
Allocation of Purchase Price:
Net tangible assets (liabilities):
Accounts receivable
Other current assets
Other assets
Current and other liabilities
Deferred revenue
Bank debt
Deferred income taxes - current and long-term
Net tangible assets (liabilities)
Identifiable intangible assets:
Developed technology
Customer relationships
Trademarks and trade names
In-process research and development assets
Other identifiable intangible assets
Total identifiable intangible assets (1)
Goodwill
Total purchase price
Vovici
GMT
Other
$
$
$
$
55,708
9,900
60
435
—
66,103
1,106
5,398
913
(3,165)
(2,264)
—
(6,021)
(4,033)
11,300
15,400
1,700
—
—
28,400
41,736
66,103
$
$
$
$
24,596 $
12,000
—
—
—
36,596
$
512 $
1,717
483
(1,915)
(1,234)
—
(108)
(545)
7,400
6,200
400
—
—
14,000
23,141
36,596
$
33,835
20,504
—
—
786
55,125
842
15,650
5,579
(15,419)
(944)
(3,330)
(3,587)
(1,209)
10,043
7,460
1,350
2,500
1,421
22,774
33,560
55,125
(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 year ended January 31, 2012 are provisional and are based on the
information that was available as of the acquisition dates to estimate the fair values of assets acquired and liabilities assumed. The
purchase price allocations for these acquisitions as reported at January 31, 2012 represent our best estimates of the fair values and
were based upon the information available to us.
We are gathering and reviewing additional information necessary to finalize the values assigned to the acquired identified intangible
assets, goodwill and income tax assets and liabilities for these acquisitions. Therefore, the provisional measurements of fair values
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reported at January 31, 2012 are subject to change. We expect to finalize the purchase price allocations as soon as practicable but no
later than one year from the respective acquisition dates.
Based upon additional information obtained during the three months ended January 31, 2012 about facts and circumstances that
existed as of the respective acquisition dates, we adjusted the purchase price allocations for several acquisitions completed during the
year ended January 31, 2012, as described below:
• For the Vovici purchase price allocation, we increased certain liabilities by $1.1 million, recorded an associated $1.0 million asset
reflecting the selling shareholders’ indemnification obligations related to these liabilities, and increased goodwill by $0.1 million.
We also adjusted certain income tax assets and liabilities of Vovici which resulted in a $4.0 million increase in goodwill. These
adjustments did not materially impact our consolidated statement of operations.
• For the GMT purchase price allocation, we refined certain assumptions in the discounted cash flow models used to estimate the
fair values of certain identified intangible assets, which reduced the estimated acquisition-date fair values of the developed
technology and customer relationship intangible assets identified in the acquisition of GMT by $0.1 million and $1.0 million,
respectively, compared to the original estimated amounts, which resulted in a corresponding $1.1 million increase in acquisition-
date goodwill. We also adjusted certain income tax assets and liabilities of GMT which resulted in a $0.4 million increase in
goodwill. These adjustments did not materially impact our consolidated statement of operations.
• For the purchase price allocation associated with our August 2, 2011, Communications Intelligence acquisition, we refined certain
assumptions in the discounted cash flow models used to estimate the fair values of certain identified intangible assets, which
increased the estimated acquisition-date fair values of the developed technology and customer relationship intangible assets
identified in this acquisition by $0.2 million each, compared to the original estimated amounts, which resulted in a corresponding
$0.4 million decrease in acquisition-date goodwill. We also increased the fair value of our contingent consideration obligation in
this acquisition by $0.5 million and recorded a corresponding $0.5 million increase in acquisition-date goodwill. Additionally,
we adjusted the acquisition-date fair value of our performance obligations under customer contracts assumed in this acquisition,
which resulted in a $1.7 million decrease in acquisition-date goodwill. Finally, we adjusted certain acquisition-date deferred
income taxes and unrecognized tax benefits, which resulted in a $3.1 million increase in acquisition-date goodwill. These
adjustments combined to increase acquisition-date goodwill for this acquisition by $1.5 million.
For the acquisition of Vovici, the acquired developed technology, customer relationships, and trademarks and trade names 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 trade names were
assigned estimated useful lives of five years, ten years, and three years, respectively, the weighted average of which is approximately
7.2 years.
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For the other acquisitions, the acquired developed technology, customer relationships, trademarks and trade names, and other
identifiable intangible assets were assigned estimated useful lives of from six years to seven years, from four years to ten years, from
four years to five years, and from three years to four years, respectively, the weighted average of which is approximately 6.8 years.
Year Ended January 31, 2011
Iontas Limited
On February 4, 2010, we 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. We acquired Iontas to, among other objectives, expand the desktop analytical
capabilities of our Enterprise Intelligence solutions. We have included the financial results of Iontas in our consolidated financial
statements since February 4, 2010.
We 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 of 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 we believe 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 our desktop analytical
capabilities, the expansion of our suite of products and services, and the addition of an assembled workforce. This goodwill was
assigned to our Enterprise Intelligence segment and is not deductible for income tax purposes.
We 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 year ended January 31, 2012, $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 January
31, 2012. Expenses of $0.2 million and $0.3 million for the years ended January 31, 2012 and 2011, respectively, reflecting increases
in the fair value of this contingent consideration obligation, were recorded within selling, general and administrative expenses for
those periods.
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Transaction costs, primarily professional fees, directly related to the acquisition of Iontas, totaled $1.3 million and were expensed as
incurred.
The integration of Iontas into our business subsequent to the acquisition has made it impractical to quantify revenue and the impact on
net income from Iontas for the years ended January 31, 2012 and 2011.
Communications Intelligence Business Combination
In December 2010, we acquired certain technology and other assets for use in our Communications Intelligence operating segment 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 our consolidated financial statements. The fair value of our liability for contingent
consideration related to this acquisition increased by $1.9 million during the year ended January 31, 2012, resulting in a corresponding
charge recorded within selling, general and administrative expenses for that period. The earned contingent consideration related to
this acquisition was paid to the sellers during the year ended January 31, 2012, and we have no further contingent consideration
obligations for this acquisition.
Pro Forma Information
The following table provides unaudited pro forma revenue and net income (loss) attributable to Verint Systems Inc. for the years
ended January 31, 2012 and 2011, 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 our historical consolidated
operating results and is therefore not presented.
(in thousands)
Revenue
Net income attributable to Verint Systems Inc.
Year Ended January 31,
2011
2012
$
$
804,006
43,652
$
$
746,097
6,331
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5. INTANGIBLE ASSETS AND GOODWILL
Acquisition-related intangible assets consisted of the following as of January 31, 2012 and 2011:
(in thousands)
Intangible assets with finite lives:
Customer relationships
Acquired technology
Trade names
Non-competition agreements
Distribution network
Backlog
Total intangible assets with finite lives:
In-process research and development, with indefinite lives
Total
$
$
(in thousands)
Intangible assets, all with finite lives:
Customer relationships
Acquired technology
Trade names
Non-competition agreements
Distribution network
Total
January 31, 2012
Accumulated
Amortization
Cost
225,929 $
94,295
12,824
5,779
2,440
843
342,110
2,500
344,610
$
(95,173) $
(49,732)
(9,805)
(3,656)
(1,352)
(19)
(159,737)
—
(159,737) $
January 31, 2011
Accumulated
Amortization
Cost
$
$
198,106 $
66,794
9,552
5,215
2,440
282,107
$
(74,412) $
(37,579)
(9,177)
(2,760)
(1,108)
(125,036) $
Net
130,756
44,563
3,019
2,123
1,088
824
182,373
2,500
184,873
Net
123,694
29,215
375
2,455
1,332
157,071
The following table presents net acquisition-related intangible assets by reportable segment as of January 31, 2012 and 2011.
(in thousands)
Enterprise Intelligence
Video Intelligence
Communications Intelligence
Total
January 31,
2012
160,258
5,059
19,556
184,873
$
$
2011
148,471
934
7,666
157,071
$
$
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All acquired, finite-lived intangible assets are amortized on a straight-line basis, which approximates the pattern in which the
estimated economic benefits of the assets are realized, over their estimated useful lives, which are periods of ten years or less.
Total amortization expense recorded for acquisition-related intangible assets was $35.3 million, $30.6 million, and $30.3 million for
the years ended January 31, 2012, 2011, and 2010, respectively. The reported amount of net acquisition-related intangible assets can
fluctuate from the impact of changes in foreign exchange rates on intangible assets not denominated in U.S. dollars.
Estimated future amortization expense on finite-lived acquisition-related intangible assets is as follows:
(in thousands)
Years Ending January 31,
2013
2014
2015
2016
2017
2018 and thereafter
Total
Amount
39,664
34,499
31,069
29,731
26,969
20,441
182,373
$
$
In conjunction with the goodwill impairment reviews described below, we conducted reviews for impairment of our other long-lived
assets, including finite-lived intangible assets, because any impairment of these assets must be considered prior to the conclusion of
the goodwill impairment review in accordance with applicable accounting guidance. We did not identify any impairments of finite-
lived intangible assets during the years ended January 31, 2012, 2011, and 2010.
Our IPR&D assets were acquired during the fourth quarter of the year ended January 31, 2012, and no impairment indicators were
identified for these assets between their acquisition dates and January 31, 2012.
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Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and identifiable
intangible assets acquired. Goodwill activity for the years ended January 31, 2012 and 2011, in total and by reportable segment, was
as follows:
(in thousands)
Year Ended January 31, 2011
Goodwill, gross, at January 31, 2010
Accumulated impairment losses at January 31, 2010
Goodwill, net, at January 31, 2010
Business acquisition
Foreign currency translation and other
Goodwill, net, at January 31, 2011
Year Ended January 31, 2012
Goodwill, gross, at January 31, 2011
Accumulated impairment losses at January 31, 2011
Goodwill, net, at January 31, 2011
Business acquisitions
Foreign currency translation and other
Goodwill, net, at January 31, 2012
Balance at January 31, 2012
Goodwill, gross, at January 31, 2012
Accumulated impairment losses at January 31, 2012
Goodwill, net, at January 31, 2012
Total
Enterprise
Intelligence
Reportable Segment
Video
Intelligence
Communications
Intelligence
$
$
$
$
$
$
791,535
(66,865)
724,670
12,776
1,228
738,674
805,539
(66,865)
738,674
98,437
(5,424)
831,687
898,552
(66,865)
831,687
$
$
$
$
$
$
694,465
(30,791)
663,674
12,776
(39)
676,411
707,202
(30,791)
676,411
66,877
(3,547)
739,741
770,532
(30,791)
739,741
$
$
$
$
$
$
66,998
(36,074)
30,924
—
(209)
30,715
66,789
(36,074)
30,715
10,141
(716)
40,140
76,214
(36,074)
40,140
$
$
$
$
$
$
30,072
—
30,072
—
1,476
31,548
31,548
—
31,548
21,419
(1,161)
51,806
51,806
—
51,806
At the acquisition date, goodwill resulting from a business combination is assigned to those reporting units expected to benefit from
the synergies of the combination. Reporting units may either be at, or one level below, our operating segment level.
We test our goodwill for impairment annually as of November 1, or more frequently, if events or circumstances indicate the potential
for an impairment. We performed goodwill impairment tests for each of our reporting units as of November 1, 2011, 2010, and 2009.
The results of our testing as of November 1, 2011, 2010 and 2009 indicated that the fair values of all of our reporting units
significantly exceeded their net carrying values, and no indicators of potential impairment were identified between November 1 and
January 31 in each of the years ended January 31, 2012, 2011, and 2010. Therefore, no goodwill impairment was identified for the
years ended January 31, 2012, 2011, and 2010.
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6. LONG-TERM DEBT
The following table summarizes our long-term debt at January 31, 2012 and 2011:
(in thousands)
Term loan facility - new credit agreement:
Gross loan
Unamortized debt discount
Other debt
Term loan facility - prior credit agreement
Total debt
Less: current maturities
Long-term debt
January 31,
2012
2011
$
$
597,000
(2,685)
3,064
—
597,379
6,228
591,151
$
$
—
—
—
583,234
583,234
—
583,234
In May 2007, we entered into a $675.0 million secured credit agreement (“Prior Credit Agreement”) comprised of a $650.0 million
seven-year term loan facility and a $25.0 million six-year revolving line of credit. The borrowing capacity under the revolving line of
credit was increased to $75.0 million in July 2010.
In April 2011, we entered into a new credit agreement (“Credit Agreement”) and concurrently terminated the Prior Credit Agreement.
The Credit Agreement provides for $770.0 million of secured credit facilities, comprised of a $600.0 million term loan maturing in
October 2017 and a $170.0 million revolving credit facility maturing in April 2016, subject to increase (up to a maximum increase of
$300.0 million) and reduction from time to time according to the terms of the Credit Agreement.
The majority of the new term loan proceeds were used to repay all $583.2 million of outstanding term loan borrowings under the Prior
Credit Agreement at the closing date of the Credit Agreement. There were no outstanding borrowings under the prior revolving credit
facility at the closing date.
The Credit Agreement included an original issuance term loan discount of 0.50%, or $3.0 million, resulting in net term loan proceeds
of $597.0 million. This discount is being amortized as interest expense over the term of the term loan using the effective interest
method.
Loans under the Credit Agreement bear interest, payable quarterly or, in the case of Eurodollar loans with an interest period of three
months or shorter, at the end of any interest period, at a per annum rate of, at our election:
(a) in the case of Eurodollar loans, the Adjusted LIBO Rate plus 3.25% (or if our corporate ratings are at least BB- and Ba3 or
better, 3.00%). The “Adjusted LIBO Rate” is the greater of (i) 1.25% per annum and (ii) the product of the LIBO Rate and
Statutory Reserves (both as defined in the Credit Agreement), and
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(b) in the case of Base Rate loans, the Base Rate plus 2.25% (or if our corporate ratings are at least BB- and Ba3 or better,
2.00%). The “Base Rate” is the greatest of (i) the administrative agent’s prime rate, (ii) the Federal Funds Effective Rate (as
defined in the Credit Agreement) plus 0.50% and (iii) the Adjusted LIBO Rate for a one-month interest period plus 1.00%.
We incurred debt issuance costs of $14.8 million associated with the Credit Agreement, which we have deferred and are classified
within other assets. We are amortizing these deferred costs as interest expense over the term of the Credit Agreement. Of these
deferred costs, $10.2 million were associated with the term loan and are being amortized using the effective interest rate method.
Deferred costs associated with the revolving credit facility were $4.6 million and are being amortized on a straight-line basis.
At the closing date of the Credit Agreement, there were $9.0 million of unamortized deferred costs associated with the Prior Credit
Agreement. Upon termination of the Prior Credit Agreement and repayment of the prior term loan, $8.1 million of these fees were
expensed as a loss on extinguishment of debt. The remaining $0.9 million of these fees were associated with lenders that provided
commitments under both the new and the prior revolving credit facilities, which remained deferred and are being amortized over the
term of the Credit Agreement.
During the three months ended October 31, 2011, we incurred $0.5 million of fees to secure waivers of certain provisions of the Credit
Agreement which allowed us to structure the financing for one of our business combinations in a favorable manner, $0.2 million of
which were deferred and will be amortized over the remaining term of the Credit Agreement and $0.3 million of which were expensed
as incurred.
As of January 31, 2012, the interest rate on the term loan was 4.50%. Including the impact of the 0.50% original issuance term loan
discount and the deferred debt issuance costs, the effective interest rate on our term loan was approximately 4.91% as of January 31,
2012.
During the years ended January 31, 2012, 2011, and 2010, we incurred $28.1 million, $26.2 million, and $22.6 million of interest
expense, respectively, on borrowings under our credit facility. We also recorded $2.8 million, $2.8 million, and $1.9 million during
the years ended January 31, 2012, 2011, and 2010, respectively, for amortization of our deferred debt issuance costs, which is reported
within interest expense. Included in the deferred debt-related cost amortization for the years ended January 31, 2011 and 2010 were
$0.3 million and $0.1 million, respectively, of additional amortization associated with unscheduled principal repayments in those
years. During the year ended January 31, 2012, we also recorded $0.3 million for amortization of the original issuance term loan
discount, which is reported within interest expense.
We are required to pay a commitment fee equal to 0.50% per annum on the undrawn portion of the revolving credit facility, payable
quarterly, and customary administrative agent and letter of credit fees.
The Credit Agreement requires us to make term loan principal payments of $1.5 million per quarter through August 2017, beginning
in August 2011, with the remaining balance due in October 2017. Optional prepayments of the loans are permitted without premium
or penalty, other than customary breakage costs associated with the prepayment of loans bearing interest
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based on LIBO Rates and a 1.0% premium applicable in the event of a Repricing Transaction (as defined in the Credit Agreement)
prior to April 30, 2012. The loans are also subject to mandatory prepayment requirements with respect to certain asset sales, excess
cash flow (as defined in the Credit Agreement), and certain other events. Prepayments are applied first to the eight immediately
following scheduled term loan principal payments, then pro rata to other remaining scheduled term loan principal payments, if any,
and thereafter as otherwise provided in the Credit Agreement.
Obligations under the Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and certain foreign
subsidiaries that have elected to be disregarded for U.S. tax purposes and are secured by security interests in substantially all of our
and their assets, subject to certain exceptions detailed in the Credit Agreement and related ancillary documentation.
The Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, and also contains a
financial covenant that requires us to maintain a Consolidated Total Debt to Consolidated EBITDA (each as defined in the Credit
Agreement) leverage ratio until July 31, 2013 of no greater than 5.00 to 1 and thereafter of no greater than 4.50 to 1.
The Credit Agreement provides for customary events of default with corresponding grace periods. Upon an event of default, all of
our indebtedness under the Credit Agreement may be declared immediately due and payable, and the lenders’ commitments to provide
loans under the Credit Agreement may be terminated.
The following table summarizes future scheduled principal payments on our term loan as of January 31, 2012:
(in thousands)
Years Ending January 31,
2013
2014
2015
2016
2017
2018 and thereafter
Total
Amount
6,000
6,000
6,000
6,000
6,000
567,000
597,000
$
$
In connection with our August 2, 2011 Communications Intelligence business combination, we assumed approximately $3.3 million
of development bank and government debt in the Americas region. This debt is payable in periods through February 2017 and bears
interest at varying rates. As of January 31, 2012, the majority of this debt bears interest at an annual rate of 7.00%. The carrying
value of this debt was approximately $3.1 million at January 31, 2012.
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7. SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENT INFORMATION
Consolidated Balance Sheets
Inventories consisted of the following as of January 31, 2012 and 2011:
(in thousands)
Raw materials
Work-in-process
Finished goods
Total inventories
Property and equipment, net consisted of the following as of January 31, 2012 and 2011:
(in thousands)
Land
Buildings
Leasehold improvements
Software
Equipment, furniture, and other
Less: accumulated depreciation and amortization
Total property and equipment, net
$
$
$
$
January 31,
2011
2012
4,959 $
5,777
3,678
14,414
$
7,112
5,112
4,763
16,987
January 31,
2011
2012
3,741 $
2,204
11,554
27,694
49,298
94,491
(66,202)
28,289
$
3,861
2,204
10,097
23,973
45,874
86,009
(62,833)
23,176
Depreciation expense on property and equipment was $10.8 million, $11.4 million, and $12.4 million for the years ended January 31,
2012, 2011, and 2010, respectively.
Other assets consisted of the following as of January 31, 2012 and 2011:
(in thousands)
Deferred debt issuance costs, net
Other
Total other assets
$
$
F-40
January 31,
2012
14,060 $
14,901
28,961
$
2011
9,725
10,335
20,060
Table of Contents
Accrued expenses and other liabilities consisted of the following as of January 31, 2012 and 2011:
(in thousands)
Compensation and benefits
Billings in excess of costs and estimated earnings on uncompleted contracts
Professional and consulting fees
Derivative financial instruments - current portion
Distributor and agent commissions
Taxes other than income taxes
Interest on indebtedness
Contingent consideration - current portion
Other
Total accrued expenses and other liabilities
Other liabilities consisted of the following as of January 31, 2012 and 2011:
(in thousands)
Unrecognized tax benefits, including interest and penalties
Obligation for severance compensation
Contingent consideration - non current portion
Other
Total other liabilities
Consolidated Statements of Operations
$
$
$
$
January 31,
2011
2012
56,873 $
38,960
8,140
530
4,954
11,530
4,701
10,152
32,285
168,125
$
57,863
47,692
6,962
1,886
7,511
8,357
5,699
2,194
24,486
162,650
January 31,
2011
2012
23,883 $
3,027
28,494
3,784
59,188
$
21,032
3,279
1,492
6,009
31,812
Other income (expense), net consisted of the following for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Foreign currency gains (losses), net
Losses on derivative financial instruments, net
Other, net
Total other income (expense), net
2012
Year Ended January 31,
2011
2010
$
1,382
(896)
(974)
(488) $
$
857
(5,864)
(131)
(5,138) $
(1,898)
(14,709)
(516)
(17,123)
$
$
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Consolidated Statements of Cash Flows
The following table provides supplemental information regarding our consolidated cash flows for the years ended January 31, 2012,
2011, and 2010:
(in thousands)
Cash paid for interest
Cash paid for income taxes, net of refunds received
Non-cash investing and financing transactions:
Accrued but unpaid purchases of property and equipment
Inventory transfers to property and equipment
Liabilities for contingent consideration in business combinations
Stock options exercised, proceeds received subsequent to year end
Purchases under supplier financing arrangements, including capital leases
8. CONVERTIBLE PREFERRED STOCK
2012
Year Ended January 31,
2011
$
$
$
$
$
$
$
29,227
16,629
832
637
42,404
383
1,090
$
$
$
$
$
$
$
21,053
8,528
1,047
874
3,424
65
1,859
$
$
$
$
$
$
$
2010
24,705
11,661
642
621
—
—
—
On May 25, 2007, we entered into a Securities Purchase Agreement with Comverse, (the “Securities Purchase Agreement”) whereby
Comverse purchased, for cash, an aggregate of 293,000 shares of our Series A Convertible Preferred Stock (“preferred stock”), for an
aggregate purchase price of $293.0 million. Proceeds from the issuance of the preferred stock were used to partially finance our
acquisition of Witness Systems Inc. (“Witness”). We incurred $0.2 million of direct issuance costs associated with the issuance of the
preferred stock, which were charged against the carrying value of the preferred stock.
The preferred stock was issued at a purchase price of $1,000 per share and ranks senior to our common stock. The preferred stock had
an initial liquidation preference equal to its $1,000 per share purchase price. In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of our company, the holders of the preferred stock will be entitled to receive, out of assets available for
distribution to our stockholders and before any distribution of assets to our common stockholders, an amount equal to the then-current
liquidation preference, which includes accrued and unpaid dividends.
The terms of the preferred stock provide that upon a fundamental change, as defined, the holders of the preferred stock would have the
right to require us to repurchase the preferred stock for 100% of the liquidation preference then in effect. Therefore, the preferred
stock has been classified as mezzanine equity on our consolidated balance sheets as of January 31, 2012 and January 31, 2011,
separate from permanent equity, because the occurrence of these fundamental changes, and thus potential redemption of the preferred
stock, however remote in likelihood, is not solely under our control. Fundamental change events include the sale of substantially all of
our assets, and certain changes in beneficial ownership, board of directors’ representation, and business reorganizations. In the event
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of a fundamental change, the conversion rate (as described in the section entitled “Voting and Conversion”, below) will be increased
to provide for additional shares of common stock issuable to the holders of preferred stock, based on a sliding scale (depending on the
acquisition price, as defined) ranging from zero to 3.7 additional shares of common stock for every share of preferred stock converted
into shares of common stock.
We have concluded that, as of January 31, 2012, the occurrence of a fundamental change and the associated redemption of the
preferred stock were not probable. We therefore did not adjust the carrying amount of the preferred stock to its redemption amount,
which is its liquidation preference, at January 31, 2012. Through January 31, 2012, cumulative, undeclared dividends on the preferred
stock were $59.0 million and as a result, the liquidation preference of the preferred stock was $352.0 million at that date.
We determined that the variable dividend feature of the preferred stock, details of which are further described below, was not clearly
and closely related to the characteristics of the preferred stock host contract and, therefore, was an embedded derivative financial
instrument, subject to bifurcation from the preferred stock. This feature was determined to be an asset, and was assigned an initial fair
value of $0.9 million at the May 25, 2007 issue date of the preferred stock. Therefore, the preferred stock was assigned an initial fair
value of $293.9 million, and the $0.9 million bifurcated derivative financial instrument was reflected within other assets. The fair
value of the embedded derivative financial instrument was based on the potential future savings implicit in paying dividends at a
reduced rate of 3.875% instead of the original stated preferred dividend rate of 4.25%. On February 1, 2008, as further described
below, the preferred stock dividend rate was reset to 3.875% per annum and upon the occurrence of this dividend rate reset, the
embedded derivative was settled in the form of reduced future dividend obligations. Accordingly, we reclassified the $8.1 million fair
value of the derivative asset at that date against the carrying value of the preferred stock as of February 1, 2008, reducing the carrying
value of the preferred stock to $285.5 million.
The holders of the preferred stock have various rights and preferences, as follows:
Dividends
Cash dividends on the preferred stock are cumulative and are calculated quarterly at a specified dividend rate on the liquidation
preference in effect at such time. Dividends are paid only if declared by our board of directors. Initially, the specified annual
dividend rate was 4.25% per share. However, beginning in the first quarter after the initial interest rate on our variable term loan was
reduced by 50 basis points or more, the dividend rate was reset to 3.875% per annum and then fixed at that level. This variable
dividend feature was accounted for as an embedded derivative financial instrument, as described above.
During the quarter ended January 31, 2008, the interest rate on our term loan was reduced by more than 50 basis points below the
initial interest rate. Accordingly, the dividend rate on the preferred stock was reset to 3.875%, effective February 1, 2008. This rate is
no longer subject to future change.
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Table of Contents
We are prohibited from paying cash dividends on the preferred stock under the terms of a covenant in our credit agreement. We may
elect to make dividend payments in shares of our common stock. The common stock used for dividends, when and if declared, would
be valued at 95% of the volume weighted-average price of our common stock for each of the five consecutive trading days ending on
the second trading day immediately prior to the record date for the dividend.
The preferred stock does not participate in our earnings other than as described above.
Through January 31, 2012, no dividends had been declared or paid on the preferred stock.
Voting and Conversion
Effective with the approval of the issuance of common shares underlying the preferred stock’s conversion feature at a special meeting
of our stockholders in October 2010, each share of preferred stock entitles its holder to votes equal to the number of shares of common
stock into which it is convertible using the conversion rate that was in effect upon the issuance of the preferred stock in May 2007, on
all matters voted upon by common stockholders. The initial conversion rate was set at 30.6185 shares of common stock for each share
of preferred stock. In addition, each share of preferred stock is convertible, at the option of the holder, into a number of shares of our
common stock equal to the liquidation preference then in effect, divided by the conversion price then in effect, which was initially set
at $32.66, and remained unchanged through January 31, 2012. The conversion price is subject to periodic adjustment upon the
occurrence of certain dilutive events. As of January 31, 2012, the preferred stock is convertible into approximately 10.8 million shares
of our common stock.
Since the second anniversary of the preferred stock’s issue date, we have had the right to cause the preferred stock, in whole but not in
part, to be automatically converted into common stock at the conversion price then in effect. However, we may exercise this right
only if the closing sale price of our common stock immediately prior to conversion equals or exceeds the conversion price then in
effect by a specified percentage, which is now fixed at 135%.
Transfer and Registration Rights
Comverse has had the right to sell the preferred stock since November 25, 2007 in either private or public transactions. Pursuant to a
registration rights agreement we entered into concurrently with the Securities Purchase Agreement (“New Registration Rights
Agreement”), subject to certain conditions which have now been satisfied, Comverse has been entitled to two demands to require us to
register the preferred stock and/or the shares of common stock underlying the preferred stock for resale under the Securities Act of
1933, as amended (the “Securities Act”).
The New Registration Rights Agreement also gives Comverse unlimited piggyback registration rights on certain Securities Act
registrations filed by us on our own behalf or on behalf of other stockholders.
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Table of Contents
Comverse may transfer its rights under the New Registration Rights Agreement to any transferee of the registrable securities that is an
affiliate of Comverse or any other subsequent transferee, provided that in each case such affiliate or transferee becomes a party to the
New Registration Rights Agreement, agreeing to be bound by all of its terms and conditions.
Comverse’s rights under the New Registration Rights Agreement are in addition to its rights under a previous registration rights
agreement we entered into with Comverse shortly before our initial public offering (“IPO”) in 2002. This registration rights
agreement (“Original Registration Rights Agreement”) covers all shares of common stock then held by Comverse and any additional
shares of common stock acquired by Comverse at later dates. Under the Original Registration Rights Agreement, Comverse is entitled
to unlimited demand registrations of its shares on Form S-3, and if we were not eligible to use Form S-3, Comverse was also entitled
to one demand registration on Form S-1, which demand was exercised by Comverse to consummate a sale of a portion of its holdings
of our common stock in January 2011.
Like the New Registration Rights Agreement, the Original Registration Rights Agreement also provides Comverse with unlimited
piggyback registration rights. Comverse may transfer its rights under this agreement to an affiliate or other subsequent transferee,
subject to the transferee agreeing to be bound by all of its terms and conditions.
9. STOCKHOLDERS’ EQUITY (DEFICIT)
Dividends on Common Stock
We did not declare or pay any dividends on our common stock during the years ended January 31, 2012, 2011, and 2010.
Commencing with our issuance of preferred stock, and our entry into term loan and revolving credit facilities in May 2007, we are
subject to certain restrictions on declaring and paying dividends on our common stock.
Treasury Stock
Repurchased shares of common stock are recorded as treasury stock, at cost. At January 31, 2012, we held 283,000 shares of treasury
stock with a cost of $7.5 million, and at January 31, 2011, we held 260,000 shares of treasury stock with a cost of $6.6 million.
Shares of restricted stock awards that are forfeited when recipients separate from their employment prior to the lapsing of the award’s
restrictions are recorded as treasury stock.
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From time to time, our board of directors has approved limited programs to repurchase shares of our common stock from directors or
officers in connection with the vesting of restricted stock or restricted stock units to facilitate required income tax withholding by us or
the payment of required income taxes by such holders. In addition, the terms of some of our equity award agreements with all
grantees provide for automatic repurchases by us for the same purpose if a vesting-related tax event occurs at a time when the holder
is not permitted to sell shares in the market. Any such repurchases of common stock occur at prevailing market prices and are
recorded as treasury stock. We repurchased approximately 23,000 and 157,000 shares of common stock during the years ended
January 31, 2012 and 2011, respectively, under these arrangements.
As previously disclosed, in connection with the resumption of option exercises following the conclusion of our previous extended
filing delay period and the vesting of restricted stock units after the relisting of our common stock on the NASDAQ Global Market,
during the summer of 2010, we issued up to an aggregate of approximately 135,000 shares of common stock to certain current and
former employees and a former director in transactions that did not involve public offerings and that were made in reliance on
available exemptions from registration under the Securities Act of 1933. In January 2012, we repurchased approximately 30,000 of
these shares of common stock at a cost of $0.8 million. Approximately 2,000 of those shares were reissued under stock-based
employee benefit plans and the remaining 28,000 shares were retired. The cost of the retired shares was deducted from common stock
at par value, which was negligible, and from additional paid-in capital for the excess over par value.
Accumulated Other Comprehensive Income (Loss)
In addition to net income, accumulated other comprehensive income (loss) includes items such as foreign currency translation
adjustments and unrealized gains and losses on certain marketable securities and derivative financial instruments designated as
hedges. Accumulated other comprehensive income (loss) is presented as a separate line item in the stockholders’ equity (deficit)
section of our consolidated balance sheets, the components of which are detailed in our consolidated statements of stockholders’
equity (deficit). Accumulated other comprehensive income (loss) items have no impact on our net income as presented in our
consolidated statements of operations.
The following table summarizes, as of each balance sheet date, the components of our accumulated other comprehensive loss.
(in thousands)
Foreign currency translation losses, net
Unrealized gains (losses) on derivative financial instruments, net
Unrealized gains on available-for-sale marketable securities
Total accumulated other comprehensive loss
F-46
January 31,
2012
(48,402) $
666
—
(47,736) $
2011
(41,829)
(245)
5
(42,069)
$
$
Table of Contents
Income tax effects on unrealized gains (losses) on derivative financial instruments were not significant. Foreign currency translation
losses, net, primarily reflect the strengthening of the U.S. dollar against the British pound sterling since our acquisition of Witness in
May 2007, which has resulted in lower U.S. dollar-translated balances of British pound sterling-denominated goodwill and intangible
assets associated with that acquisition.
Total other comprehensive income was $34.8 million, $29.9 million, and $32.4 million, for the years ended January 31, 2012, 2011,
and 2010, respectively. Total other comprehensive income attributable to Verint Systems Inc. was $31.3 million, $26.6 million, and
$30.9 million, and total other comprehensive income attributable to the noncontrolling interest was $3.5 million, $3.3 million, and
$1.5 million for the years ended January 31, 2012, 2011, and 2010, respectively.
Noncontrolling Interest
The noncontrolling interest presented in our consolidated financial statements reflects a 50% noncontrolling equity interest in a joint
venture which functions as a systems integrator for Asian markets. Net income attributable to noncontrolling interest, as reported on
our consolidated statements of operations, represents the net income of this joint venture attributable to the noncontrolling equity
interest. The noncontrolling interest is reflected within stockholders’ equity on the consolidated balance sheet but is presented
separately from our equity.
10. RESEARCH AND DEVELOPMENT, NET
Our gross research and development expenses for the years ended January 31, 2012, 2011, and 2010, were approximately $115.7
million, $100.8 million, and $86.7 million, respectively. OCS grants amounted to approximately $3.2 million, $3.0 million, and $2.1
million for the years ended January 31, 2012, 2011, and 2010, respectively, which were recorded as reductions of gross research and
development expenses. We recorded other reimbursements of research and development expenses amounting to approximately $1.5
million, $1.3 million, and $0.8 million for the years ended January 31, 2012, 2011, and 2010, respectively.
We capitalize certain costs incurred to develop our commercial software products, and we then recognize those costs within product
cost of revenue as the products are sold. Activity for our capitalized software development costs for the years ended January 31, 2012,
2011, and 2010 was as follows:
(in thousands)
Capitalized software development costs, net, beginning of year
Software development costs capitalized during the year
Amortization of capitalized software development costs
Foreign currency translation and other
Capitalized software development costs, net, end of year
2012
Year Ended January 31,
2011
2010
6,787 $
3,399
(4,135)
(205)
5,846
$
8,530 $
2,527
(4,236)
(34)
6,787
$
10,489
2,715
(4,717)
43
8,530
$
$
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Table of Contents
11. INCOME TAXES
The components of income before income taxes for the years ended January 31, 2012, 2011, and 2010 were as follows:
(in thousands)
Domestic
Foreign
Total income before income taxes
$
$
2012
Year Ended January 31,
2011
(40,272) $
86,429
46,157
$
13,746
24,779
38,525
$
$
2010
(47,139)
71,347
24,208
The provision for income taxes for the years ended January 31, 2012, 2011, and 2010 consisted of the following:
(in thousands)
Current income tax provision (benefit):
Total current income tax provision
Deferred income tax provision (benefit):
Federal
State
Foreign
Federal
State
Foreign
Total deferred income tax benefit
Total provision for income taxes
F-48
2012
Year Ended January 31,
2011
2010
$
$
145
1,387
15,101
16,633
(4,865)
(1,040)
(5,196)
(11,101)
5,532
$
$
24
1,140
9,868
11,032
(16)
459
(1,535)
(1,092)
9,940
$
$
(835)
415
7,590
7,170
500
777
(1,339)
(62)
7,108
Table of Contents
The reconciliation of the U.S. federal statutory rate to our effective tax rate on income before income taxes for the years ended
January 31, 2012, 2011, and 2010 was as follows:
(in thousands)
U.S. federal statutory income tax rate
Income tax provision at the U.S. federal statutory rate
State tax provision
Foreign rate differential
Tax incentive
Valuation allowance
Stock-based and other compensation
Non-deductible expenses
Tax credits
Tax contingencies
Changes in tax rates
U.S. tax effects of foreign operations
Other, net
Total provision for income taxes
Effective income tax rate
Year Ended January 31,
2011
35.0%
2012
$
$
35.0%
16,155
2,443
(7,408)
(8,846)
(5,575)
1,480
2,392
(2,034)
(223)
(486)
7,864
(230)
5,532
$
$
12.0%
2010
35.0%
8,471
756
(8,869)
(9,762)
7,737
3,262
882
(2,019)
1,102
1,227
4,750
(429)
7,108
29.4%
13,484 $
3,720
(2,204)
(2,114)
(13,042)
1,823
787
(1,880)
(4,233)
(516)
13,774
341
$
9,940
25.8%
Our operations in Israel have been granted “Approved Enterprise” status by the Investment Center of the Israeli Ministry of Industry,
Trade and Labor, which makes us eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959.
Under the terms of the program, income attributable to an approved enterprise is exempt from income tax for a period of two years
and is subject to a reduced income tax rate for the subsequent five to eight years (generally 10-25%, depending on the percentage of
foreign investment in the company). These tax incentives decreased our effective tax rates by 19.2%, 5.5%, and 40.3% for the years
ended January 31, 2012, 2011, and 2010, respectively.
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Deferred tax assets and liabilities consisted of the following at January 31, 2012 and 2011:
(in thousands)
Deferred tax assets:
Accrued expenses
Allowance for doubtful accounts
Deferred revenue
Depreciation of property and equipment
Loss carryforwards
Tax credits
Stock-based and other compensation
Capitalized research and development expenses
Other long-term liabilities
Other, net
Total deferred tax assets
Deferred tax liabilities:
Deferred cost of revenue
Goodwill and other intangible assets
Other, net
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
Recorded as:
Current deferred tax assets
Long-term deferred tax assets
Current deferred tax liabilities
Long-term deferred tax liabilities
Net deferred tax assets
January 31,
2012
2011
$
$
$
$
5,203 $
2,257
22,611
2,386
103,263
7,815
14,616
3,732
1,796
3,073
166,752
(3,842)
(53,276)
(904)
(58,022)
(100,842)
7,888
$
13,060 $
9,237
(1,056)
(13,353)
7,888
$
5,040
1,246
24,954
3,804
98,938
6,566
16,567
4,395
1,938
3,088
166,536
(6,270)
(47,655)
(617)
(54,542)
(105,720)
6,274
13,179
6,700
(379)
(13,226)
6,274
At January 31, 2012 and 2011, we had U.S. federal net operating loss (“NOL”) carryforwards of approximately $287.8 million and
$282.4 million, respectively. These loss carryforwards expire in various years ending from January 31, 2016 to 2031. We had state
NOL carryforwards of approximately $205.0 million and $179.7 million in the same respective years, expiring in years ending from
January 31, 2012 to 2031. We had foreign NOL carryforwards of approximately $39.7 million and $28.3 million in the same
respective years. At January 31, 2012, all but $1.6 million of these foreign loss carryforwards have indefinite carryforward periods.
Certain of these federal, state, and foreign loss carryforwards and credits are subject to Internal Revenue Code Section 382 or similar
provisions, which impose limitations on their utilization following certain changes in ownership of the entity generating the loss
carryforward. The NOL carryforwards for tax return purposes are different from the NOL carryforwards for financial statement
purposes, primarily due to the reduction of NOL carryforwards for financial statement purposes under the authoritative guidance on
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accounting for uncertainty in income taxes. We have U.S. federal, state and foreign tax credit carryforwards of approximately $8.3
million and $7.1 million at January 31, 2012 and 2011, respectively, the utilization of which is subject to limitation. At January 31,
2012, approximately $1.5 million of these tax credit carryforwards may be carried forward indefinitely. The balance of $6.8 million
expires in various years ending from January 31, 2015 to 2031.
As of January 31, 2012, we have not provided for deferred taxes on the excess of financial reporting over the tax basis of investments
in certain foreign subsidiaries in the amount of $173.9 million because we plan to reinvest such earnings indefinitely outside the
United States. If these earnings were repatriated in the future, additional income and withholding tax expense would be incurred. Due
to complexities in the laws of the foreign jurisdictions and the assumptions that would have to be made, it is not practicable to estimate
the total amount of income taxes that would have to be provided on such earnings.
As required by the authoritative guidance on accounting for income taxes, we evaluate the realizability of deferred tax assets on a
jurisdictional basis at each reporting date. Accounting for income taxes requires that a valuation allowance be established when it is
more likely than not that all or a portion of the deferred tax assets will not be realized. In circumstances where there is sufficient
negative evidence indicating that the deferred tax assets are not more likely than not realizable, we establish a valuation allowance.
We have recorded valuation allowances in the amounts of $100.8 million and $105.7 million at January 31, 2012 and 2011,
respectively. The $4.9 million decrease in the valuation allowance between January 31, 2011 and January 31, 2012 arose primarily as
a result of an overall decrease in net deferred tax assets, primarily related to changes in acquired intangibles, deferred revenue and
equity compensation.
The recorded valuation allowance consisted of the following at January 31, 2012 and 2011:
(in thousands)
Valuation allowance, beginning of year
(Provision for) benefit from income taxes
Additional paid-in capital
Acquisitions
Cumulative translation adjustment
Valuation allowance, end of year
Year Ended January 31,
2011
2012
(105,720) $
(124,568)
13,042
5,575
5,771
477
(1,663)
—
489
35
(100,842) $
(105,720)
$
$
In accordance with the authoritative guidance for accounting for stock-based compensation, we use a “with-and-without” approach to
applying the intra-period allocation rules in accordance with accounting for income taxes. Under this approach, the windfall tax
benefit is calculated based on the incremental tax benefit received from deductions related to stock-based compensation. The amount
is measured by calculating the tax benefit both “with” and “without” the excess tax deduction; the resulting difference between the
two calculations is considered the windfall. We did not recognize a windfall benefit in our U.S. income tax provision for the years
ended January 31, 2012, 2011, and 2010.
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On February 1, 2007, we implemented the provisions of the authoritative guidance on accounting for uncertainty in income taxes. The
guidance contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to determine whether
any amount of tax benefit may be recognized by evaluating tax positions taken or expected to be taken in a tax return and assessing
whether, based solely on their technical merits, they are more likely than not sustainable upon examination, including resolution of
any related appeals or litigation process. The second step is to measure the amount of associated tax benefit that may be recorded for
each position as the largest amount that we believe is more likely than not sustainable. Differences between the amount of tax benefits
taken or expected to be taken in our income tax returns and the amount of tax benefits recognized in our financial statements,
determined by applying the prescribed methodologies of accounting for uncertainty in income taxes, represent our unrecognized
income tax benefits, which we either record as a liability or as a reduction of deferred tax assets.
For the years ended January 31, 2012, 2011, and 2010, the aggregate changes in the balance of gross unrecognized tax benefits were
as follows:
(in thousands)
Gross unrecognized tax benefits, beginning of year
Increases related to tax positions taken during the current year
Increases as a result of acquisitions
Increases related to tax positions taken during prior years
Increases (decreases) related to foreign currency exchange rate
fluctuations
Reductions for tax positions of prior years
Reduction for settlements with taxing authorities
Lapses of statutes of limitation
Gross unrecognized tax benefits, end of year
2012
Year Ended January 31,
2011
2010
$
$
32,672 $
4,424
2,781
1,904
(71)
(2,320)
—
(3,013)
36,377
$
37,495 $
4,778
—
2,271
97
(10,829)
—
(1,140)
32,672
$
35,172
2,715
—
—
1,545
(152)
(508)
(1,277)
37,495
As of January 31, 2012, we had $36.4 million of unrecognized tax benefits, of which $30.7 million represents the amount that, if
recognized, would impact the effective income tax rate in future periods. We recorded ($0.7) million, ($0.6) million, and $0.3 million
of interest and penalties related to uncertain tax positions in our provision for income taxes for the years ended January 31, 2012,
2011, and 2010, respectively. The accrued liability for interest and penalties was $8.2 million, $6.6 million, and $7.2 million at
January 31, 2012, 2011, and 2010, respectively. Interest and penalties are recorded as a component of the provision for income taxes
in the consolidated financial statements.
Our income tax returns are subject to ongoing tax examinations in several jurisdictions in which we operate. In the United States, we
are no longer subject to federal income tax examination for years prior to January 31, 2008. We are currently in discussions with the
Israeli tax authorities regarding adjustments that will be made to income tax returns for the years ended January 31, 2006 through
January 31, 2010 due to our restated results of operations. As of January 31, 2012, income tax returns are under examination in the
following major tax jurisdictions:
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Jurisdiction
Canada
United Kingdom
Hong Kong
India
January 31, 2010
December 31, 2006 - January 31, 2008
March 31, 2003 - March 31, 2005, January 31, 2006 - January 31, 2007
March 31, 2006 - March 31, 2008, March 31, 2010
Tax Years
We regularly assess the adequacy of our provisions for income tax contingencies. As a result, we may adjust the reserves for
unrecognized tax benefits for the impact of new facts and developments, such as changes to interpretations of relevant tax law,
assessments from taxing authorities, settlements with taxing authorities, and lapses of statutes of expiration. We believe that it is
reasonably possible that the total amount of unrecognized tax benefits at January 31, 2012 could decrease by approximately $4.0
million in the next twelve months as a result of settlement of certain tax audits or lapses of statutes of limitation. Such decreases may
involve the payment of additional taxes, the adjustment of certain deferred taxes including the need for additional valuation
allowances and the recognition of tax benefits. We also believe that it is reasonably possible that new issues may be raised by tax
authorities or developments in tax audits may occur which would require increases or decreases to the balance of reserves for
unrecognized tax benefits; however, an estimate of such changes cannot reasonably be made.
12. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. When determining the fair value measurements for assets and liabilities
required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider
assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. An instrument’s categorization within the fair value hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. This fair value hierarchy consists of three levels of
inputs that may be used to measure fair value:
• Level 1: quoted prices in active markets for identical assets or liabilities;
• Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for
similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other
inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities; or
• Level 3: unobservable inputs that are supported by little or no market activity.
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Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. We review the
fair value hierarchy classification of our applicable assets and liabilities on a quarterly basis. Changes in the observability of valuation
inputs may result in transfers within the fair value measurement hierarchy. We did not identify any transfers between levels of the fair
value measurement hierarchy during the year ended January 31, 2012.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our assets and liabilities measured at fair value on a recurring basis consisted of the following as of January 31, 2012 and 2011:
(in thousands)
Assets:
Money market funds (included in cash and cash equivalents)
Foreign currency forward contracts
Total assets
Liabilities:
Foreign currency forward contracts
Contingent consideration - business combinations
Total liabilities
(in thousands)
Assets:
Money market funds (included in cash and cash equivalents)
Foreign currency forward contracts
Total assets
Liabilities:
Foreign currency forward contracts
Contingent consideration - business combination
Total liabilities
F-54
January 31, 2012
Fair Value Hierarchy Category
Level 2
Level 1
Level 3
44,494 $
—
44,494
$
— $
—
—
$
— $
978
978
$
530 $
—
530
$
—
—
—
—
38,646
38,646
January 31, 2011
Fair Value Hierarchy Category
Level 2
Level 1
Level 3
24,505
—
24,505
$
$
— $
88
88
$
— $
—
— $
1,886 $
—
1,886
$
—
—
—
—
3,686
3,686
$
$
$
$
$
$
$
$
Table of Contents
The following table presents the change in the estimated fair value of our liability for contingent consideration measured using
significant unobservable inputs (Level 3) for the years ended January 31, 2012 and 2011:
(in thousands)
Fair value measurement at beginning of year
Contingent consideration liability recorded for business combinations
Change in fair value recorded in operating expenses
Payments of contingent consideration
Fair value measurement at end of year
Year Ended January 31,
2012
2011
$
$
3,686 $
42,404
(3,337)
(4,107)
38,646
$
—
3,424
262
—
3,686
Our estimated liability for contingent consideration represents potential payments of additional consideration for business
combinations, payable if certain defined performance goals are achieved. Changes in fair value of contingent consideration are
recorded in the consolidated statements of operations within selling, general and administrative expenses.
Fair Value Measurements
Money Market Funds - We value our money market funds using quoted market prices for such funds.
Foreign Currency Forward Contracts - The estimated fair value of foreign currency forward contracts is based on quotes received
from the counterparties thereto. 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 market exchange rates using readily observable market prices
for similar contracts.
Contingent Consideration — Business Combinations - The fair value of the contingent consideration related to business combinations
is estimated using a probability-adjusted discounted cash flow model. These fair value measurements are based on significant inputs
not observable in the market. The key assumptions used in these models are discount rates and the probabilities assigned to the
milestones to be achieved. We remeasure the fair value of the contingent consideration at each reporting period, and any changes in
fair value resulting from either the passage of time or events occurring after the acquisition date, such as changes in the probability of
achieving the performance target, are recorded in earnings.
Other Financial Instruments
The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short
maturities.
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As of January 31, 2012, the estimated fair value of our term loan borrowings was $597.0 million. As of January 31, 2011, the
estimated fair value of our term loan was $586.2 million. 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 our term loan.
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, we also measure certain assets and liabilities at
fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property, plant and equipment,
are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected
undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is recognized. Further details
regarding our regular impairment reviews appear in Note 1, “Summary of Significant Accounting Policies”.
13. DERIVATIVE FINANCIAL INSTRUMENTS
Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate
risk, when deemed appropriate. We enter into these contracts in the normal course of business to mitigate risks and not for speculative
purposes.
Foreign Currency Forward Contracts
Under our risk management strategy, we periodically use derivative instruments to manage our short-term exposures to fluctuations in
foreign currency exchange rates. We utilize foreign exchange forward contracts to hedge certain operational cash flow exposures
resulting from changes in foreign currency exchange rates. These cash flow exposures result from portions of our forecasted operating
expenses, primarily compensation and related expenses, which are transacted in currencies other than the U.S. dollar, primarily the
Israeli shekel and the Canadian dollar. We also periodically utilize foreign currency forward contracts to manage exposures resulting
from forecasted customer collections to be remitted in currencies other than the applicable functional currency. Our joint venture,
which has a Singapore dollar functional currency, also utilizes foreign exchange forward contracts to manage its exposure to exchange
rate fluctuations related to settlement of liabilities denominated in U.S. dollars. These foreign currency forward contracts are reported
at fair value on our consolidated balance sheets and generally have maturities of no longer than twelve months, although occasionally
we will execute a contract that extends beyond twelve months, depending upon the nature of the underlying risk.
The counterparties to our derivative financial instruments consist of several major international financial institutions. We regularly
monitor the financial strength of these institutions. While the counterparties to these contracts expose us to credit-related losses in the
event of a counterparty’s non-performance, the risk would be limited to the unrealized gains on such affected contracts. We do not
anticipate any such losses.
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Certain of these foreign currency forward contracts are not designated as hedging instruments under accounting guidance for
derivatives, and gains and losses from changes in their fair values are therefore reported in other income (expense), net. Changes in
the fair values of foreign currency forward contracts that are designated and effective as cash flow hedges are recorded net of related
tax effects in accumulated other comprehensive income (loss), and are reclassified to the consolidated statement of operations when
the effects of the item being hedged are recognized in the consolidated statement of operations.
Interest Rate Swap Agreement
On May 25, 2007, concurrently with entry into our credit facility, we executed a pay-fixed/ receive-variable interest rate swap
agreement with a high credit-quality multinational financial institution to mitigate a portion of the risk associated with variable interest
rates on the term loan. We recorded losses of $3.1 million on the interest rate swap for the year ended January 31, 2011. In July 2010,
we terminated this interest rate swap agreement.
The interest rate swap agreement was not designated as a hedging instrument under accounting guidance for derivatives, and gains and
losses from changes in its fair value were therefore reported in other income (expense), net.
Notional Amounts of Derivative Financial Instruments
Our outstanding derivative financial instruments consisted only of foreign currency forward contracts with notional amounts of $94.1
million and $51.1 million as of January 31, 2012 and January 31, 2011, respectively.
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Fair Values of Derivative Financial Instruments
The fair values of our derivative financial instruments as of January 31, 2012 and 2011 were as follows:
(in thousands)
Derivative financial instruments
designated as hedging instruments:
Foreign currency forward contracts
Total derivative financial instruments
designated as hedging instruments
Derivative financial instruments not
designated as hedging instruments:
Foreign currency forward contracts
Total derivative financial instruments not
designated as hedging instruments
(in thousands)
Derivative financial instruments
designated as hedging instruments:
Foreign currency forward contracts
Total derivative financial instruments
designated as hedging instruments
Derivative financial instruments not
designated as hedging instruments:
Foreign currency forward contracts
Total derivative financial instruments not
designated as hedging instruments
January 31, 2012
Assets
Balance Sheet
Classification
Fair Value
Liabilities
Balance Sheet
Classification
Fair Value
Prepaid expenses and
other current assets
—
Assets
Balance Sheet
Classification
Prepaid expenses and
other current assets
—
F-58
Accrued expenses and
other liabilities
Accrued expenses and
other liabilities
978
978
—
—
January 31, 2011
Fair Value
Liabilities
Balance Sheet
Classification
Accrued expenses and
other liabilities
Accrued expenses and
other liabilities
88
88
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
227
227
303
303
Fair Value
396
396
1,490
1,490
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Derivative Financial Instruments in Cash Flow Hedging Relationships
The effects of derivative financial instruments in cash flow hedging relationships for the years ended January 31, 2012 and 2011 were
as follows:
Net Gains (Losses)
Recognized in Accumulated
Other Comprehensive Loss
January 31,
2012
2011
666
$
(245)
Classification of Net
Gains (Losses)
Reclassified from Other
Comprehensive Loss into
the Consolidated
Statements of Operations
Operating Expenses
$
Net Gains (Losses)
Reclassified from Other
Accumulated
Comprehensive Loss into
the Consolidated
Statements of Operations
Year Ended January 31,
2012
2011
(373) $
925
(in thousands)
Foreign currency forward contracts
$
There were no gains or losses from ineffectiveness of these hedges recorded for the years ended January 31, 2012 and 2011. All of the
foreign currency forward contracts underlying the $0.7 million of net gains recorded in our Accumulated Other Comprehensive Loss
at January 31, 2012 mature within twelve months, and therefore we expect all such gains to be reclassified into earnings within the
next twelve months.
Derivative Financial Instruments Not Designated as Hedging Instruments
Losses recognized on derivative financial instruments not designated as hedging instruments in our consolidated statements of
operations for the years ended January 31, 2012, 2011, and 2010 were as follows:
(in thousands)
Interest rate swap agreement
Foreign currency forward contracts
Total
Classification in
Consolidated Statement
of Operations
Other expense, net
Other expense, net
F-59
2012
Year Ended January 31,
2011
$
—
(896)
(896) $
(3,102) $
(2,761)
(5,863) $
$
$
2010
(13,591)
(1,118)
(14,709)
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14. STOCK-BASED COMPENSATION AND OTHER BENEFIT PLANS
Stock-Based Compensation Plans
Plan Summaries
Our stock-based incentive awards are provided to employees and directors under the terms of our multiple outstanding stock benefit
plans (the “Plans” or “Stock Plans”) and/or forms of equity award agreements approved by the board of directors.
The 1996 Stock Incentive Compensation Plan, as amended (the “1996 Plan”), was approved by our stockholders and became effective
on September 10, 1996. The 1996 Plan allowed for the granting of awards of deferred stock, restricted stock awards (“RSAs”) and
restricted stock units (“RSUs”), incentive and non-qualified stock options, and stock appreciation rights to our employees, directors,
and consultants. The deadline for making new awards under the 1996 Plan was March 10, 2012.
On May 25, 2007, in connection with the acquisition of Witness, we assumed a stock plan referred to as the Witness Systems, Inc.
Amended and Restated Stock Incentive Plan, as amended (the “1997 Plan”). Under the 1997 Plan, we were permitted to grant awards
of deferred stock, RSAs, and RSUs, incentive and non-qualified stock options, and stock appreciation rights to our employees,
directors, and consultants. The 1997 Plan contained an evergreen provision, which allowed for an increase in the number of shares
available for issuance, up to a maximum of 3.0 million shares per year. The deadline for making new awards under the 1997 Plan was
November 18, 2009. Additionally, in connection with the acquisition of Witness, we assumed certain new-hire inducement grants
made by Witness outside of its shareholder-approved equity plans prior to May 25, 2007.
Terminations of the 1996 Plan and 1997 Plan did not affect outstanding awards under those Plans, which remain in effect until such
awards shall have been exercised or shall have expired in accordance with their terms.
Our stockholders approved the 2004 Stock Incentive Compensation Plan (the “2004 Plan”) on July 27, 2004. Under the 2004 Plan, we
are permitted to grant awards of deferred stock, RSAs and RSUs, incentive and non-qualified stock options, and stock appreciation
rights to our employees, directors, and consultants. To the extent not used under the 1996 Plan, the shares available pursuant to the
2004 Plan may be increased by a maximum of 1.0 million shares for awards granted under the 1996 Plan that are forfeited, expire, or
are cancelled on or after July 28, 2004. The 2004 Plan will remain in full force and effect until the earlier of July 27, 2014 or the date
it is terminated by our board of directors. Termination of the 2004 Plan shall not affect awards outstanding under the 2004 Plan at the
time of termination.
On October 5, 2010, our stockholders approved the 2010 Long-Term Stock Incentive Plan (the “2010 Plan”). Under the 2010 Plan,
we are permitted to grant stock options (both incentive and non-qualified), stock appreciation rights, RSAs, RSUs, performance
awards, performance compensation awards or other awards to eligible employees, directors and consultants
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(“Participants”). The 2010 Plan provides that the amount may not exceed, in the aggregate, 4.0 million shares of common stock,
subject to adjustments as provided for in the 2010 Plan. No grant will be made under the 2010 Plan more than ten years after the date
on which the 2010 Plan is first approved by our board of directors, but all grants made on or prior to such date will continue in effect
thereafter subject to the terms and of the 2010 Plan.
On August 4, 2011, in connection with the acquisition of Vovici, we assumed a stock plan referred to as the Vovici 2006 Amended
and Restated Stock Plan, as amended (the “Vovici Plan”). Under the Vovici Plan, we were permitted to grant stock options (both
incentive and nonstatutory), stock purchase rights, and restricted stock units. The Vovici Plan shall continue in effect until July 28,
2020. However, our board of directors may at any time amend, alter, suspend, or terminate the Vovici Plan.
The table below summarizes key information for the Plans as of January 31, 2012:
(in thousands)
The 1996 Plan
The 1997 Plan
The 1997 Blue Pumpkin inducement grants
The 2004 Plan
The 2010 Plan
The Vovici Plan
Total
Number of
Shares Reserved
for Grants
Number of
Shares
Outstanding
Number of
Shares Available
for Grants
5,000
6,400
158
3,000
4,000
317
18,875
671
35
—
824
1,001
34
2,565
191
—
—
307
1,337
275
2,110
As presented in the table above, the number of shares outstanding excludes, and the number of shares available for grants has not been
reduced for, approximately 0.5 million RSUs awarded to officers which are subject to future performance vesting conditions not yet
established by our board. Under applicable accounting guidance, if an award is subject to a performance vesting condition, an
accounting grant date for the award is generally not established until the performance vesting condition has been defined and
communicated.
Awards are generally subject to multi-year vesting periods and generally expire 10 years or less after the date of grant. We recognize
compensation expense for awards on a straight-line basis over the life of the vesting period, reduced by estimated forfeitures. Upon
exercise of stock options, issuance of restricted stock, or issuance of shares under the Plans, we generally issue new shares of common
stock, but occasionally may issue treasury shares.
Stock-Based Compensation Expense
As described in Note 1, “Summary of Significant Accounting Policies”, we recognize stock-based compensation expense based on the
grant date fair value of stock-based awards granted to employees and others.
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We recognized stock-based compensation expense in the following line items on the consolidated statements of operations for the
years ended January 31, 2012, 2011, and 2010:
(in thousands, except per share amounts)
Component of income before provision for income taxes:
Cost of revenue - product
Cost of revenue - service and support
Research and development, net
Selling, general and administrative
Stock-based compensation expense
Income tax benefits related to stock-based compensation (before
consideration of valuation allowance)
Stock-based compensation, net of taxes
Impact on net income per common share attributable to
Verint Systems Inc. :
Basic
Diluted
2012
Year Ended January 31,
2011
2010
$
883
2,424
3,060
21,544
27,911
7,175
20,736
$
1,595 $
4,612
7,081
33,531
46,819
12,165
34,654
$
1,302
4,543
7,960
30,422
44,227
11,716
32,511
0.54
0.52
$
$
1.00 $
0.93 $
1.00
0.98
$
$
$
$
The following table summarizes stock-based compensation expense by type of award for the years ended January 31, 2012, 2011, and
2010:
(in thousands)
Component of stock-based compensation expense:
Stock options
Restricted stock awards and restricted stock units
Phantom stock units
Stock bonus program
Stock-based compensation expense
2012
Year Ended January 31,
2011
2010
$
$
723
21,414
2,533
3,241
27,911
$
$
3,135 $
25,583
18,101
—
46,819
$
7,332
23,917
12,978
—
44,227
The table above includes stock-based compensation amounts where we modified certain option awards to revise exercising terms for
certain terminated employees and recognized incremental compensation expense of $0.1 million and $0.2 million for the years ended
January 31, 2011, and 2010, respectively. No amount was recognized for the year ended January 31, 2012. Participants in the Plans
were restricted from exercising options due to our inability to use our Registration Statement on Form S-8 during our previous
extended filing delay period. As such, we modified grants held by terminated employees by extending the time a terminated employee
would normally have to exercise vested stock option awards. The number of employees affected under such modifications was 36 and
54 for the years ended January 31, 2011 and 2010, respectively. No employees were affected for the year ended January 31, 2012.
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Total stock-based compensation expense by classification was as follows for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Equity-classified awards
Liability-classified awards
Total stock-based compensation expense
2012
Year Ended January 31,
2011
$
$
21,781
6,130
27,911
$
$
28,784 $
18,035
46,819
$
2010
31,195
13,032
44,227
Our liability-classified awards include our phantom stock awards, the values of which track the market price of our common stock and
are therefore subject to volatility, and which are settled with cash payments equivalent to the market value of our common stock upon
vesting. Awards under our Stock Bonus Program, which are settled with a variable number of shares of common stock determined
using a discounted average price of our common stock, as defined in the program, are also liability-classified awards. Upon
settlement of certain liability-classified awards with equity, compensation expense associated with those awards is reported within
equity-classified awards in the table above.
Net excess tax benefits resulting from our Stock Plans were $0.7 million for the year ended January 31, 2012 and were recorded as
increases to additional paid-in capital. We did not recognize excess tax benefits for the years ended January 31, 2011, and 2010.
Excess tax benefits represent a reduction in income taxes otherwise payable during the period, attributable to the actual gross tax
benefits in excess of the expected tax benefits.
Stock Options
When stock options are awarded, the fair value of the options is estimated on the date of grant using the Black-Scholes option-pricing
model. Expected volatility and the expected term are the input factors to that model that require the most significant management
judgment. Expected volatility is estimated utilizing daily historical volatility over a period that equates to the expected life of the
option. The expected life (estimated period of time outstanding) is estimated using the historical exercise behavior of employees. The
risk-free interest rate is the implied daily yield currently available on U.S. Treasury issues with a remaining term closely
approximating the expected term used as the input to the Black-Scholes option pricing model.
We generally did not grant stock options during the years ended January 31, 2012, 2011, and 2010. However, in connection with our
acquisition of Vovici on August 4, 2011, stock options to purchase Vovici common stock were converted into stock options to
purchase approximately 42,000 shares of our common stock.
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The fair values of the options granted August 2011 in connection with the acquisition of Vovici were estimated using a Black-Scholes
option pricing model with the weighted-average assumptions presented in the following table:
Expected Life (in years)
Risk-free interest rate
Expected volatility
Dividend Yield
5.43
1.26%
50.40%
0%
We utilized the simplified method to calculate the expected lives of options granted to Vovici employees due to the limited data
available regarding the exercise patterns of Vovici option holders.
The following table summarizes stock option activity under the Plans for the years ended January 31, 2012, 2011, and 2010:
(in thousands, except exercise prices)
Beginning balance
Granted
Exercised
Forfeited
Expired
Ending balance
Stock options exercisable
2012
Weighted-
Average
Exercise
Price
Stock
Options
1,767 $
42 $
(623) $
— $
(72) $
$
$
1,114
1,083
27.33
9.28
20.51
—
28.07
30.40
31.03
Year Ended January 31,
2011
Stock
Options
Weighted-
Average
Exercise
Price
4,731 $
— $
(2,164) $
(4) $
(796) $
1,767
$
1,764
$
23.16
—
18.88
23.94
25.56
27.33
27.33
2010
Weighted-
Average
Exercise
Price
Stock
Options
5,225 $
— $
— $
(30) $
(464) $
4,731
$
4,499
$
22.36
—
—
21.69
14.23
23.16
23.24
As of January 31, 2012, the aggregate intrinsic value for the options vested and exercisable was $2.2 million with a weighted-average
remaining contractual life of 2.6 years. Additionally, there were 1.1 million options vested and expected to vest with a weighted-
average exercise price of $30.5 per share and an aggregate intrinsic value of $2.8 million with a weighted-average remaining
contractual life of 2.8 years.
The unrecognized compensation expense calculated under the fair value method for options expected to vest (unvested shares net of
expected forfeitures) as of January 31, 2012 was $0.6 million and is expected to be recognized over a weighted-average period of 2.8
years.
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The following table summarizes information about stock options as of January 31, 2012:
(number of options in thousands)
Range of Exercise Prices
$ 4.93 - $17.00
$ 17.98 - $23.00
$ 28.41 - $28.41
$ 28.60 - $28.60
$ 29.27 - $29.27
$ 31.78 - $31.78
$ 32.16 - $32.16
$ 34.40 - $34.40
$ 35.11 - $35.11
$ 37.99- $37.99
$ 4.93 - $37.99
Number of
Options
Outstanding
Options Outstanding
Weighted-
Average
Remaining
Contractual
Term
(years)
2.85
1.85
2.22
0.08
0.23
2.43
3.27
3.95
2.82
3.64
2.80
Options Exercisable
Weighted-
Average
Exercise
Price
Number of
Options
Exercisable
Weighted-
Average
Exercise
Price
$
$
$
$
$
$
$
$
$
$
$
13.87
22.62
28.41
28.60
29.27
31.78
32.16
34.40
35.11
37.99
30.41
111 $
137 $
42 $
8 $
8 $
18 $
15 $
137 $
583 $
24 $
$
1,083
15.28
22.65
28.41
28.60
29.27
31.78
32.16
34.40
35.11
37.99
31.03
141
138
42
8
8
18
15
137
583
24
1,114
The following table summarizes key data points for exercised options:
(in thousands)
Intrinsic value of options exercised
Cash received from the exercise of stock options
Tax benefits realized from stock options exercised
Fair value of options vested
Restricted Stock Awards and Restricted Stock Units
2012
Year Ended January 31,
2011
2010
$
$
$
$
8,034
12,474
3,219
20,413
$
$
$
$
18,430 $
40,787 $
3,391 $
30,209 $
—
—
—
69,575
Stock awards are granted in the form of RSAs and RSUs. The fair value of these awards is equivalent to the market value of our
common stock on the grant date. The principal difference between these instruments is that RSUs are not shares of our common stock
and do not have any of the rights or privileges thereof, including voting or dividend rights. On the applicable vesting date, the holder
of an RSU becomes entitled to a share of our common stock. Both RSAs and RSUs are subject to certain restrictions and forfeiture
provisions prior to vesting.
We have granted RSUs to executive officers and certain employees that require us to estimate the expected achievement of
performance targets over the performance period. The expense associated with such awards is included in our stock-based
compensation expense.
During the year ended January 31, 2010, we removed certain performance vesting conditions for certain restricted stock units granted
to executive officers prior to the year ended January 31, 2010 as a result of the amendment of time-based and performance-based
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equity award agreements. The removals of the performance vesting conditions were accounted for as modifications, based upon our
assessment. As a result of the modifications of the vesting conditions, additional stock-based compensation expense of $2.6 million
was recognized during the year ended January 31, 2010.
RSUs that settle, or are expected to settle, with cash payments upon vesting are reflected as liabilities on our consolidated balance
sheets.
The following table summarizes RSA and RSU activity under the Plans for the years ended January 31, 2012, 2011, and 2010:
(in thousands, except
grant-date fair values)
Beginning balance
Granted
Released
Forfeited
Ending balance
2012
Year Ended January 31,
2011
Weighted-
Average
Grant-Date
Fair Value
18.09
34.84
15.72
28.85
30.25
Shares
1,935 $
902 $
(1,336) $
(51) $
$
1,450
Weighted-
Average
Grant-Date
Fair Value
14.92
26.01
17.39
13.23
18.09
Shares
3,412
$
$
1,102
(2,503) $
(76) $
$
1,935
2010
Weighted-
Average
Grant-Date
Fair Value
Shares
1,830 $
1,812 $
(116) $
(114) $
3,412
$
24.48
6.50
29.93
19.94
14.92
The unrecognized compensation expense related to 1.4 million unvested RSUs expected to vest as of January 31, 2012 was
approximately $20.2 million, with remaining weighted-average vesting periods of approximately 1.3 years, over which such expense
is expected to be recognized. The total fair value of restricted stock units vested during the years ended January 31, 2012, 2011, and
2010 was $21.0 million, $43.5 million, and $3.5 million, respectively.
Phantom Stock Units
During the year ended January 31, 2007, we began awarding phantom stock units to non-officer employees that settle, or are expected
to settle, with cash payments upon vesting, pursuant to the terms of a form of a phantom stock award agreement approved by the
board of directors or under the 2010 Plan. Phantom stock units provide for the payment of a cash bonus equivalent to the value of our
common stock as of the vesting date of the award. Phantom stock units generally have a multi-year vesting and are generally subject
to the same vesting conditions as equity awards granted on the same date. We recognize compensation expense for phantom stock
units on a straight-line basis, reduced by estimated forfeitures. Phantom stock units are being accounted for as liabilities and as such
their value tracks our stock price and is subject to market volatility.
The total accrued liability for phantom stock units was $1.9 million, $9.8 million, and $14.5 million as of January 31, 2012, 2011, and
2010, respectively. Total cash payments made upon vesting of phantom stock units were $10.3 million, $22.9 million, and $2.5
million for the years ended January 31, 2012, 2011, and 2010, respectively.
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The following table summarizes phantom stock unit activity for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
Beginning balance, in units
Granted
Released
Forfeited
Ending balance, in units
Year Ended January 31,
2011
2010
2012
403
10
(298)
(25)
90
1,106
196
(865)
(34)
403
1,239
421
(482)
(72)
1,106
The phantom stock units granted during the years ended January 31, 2012, 2011, and 2010 primarily vest over two-year and three-year
periods, subject to applicable performance conditions.
The unrecognized compensation expense related to 90,000 unvested phantom stock units expected to vest as of January 31, 2012 was
approximately $0.5 million, based on our stock price of $28.28 at January 31, 2012 with a remaining weighted-average vesting period
of approximately 0.7 years over which such expense is expected to be recognized.
Stock Bonus Program
In September 2011, our board of directors approved, and in December 2011 revised, a Stock Bonus Program under which eligible
employees may receive a portion of their bonus for the year or for the fourth quarter (depending on the employee’s bonus plan) in the
form of fully vested shares of our common stock. As of the date hereof, executive officers are not eligible to participate in this
program. This program is subject to annual funding approval by our board of directors and an annual cap on the number of shares that
can be issued. Subject to these limitations, the number of shares to be issued under the program for a given year is determined using a
five-day trailing average price of our common stock when the awards are calculated, reduced by a discount to be determined by the
board of directors each year. To the extent that this program is not funded in a given year or the number of shares of common stock
needed to fully satisfy employee enrollment exceeds the annual cap, the applicable portion of the employee bonuses will generally
revert to being paid in cash. All shares of common stock awarded pursuant to this program will be issued under one of our
stockholder-approved equity incentive plans.
For the year ended January 31, 2012, our board of directors approved up to 150,000 shares of common stock for awards under this
program and a discount of 20%. Shares of common stock earned under this program for the year ended January 31, 2012 are expected
to be issued during the first half of the year ending January 31, 2013. We recognized $3.2 million of compensation expense for the
Stock Bonus Program for the year ended January 31, 2012.
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Tandem and Hybrid Awards
We issued grants known as “tandem” awards to certain of our Israeli employees during the year ended January 31, 2009. These
tandem awards included two components - a share of deferred stock and a share of phantom stock. The recipient received two
different units and two separate award agreements. The tandem awards were structured such that, on any given vesting date, only one
component of the awards vested. The tandem awards were being accounted for as liabilities based on our assessment that the tandem
awards would likely be settled in phantom stock units upon vesting.
We also issued grants known as “hybrid” awards to our employees during the year ended January 31, 2009 which vested in restricted
stock units upon the achievement of certain performance conditions that were set by our board of directors. In the event that any of
the stock-settle conditions were not satisfied on the vesting date, no shares of common stock were issued and instead we settled these
awards with cash payments equal to the fair market value (as defined in the award agreement) of our common stock on the vesting
date. These hybrid awards were being accounted for as liabilities based upon our assessment that the hybrid awards would likely be
settled in cash upon vesting.
As of January 31, 2011, the “tandem” awards and “hybrid” awards were fully settled.
Employee Stock Purchase Plan
Effective September 1, 2002, we adopted and implemented the 2002 Employee Stock Purchase Plan (“ESPP”), which was amended
and restated, on May 22, 2003. Any employee who had completed three months of employment and was employed by us on the
applicable offering commencement date was eligible to participate in the ESPP. Participants elected to have amounts withheld
through payroll deductions at the rate of up to 10% of their annualized base salary, to purchase shares of our common stock at 85% of
the lesser of the market price at the offering commencement date or the offering termination date.
The number of shares available under the ESPP is 1.0 million, of which approximately 260,000 have been issued. The ESPP was
suspended in March 2006 in connection with the beginning of our previous extended filing delay period and remained inactive as of
January 31, 2012.
No expense related to the ESPP was recorded during the years ended January 31, 2012, 2011, and 2010 due to the suspension of the
ESPP during those periods.
401(k) Plan and Other Retirement Plans
We maintain a 401(k) Plan for our full-time employees in the United States. The plan allows eligible employees who attain the age of
21 with three months of service to elect to contribute up to 60% of their annual compensation, subject to the prescribed maximum
amount. We match employee contributions at a rate of 50%, up to a maximum annual matched contribution of $2,000 per employee.
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Employee contributions are always fully vested, while our matching contributions for each year vest on the last day of the calendar
year provided the employee remains employed with us on that day.
Our matching contribution expense for our 401(k) Plan was $1.5 million, $1.4 million, and $1.2 million for the years ended January
31, 2012, 2011, and 2010, respectively.
We provide retirement benefits for non-U.S. employees as required by local laws or to a greater extent as we deem appropriate
through plans that function similar to 401(k) plans. Funding requirements for programs required by local laws are determined on an
individual country and plan basis and are subject to local country practices and market circumstances.
Liability for Severance Pay
We are obligated to make severance payments for the benefit of certain employees of our foreign subsidiaries. Severance payments
made to Israeli employees are considered significant compared to all other subsidiaries with severance payment arrangements. Under
Israeli law, we are obligated to make severance payments to employees of our Israeli subsidiaries, subject to certain conditions. In
most cases, our liability for these severance payments is fully provided for by regular deposits to funds administered by insurance
providers and by an accrual for the amount of our liability which has not yet been deposited.
Severance expenses for the years ended January 31, 2012, 2011, and 2010, were $5.2 million, $4.0 million, and $3.4 million,
respectively.
15. RELATED PARTY TRANSACTIONS
Relationships with Comverse and its Other Subsidiaries
Preferred Stock Financing
On May 25, 2007, in connection with our acquisition of Witness, we entered into the Securities Purchase Agreement with Comverse
pursuant to which Comverse purchased, for cash, an aggregate of 293,000 shares of our preferred stock for $293.0 million. In
connection with the sale of the preferred stock we entered into the New Registration Rights Agreement with Comverse. Further
details regarding the preferred stock and the related registration rights agreement appear within Note 8, “Convertible Preferred Stock”.
Original Registration Rights Agreement
Shortly before our IPO in 2002, we entered into the Original Registration Rights Agreement with Comverse that covered all shares of
common stock then held by Comverse and any additional shares of common stock acquired by Comverse at a later date. Under the
Original Registration Rights Agreement, Comverse was provided the right to demand registration of its shares on a stand-alone filing,
or to participate in other registrations we may undertake (piggyback rights). In addition, we are required to pay registration-related
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expenses and indemnify Comverse from liabilities that may arise from sale of shares registered pursuant to the Original Registration
Rights Agreement.
Comverse exercised its one demand registration right under the Original Registration Rights Agreement in July 2010, demanding that
we prepare and file with the SEC a registration statement on Form S-1 so as to permit the public offering and sale of up to 2.8 million
shares of our common stock owned by Comverse. In connection with the exercise of this demand, we entered into a letter agreement
with Comverse pursuant to which we agreed not to exercise our rights under the Original Registration Rights Agreement to delay the
filing of, or offer shares pursuant to, the prospectus, subject to certain limitations. Comverse subsequently reduced the size of the
offering to 2.3 million shares. A registration statement relating to these securities was filed with the SEC, and in January 2011, was
declared effective.
Service and Tax Agreements with Comverse
There were, and still are, several agreements in place between us and Comverse and its other subsidiaries, which were executed prior
to our IPO in order to allow us to continue to receive certain services from Comverse and its other subsidiaries following our IPO. A
separate agreement clarifies the income tax relationship between us and Comverse. Since our IPO, we have established our own
systems and reduced or eliminated our reliance on these services. Activity under the service agreements was not significant during the
three years ended January 31, 2012. As of January 31, 2012 and 2011, we had liabilities to Comverse for past services under these
agreements of $1.8 million at each date, which are presented as liabilities to affiliates on our consolidated balance sheets at those
dates. The following is an overview of certain of these agreements with Comverse:
Satellite Services Agreement
Under the Satellite Services Agreement, Comverse Inc., a subsidiary of Comverse, formerly provided us with the exclusive use of the
services of specified employees and facilities of Comverse Inc. located in countries where we did not have our own legal presence or
facilities. The fee for this service was equal to the expenses Comverse Inc. incurred in providing these services plus ten percent. We
did not incur any expenses under this agreement for the years ended January 31, 2012 and 2011. For the year ended January 31, 2010,
we recorded expenses of $0.3 million for the services provided by Comverse Inc. under this agreement. We do not anticipate using
further services under this agreement in the future.
Federal Income Tax Sharing Agreement
We are party to a tax sharing agreement with Comverse which applies to periods prior to our IPO in which we were included in
Comverse’s consolidated federal tax return. By virtue of its controlling ownership and this tax sharing agreement, Comverse
effectively controlled all of our tax decisions for periods ending prior to the completion of our IPO, which took place in May 2002.
Under the agreement, for periods during which we were included in Comverse’s consolidated tax return, we were required to pay
Comverse an amount equal to the tax liability we would have owed, if any, had we filed a federal tax return on our own, as computed
by Comverse in its reasonable discretion. Under the agreement, we were not entitled to receive any payments
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from Comverse in respect of, or to otherwise take advantage of, any loss resulting from the calculation of our separate tax liability.
The tax sharing agreement also provided for certain payments in the event of adjustments to the group’s tax liability. The tax sharing
agreement continues in effect until 60 days after the expiration of the applicable statute of limitations for the final year in which we
were part of the Comverse consolidated group for tax purposes.
Other Related Party Transactions
Our joint venture incurs certain operating expenses, including office rent and other administrative costs, under arrangements with one
of its noncontrolling shareholders. These expenses totaled $0.5 million, $0.4 million, and $0.4 million for the years ended January 31,
2012, 2011, and 2010, respectively. The joint venture also recognized $0.2 million, $0.2 million, and $0.7 million of revenue from
this noncontrolling shareholder for the years ended January 31, 2012, 2011, and 2010, respectively.
16. COMMITMENTS AND CONTINGENCIES
Operating and Capital Leases
We lease office, manufacturing, and warehouse space, as well as certain equipment, under non-cancelable operating lease agreements.
We have also periodically entered into capital leases. Terms of the leases, including renewal options and escalation clauses, vary by
lease. When determining the term of a lease, we include renewal options that are reasonably assured. The lease agreements generally
provide that we pay taxes, insurance, and maintenance expenses related to the leased assets over the initial lease term and those
renewal periods that are reasonably assured.
Our facility leases may contain rent escalation clauses or rent holidays, commencing at various times during the terms of the
agreements. Rent expense on operating leases with scheduled rent increases or holidays during the lease term is recognized on a
straight-line basis. The difference between rent expense and rent paid is recorded as deferred rent. Leasehold improvements are
depreciated over the shorter of their economic lives, which begin once the assets are ready for their intended use, or the term of the
lease.
Rent expense incurred under all operating leases was $16.3 million, $12.9 million, and $13.1 million for the years ended January 31,
2012, 2011, and 2010, respectively.
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As of January 31, 2012, our minimum future rentals under non-cancelable operating and capital leases were as follows:
(in thousands)
Years Ending January 31,
2013
2014
2015
2016
2017
2018 and thereafter
Total
Less amount representing interest
Present value of minimum lease payments
Operating
Leases
Capital
Leases
$
$
13,212
9,245
9,669
8,484
5,671
32,595
78,876
$
$
412
407
200
—
—
—
1,019
(264)
755
In November 2011, we executed a lease agreement for a new facility in Alpharetta, Georgia. This new facility will be occupied in
connection with the expiration of our existing facility lease in Roswell, Georgia at the end of November 2012, and will also include
the consolidation of the Atlanta, Georgia office of GMT, which we acquired in October 2011. The lease term extends through
September 2026. The aggregate minimum lease commitment over the term of this new lease, excluding operating expenses, is
approximately $36.1 million, which is reflected within Operating Leases in the above table.
We sublease certain space to third parties. As of January 31, 2012, total expected future sublease income is $2.8 million and ranges
from $0.5 million to $0.6 million on an annual basis through February 2017.
Unconditional Purchase Obligations
In the ordinary course of business, we enter into certain unconditional purchase obligations, which are agreements to purchase goods
or services that are enforceable, legally binding, and that specify all significant terms, including: fixed or minimum quantities to be
purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Our purchase orders are
based on current needs and are typically fulfilled by our vendors within a relatively short time horizon.
As of January 31, 2012, our unconditional purchase obligations totaled approximately $47.5 million, the majority of which were
scheduled to occur within the subsequent twelve months. Due to the relatively short life of the obligations, the carrying value
approximates their fair value at January 31, 2012.
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Warranty Liability
The following table summarizes the activity in our warranty liability, which is included in accrued expenses and other liabilities in the
consolidated balance sheets, for the years ended January 31, 2012, 2011, and 2010.
(in thousands)
Warranty liability, beginning of year
Provision charged to expenses
Warranty charges
Foreign currency translation and other
Warranty liability, end of year
2012
Year Ended January 31,
2011
2010
$
$
1,996 $
675
(389)
(267)
2,015
$
1,292 $
957
(121)
(132)
1,996
$
1,188
220
(42)
(74)
1,292
We accrue for warranty costs as part of our cost of revenue based on associated product costs, labor costs, and associated overhead.
Our Enterprise Intelligence solutions are sold with a warranty of generally one year on hardware and 90 days for software. Our Video
Intelligence solutions and Communications Intelligence solutions are sold with warranties that typically range in duration from 90
days to 3 years, and in some cases longer.
Licenses and Royalties
We license certain technology and pay royalties under such licenses and other agreements entered into in connection with research and
development activities.
As discussed in Note 1, “Summary of Significant Accounting Policies”, we receive non-refundable grants from the OCS that fund a
portion of our research and development expenditures. The Israeli law under which the OCS grants are made limits our ability to
manufacture products, or transfer technologies, developed using these grants outside of Israel. If we were to seek approval to
manufacture products, or transfer technologies, developed using these grants outside of Israel, we could be subject to additional
royalty requirements or be required to pay certain redemption fees. If we were to violate these restrictions, we could be required to
refund any grants previously received, together with interest and penalties, and may be subject to criminal penalties.
Preferred Stock Dividends, Conversion, and Redemption
On May 25, 2007, in connection with our acquisition of Witness, we entered into the Securities Purchase Agreement under which
Comverse purchased, for cash, an aggregate of 293,000 shares of our preferred stock, for $293.0 million. Upon a fundamental change
event, as defined, and subject to certain exceptions, the holders of the preferred stock would have the right to require us to purchase
the preferred stock for 100% of the liquidation preference then in effect. Fundamental change events include the sale of substantially
all of our assets, and certain changes in beneficial ownership, board of directors’ representation, and business reorganizations. Further
information
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regarding the terms of the preferred stock, including liquidation preferences, dividends, conversion, and redemption rights are
included in Note 8, “Convertible Preferred Stock”.
Off-Balance Sheet Risk
In the normal course of business, we provide certain customers with financial performance guarantees, which are generally backed by
standby letters of credit or surety bonds. In general, we would only be liable for the amounts of these guarantees in the event that our
nonperformance permits termination of the related contract by our customer, which we believe is remote. At January 31, 2012, we
had approximately $41.2 million of outstanding letters of credit and surety bonds relating primarily to these performance guarantees.
As of January 31, 2012, we believe we were in compliance with our performance obligations under all contracts for which there is a
financial performance guarantee, and the ultimate liability, if any, incurred in connection with these guarantees will not have a
material adverse effect on our consolidated results of operations, financial position, or cash flows. Our historical non-compliance with
our performance obligations has been insignificant.
Indemnifications
In the normal course of business, we provide indemnifications of varying scopes to customers against claims of intellectual property
infringement made by third parties arising from the use of our products. Historically, costs related to these indemnification provisions
have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our
future results of operations.
To the extent permitted under Delaware law or other applicable law, we indemnify our directors, officers, employees, and agents
against claims they may become subject to by virtue of serving in such capacities for us. We also have contractual indemnification
agreements with our directors, officers, and certain senior executives. The maximum amount of future payments we could be required
to make under these indemnification arrangements and agreements is potentially unlimited; however, we have insurance coverage that
limits our exposure and enables us to recover a portion of any future amounts paid. We are not able to estimate the fair value of these
indemnification arrangements and agreements in excess of applicable insurance coverage, if any.
We are party to a business opportunities agreement with Comverse which addresses potential conflicts of interest between Comverse
and us. This agreement allocates between Comverse and us opportunities to pursue transactions or matters that, absent such
allocation, could constitute corporate opportunities of both companies. Under the agreement, each party is precluded from pursuing
opportunities it may become aware of which are offered to an employee of the other party, even if such employee serves as a director
of the other entity. We have agreed to indemnify Comverse and its directors, officers, employees, and agents against any liabilities as
a result of any claim that any provision of the agreement, or the failure to offer any business opportunity to us, violates or breaches
any duty that may be owed to us by Comverse or any such person. Unless earlier terminated by the parties, the agreement will remain
in place until Comverse no longer holds 20% of our voting power and none of our board members serves as a director or employee of
Comverse.
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Litigation
On March 26, 2009, a motion to approve a class action lawsuit (the “Labor Motion”), and the class action lawsuit itself (the “Labor
Class Action”) (Labor Case No. 4186/09), were filed against our subsidiary, Verint Systems Limited (“VSL”), by a former employee
of VSL, Orit Deutsch, in the Tel Aviv Labor Court. Ms. Deutsch purports to represent a class of our employees and ex-employees
who were granted options to buy shares of Verint and to whom allegedly damages were caused as a result of the blocking of the ability
to exercise Verint options by our employees or ex-employees during our previous extended filing delay period. The Labor Class
Action seeks compensatory damages for the entire class in an unspecified amount. On July 9, 2009, we filed a motion for summary
dismissal and alternatively for the stay of the Labor Motion. On February 8, 2010, the Tel Aviv Labor Court dismissed the case for
lack of material jurisdiction and ruled that it would be transferred to the District Court in Tel Aviv. On October 11, 2011, the District
Court in Tel Aviv ordered a stay of proceedings until legal proceedings in the United States with respect to related shareholder claims
against Comverse are concluded. The parties are expected to update the District Court on any developments in the cases no later than
April 4, 2012.
From time to time we or our subsidiaries may be involved in legal proceedings and/or litigation arising in the ordinary course of our
business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any current
claims will have a material effect on our consolidated financial position, results of operations, or cash flows.
17. SEGMENT, GEOGRAPHIC, AND SIGNIFICANT CUSTOMER INFORMATION
Operating segments are defined as components of an enterprise about which separate financial information is available that is
evaluated regularly by the enterprise’s chief operating decision maker (“CODM”), or decision making group, in deciding how to
allocate resources and in assessing performance. Our Chief Executive Officer is our CODM.
We conduct our business in three operating segments - Enterprise Intelligence Solutions (“Enterprise Intelligence”), Video and
Situation Intelligence Solutions (“Video Intelligence”), and Communications and Cyber Intelligence Solutions (“Communications
Intelligence”). Our Enterprise Intelligence segment was previously referred to as our Workforce Optimization segment.
Our Enterprise Intelligence solutions help large organizations and small-to-medium sized business organizations to extract and
analyze valuable information from customer interactions and related operational and transactional data for the purpose of optimizing
the performance of their customer service operations, including contact centers, back offices, branches, and remote locations.
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Our Video Intelligence solutions help organizations enhance safety and security by enabling them to deploy an end-to-end IP video
solution with integrated analytics or evolve to IP video operations without discarding their investments in analog Closed Circuit
Television technology.
Our Communications Intelligence solutions are designed to generate evidence and intelligence and are used to detect and neutralize
criminal and terrorist threats.
We measure the performance of our operating segments based upon operating segment revenue and operating segment contribution.
Operating segment contribution includes segment revenue and expenses incurred directly by the segment, including material costs,
service costs, research and development and selling, marketing, and administrative expenses. We do not allocate certain expenses,
which include the majority of general and administrative expenses, facilities and communication expenses, purchasing expenses,
manufacturing support and logistic expenses, depreciation and amortization, amortization of capitalized software development costs,
stock-based compensation, and special charges such as restructuring costs when calculating operating segment contribution. These
expenses are included in the unallocated expenses section of the table presented below. Revenue from transactions between our
operating segments is not material.
The accounting policies used to determine the performance of the operating segments are the same as those described in the summary
of significant accounting policies in Note 1, “Summary of Significant Accounting Policies”.
Revenue adjustments for the year ended January 31, 2012 represent revenue of acquired companies which is included within segment
revenue reviewed by the CODM, but not recognizable within GAAP revenue. These adjustments primarily relate to the acquisition-
date excess of the historical carrying value over the fair value of acquired companies’ future maintenance and service performance
obligations.
With the exception of goodwill and acquired intangible assets, we do not identify or allocate our assets by operating segment.
Consequently, it is not practical to present assets by operating segment. The allocation of goodwill and acquired intangible assets by
operating segment appears in Note 5, “Intangible Assets and Goodwill”.
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Operating results by segment for the years ended January 31, 2012, 2011, and 2010 were as follows:
(in thousands)
Revenue:
Enterprise Intelligence
Segment revenue
Revenue adjustment
Video Intelligence
Segment revenue
Revenue adjustment
Communications Intelligence
Segment revenue
Revenue adjustment
Total revenue
Segment contribution:
Enterprise Intelligence
Video Intelligence
Communications Intelligence
Total segment contribution
Unallocated expenses, net:
Amortization of other acquired intangible assets
Stock-based compensation
Other unallocated expenses
Total unallocated expenses, net
Operating income
Other expense, net
Income before provision for income taxes
2012
Year Ended January 31,
2011
2010
$
$
$
$
$
444,700
(6,682)
438,018
410,529 $
—
410,529
140,610
(2,594)
138,016
210,937
(4,323)
206,614
134,012
—
134,012
182,258
—
182,258
782,648
$
726,799
$
198,428
34,697
63,296
296,421
35,302
27,911
146,730
209,943
86,478
(40,321)
46,157
$
$
191,068 $
42,318
66,802
300,188
30,554
46,819
149,710
227,083
73,105
(34,580)
38,525
$
374,778
—
374,778
144,970
—
144,970
183,885
—
183,885
703,633
178,674
57,200
62,348
298,222
30,289
44,227
158,027
232,543
65,679
(41,471)
24,208
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Geographic Information
Revenue by major geographic region is based upon the geographic location of the customers who purchase our products. The
geographic locations of distributors, resellers, and systems integrators who purchase and resell our products may be different from the
geographic locations of end customers. The information below summarizes revenue from unaffiliated customers by geographic area
for the years ended January 31, 2012, 2011, and 2010:
(in thousands)
United States
United Kingdom
Other
Total revenue
2012
Year Ended January 31,
2011
$
$
342,479 $
83,787
356,382
782,648
$
292,604 $
102,389
331,806
726,799
$
2010
328,420
65,793
309,420
703,633
Our long-lived assets primarily consist of net property and equipment, goodwill and other intangible assets, capitalized software
development costs, deferred cost of revenue, and deferred income taxes. We believe that our tangible long-lived assets, which consist
of our net property and equipment, are exposed to greater geographic area risks and uncertainties than intangible assets and long-term
cost deferrals, because these tangible assets are difficult to move and are relatively illiquid.
Property and equipment, net by geographic area consisted of the following as of January 31, 2012 and 2011:
(in thousands)
United States
Israel
Germany
United Kindgom
Canada
Other
Total property and equipment, net
Significant Customers
January 31,
2012
2011
11,406
10,150
2,309
2,024
694
1,706
28,289
$
$
9,322
8,221
2,474
796
371
1,992
23,176
$
$
No single customer accounted for more than 10% of our total revenue during any of the years ended January 31, 2012, 2011, and
2010.
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18. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized consolidated quarterly financial information for the years ended January 31, 2012 and 2011 appears in the following
tables:
(in thousands, except per share data)
Revenue
Gross profit
Income before provision for (benefit from) income
taxes
Net income
Net income (loss) attributable to Verint Systems
Inc.
Net income (loss) attributable to Verint Systems
Inc. common shares:
for basic net income (loss) per common share
for diluted net income (loss) per common share
Net income (loss) per common share attributable to
Verint Systems Inc.
Basic
Diluted
(in thousands, except per share data)
Revenue
Gross profit
Income (loss) before provision for (benefit from)
income taxes
Net income (loss)
Net income (loss) attributable to Verint Systems
Inc.
Net income (loss) attributable to Verint Systems
Inc. common shares:
for basic net income (loss) per common share
for diluted net income (loss) per common share
April 30,
2011
July 31,
2011
October 31,
2011
January 31,
2012
Quarter Ended
$
176,332 $
120,983
194,959
125,850
$
199,364 $
129,225
3,064
1,555
(112)
(3,661)
(3,661)
14,437
11,274
10,475
6,768
6,768
9,217
9,921
9,451
5,704
5,704
$
$
(0.10) $
(0.10) $
0.18
0.17
$
$
0.15
0.15
$
$
0.34
0.34
April 30,
2010
July 31,
2010
October 31,
2010
January 31,
2011
Quarter Ended
$
172,613 $
114,806
180,676 $
120,330
186,641 $
127,700
(13,545)
(15,616)
(16,208)
(19,611)
(19,611)
15,532
12,391
11,475
7,921
7,921
23,720
18,388
17,174
13,582
17,174
211,993
138,229
19,439
17,875
17,179
13,392
13,392
186,869
125,619
12,818
13,422
13,140
9,511
9,511
0.26
0.25
Net income (loss) per common share attributable
to Verint Systems Inc.
Basic
Diluted
$
$
(0.60) $
(0.60) $
0.24
0.23
$
$
0.38
0.36
$
$
Net income (loss) per common share attributable to Verint Systems Inc. is computed independently for each quarterly period and for
the year. Therefore, the sum of quarterly net income (loss) per common share amounts may not equal the amounts reported for the
years.
The computation of diluted net income per common share attributable to Verint Systems Inc. for the quarter ended October 31, 2010
assumes the conversion of our convertible preferred stock into common stock.
Quarterly operating results for the year ended January 31, 2012 include the following:
• An $8.1 million loss on extinguishment of debt in the three months ended April 30, 2011 associated with the termination of
our Prior Credit Agreement.
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Quarterly operating results for the year ended January 31, 2011 include the following:
• Professional fees and related expenses associated with our restatement of previously filed financial statements for periods
through January 31, 2005 and previous extended filing delay status of approximately $20 million, $6 million, $1 million, and
$2 million for the four quarterly periods ended January 31, 2011, respectively.
• Realized and unrealized losses on our interest rate swap of $1.6 million and $1.5 million, for the quarterly periods ended
April 30, 2010 and July 31, 2010, respectively.
As is typical for many software and technology companies, our business is subject to seasonal and cyclical factors. Our revenue and
operating income are typically highest in the fourth quarter and lowest in the first quarter. Moreover, revenue and operating income in
the first quarter of a new year may be lower than in the fourth quarter of the preceding year, potentially by a significant margin. In
addition, we generally receive a higher volume of orders in the last month of a quarter, with orders concentrated in the later part of that
month. We believe that these seasonal and cyclical factors primarily reflects customer spending patterns and budget cycles, as well as
the impact of compensation incentive plans for our sales personnel. While seasonal and cyclical factors such as these are common in
the software and technology industry, this pattern should not be considered a reliable indicator of our future revenue or financial
performance. Many other factors, including general economic conditions, also have an impact on our business and financial results.
See “Risk Factors” under Item 1A for a more detailed discussion of factors which may affect our business and financial results.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
April 2, 2012
April 2, 2012
VERINT SYSTEMS INC.
(Registrant)
By:
By:
/s/ Dan Bodner
Dan Bodner, President and Chief
Executive Officer
/s/ Douglas E. Robinson
Douglas E. Robinson, Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Dan Bodner
Dan Bodner, Chief Executive Officer
and President; Director of Verint Systems Inc.
(Principal Executive Officer)
April 2, 2012
/s/ Douglas E. Robinson
Douglas E. Robinson, Chief Financial Officer of Verint
Systems Inc.
(Principal Financial Officer and Principal Accounting Officer)
April 2, 2012
/s/ Susan Bowick
Susan Bowick, Director of Verint Systems Inc.
April 2, 2012
Table of Contents
/s/ Victor A. DeMarines
Victor A. DeMarines, Director of Verint Systems Inc.
/s/ Larry Myers
Larry Myers, Director of Verint Systems Inc.
/s/ Augustus K. Oliver
Augustus K. Oliver, Chairman of the Board of Directors of
Verint Systems Inc.
/s/ Howard Safir
Howard Safir, Director of Verint Systems Inc.
/s/ Theodore H. Schell
Theodore H. Schell, Director of Verint Systems Inc.
/s/ Shefali Shah
Shefali Shah, Director of Verint Systems Inc.
/s/ Mark C. Terrell
Mark C. Terrell, Director of Verint Systems Inc.
April 2, 2012
April 2, 2012
April 2, 2012
April 2, 2012
April 2, 2012
April 2, 2012
April 2, 2012
VOVICI CORPORATION (formerly known as PDC CORP.)
Exhibit 10.14
2006 AMENDED AND RESTATED STOCK PLAN
(As Amended and Restated Effective August 4, 2011)
1. Purposes of the Plan. The purposes of this Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the
Company’s business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined
by the Administrator at the time of grant. Stock Purchase Rights and Restricted Stock Units may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
with Section 4 hereof.
(a) “Administrator” means the Board or any of its Committees as shall be administering the Plan in accordance
(b) “Applicable Laws” means the requirements relating to the administration of Stock Plans under U.S. state
corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock
is listed or quoted and the applicable laws of any other country or jurisdiction where Options, Stock Purchase Rights, or Restricted
Stock Units are granted under the Plan.
(c) “Board” means the Company’s Board of Directors.
(d) “Change of Control” means (i) the acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, any merger, consolidation or other form of reorganization in which
outstanding shares of the Company are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary, but excluding any transaction effected primarily for the purpose of changing the Company’s state of
incorporation), unless the Company’s stockholders of record as constituted immediately prior to such transaction or series of related
transactions will, immediately after such transaction or series of related transactions hold at least a majority of the voting power of the
surviving or acquiring entity or (ii) a sale of all or substantially all of the assets of the Company by means of any transaction or series
of related transactions.
(e) “Code” means the Internal Revenue Code of 1986, as amended.
the Board in accordance with Section 4 hereof.
(f) “Committee” means a committee of Directors or of other individuals satisfying Applicable Laws appointed by
(g) “Common Stock” means the Company’s common stock, par value $0.0001.
(h) “Company” means Vovici Corporation, a Delaware corporation.
consulting or advisory services to such entity.
(i) “Consultant” means any person who is engaged by the Company or any Parent or Subsidiary to render
(j) “Director” means a member of the Board.
(k) “Disability” means total and permanent disability as defined in Section 22(e)(3) of the Code.
(l) “Dividend Equivalent Right” means the right of an Employee, granted at the discretion of the Board or as
otherwise provided by the Plan, to receive a credit for the account of such Employee in an amount equal to the cash dividends paid on
one share of Stock for each Share represented by an award held by such Employee.
(m) “Employee” means any person, including officers and Directors, employed by the Company or any Parent or
Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to
constitute “employment” by the Company.
(n) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(o) “Exchange Program” means a program under which (a) outstanding Options are surrendered or cancelled in
exchange for Options of the same type (which may have lower exercise prices and different terms), Options of a different type, and/or
cash, and/or (b) the exercise price of an outstanding Option is reduced. The terms and conditions of any Exchange Program will be
determined by the Administrator in its sole discretion.
(p) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange
or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are
not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the day of
determination; or
shall be determined in good faith by the Administrator.
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof
of Section 422 of the Code.
(q) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning
2
(r) “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.
(s) “Option” means a stock option granted pursuant to the Plan.
(t) “Option Agreement” means a written or electronic agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(u) “Optioned Stock” means the Common Stock subject to an Option or a Stock Purchase Right.
granted under the Plan.
(v) “Optionee” means the holder of an outstanding Option , Stock Purchase Right , or Restricted Stock Unit award
Code.
(w) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the
(x) “Plan” means this 2006 Amended and Restated Stock Plan.
(y) “Purchaser” means a holder of Restricted Stock.
(z) “Restricted Stock” means Shares issued pursuant to the exercise of an Option or a Stock Purchase Right.
date or event a Share or cash in lieu thereof, as determined by the Board.
(aa) “Restricted Stock Unit” means a right granted to an Employee pursuant to Section 13 to receive on a future
(bb) “Securities Act” means the Securities Act of 1933, as amended.
(cc) “Service Provider” means an Employee, Director or Consultant.
(dd) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 below.
(ee) “Stock Purchase Right” means a right to purchase Common Stock pursuant to Section 11 below.
424(f) of the Code.
(ff) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section
3. Stock Subject to the Plan. Subject to the provisions of Section 14 below, the maximum aggregate number of Shares that
may be subject to awards under the Plan is 8,914,352 Shares. In no event shall the number of Shares issued pursuant to Incentive
Stock Options exceed 8,914,352 Shares. The Shares may be authorized but unissued, or reacquired Common Stock.
3
If an Option, Stock Purchase Right, or Restricted Stock Unit expires or becomes unexercisable without having been
exercised or vested in full, or is surrendered pursuant to an Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually
been issued under the Plan, upon exercise of either an Option or Stock Purchase Right or the vesting of a Restricted Stock Unit, shall
not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of unvested
Restricted Stock are repurchased by the Company, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
Committee shall be constituted to comply with Applicable Laws.
(a) Administrator. The Plan shall be administered by the Board or a Committee appointed by the Board, which
(b) Powers of the Administrator. Subject to the provisions of the Plan and, in the case of a Committee, the specific
duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have
the authority in its discretion:
(i) to determine the Fair Market Value;
Units may from time to time be granted hereunder;
(ii) to select the Service Providers to whom Options, Stock Purchase Rights, and Restricted Stock
(iii) to determine the number of Shares to be covered by each award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option, Stock Purchase Right, or Restricted Stock
Unit granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options
or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option, Stock Purchase Rights, or Restricted Stock Unit or the
Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
(vi) to initiate an Exchange Program;
regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws;
(vii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and
(viii) to allow Optionees or Restricted Stock Unit grantees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right or vesting or
payment of Restricted Stock Units that number of Shares having a Fair Market Value equal to the minimum amount required to be
withheld. The Fair
4
Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined.
All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable; and
Stock Units granted pursuant to the Plan.
(ix) to construe and interpret the terms of the Plan and Options, Stock Purchase Rights, and Restricted
be final and binding on all Optionees and those awarded Stock Purchase Rights or Restricted Stock Units.
(c) Effect of Administrator’s Decision. All decisions, determinations and interpretations of the Administrator shall
5. Eligibility. Nonstatutory Stock Options, Stock Purchase Rights, and Restricted Stock Units may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
6. Limitations.
(a) Incentive Stock Option Limit. Each Option shall be designated in the Option Agreement as either an Incentive
Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any
calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in
which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(b) At-Will Employment. Neither the Plan nor any Option, Stock Purchase Right, or Restricted Stock Unit shall
confer upon any Optionee any right with respect to continuing the Optionee’s relationship as a Service Provider with the Company,
nor shall it interfere in any way with the Optionee’s right or the Company’s right to terminate such relationship at any time, with or
without cause, and with or without notice.
7. Term of Plan. Subject to stockholder approval in accordance with Section 20, the Plan shall become effective upon its
adoption by the Board. Unless sooner terminated under Section 16, it shall continue in effect until July 28, 2020.
8. Term of Option. The term of each Option shall be stated in the Option Agreement; provided, however, that the term
shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee
who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock
of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
5
9. Option Exercise Price and Consideration.
such price as is determined by the Administrator, but shall be subject to the following:
(a) Exercise Price. The per share exercise price for the Shares to be issued upon exercise of an Option shall be
(i) In the case of an Incentive Stock Option
more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of grant.
(1) granted to an Employee who, at the time of grant of such Option, owns stock representing
Fair Market Value per Share on the date of grant.
(2) granted to any other Employee, the per Share exercise price shall be no less than 100% of the
(ii) In the case of a Nonstatutory Stock Option
Administrator.
(1) granted to any other Service Provider, the per Share exercise price shall be determined by the
as required above pursuant to a merger or other corporate transaction.
(iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than
(b) Forms of Consideration. The consideration to be paid for the Shares to be issued upon exercise of an Option,
including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4)
other Shares, provided Shares acquired directly from the Company (x) have been owned by the Optionee for more than six (6) months
on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares
as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program
implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according
to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option
Agreement. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of
exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the
Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment
authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall
be
6
issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and the Optionee’s spouse. Until the
Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares,
notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued,
except as provided in Section 14.
both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available,
(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider other than
upon such Optionee’s death or Disability, such Optionee may exercise such Optionee’s Option within such period of time as is
specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the
expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following the Optionee’s termination. If, on the date of
termination, the Optionee is not vested as to such Optionee’s entire Option, the Shares covered by the unvested portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise such Optionee’s Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee’s Disability,
such Optionee may exercise such Optionee’s Option within such period of time as is specified in the Option Agreement to the extent
the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the
Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee’s termination. If, on the date of termination, the Optionee is not vested as to such Optionee’s entire
Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not
exercise such Optionee’s Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such
period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of death (but in no event later
than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee’s designated beneficiary,
provided such beneficiary has been designated prior to such Optionee’s death in a form acceptable to the Administrator. If no such
beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee’s
estate or by the person(s) to whom the Option is transferred pursuant to the Optionee’s will or in accordance with the laws of descent
and distribution. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee’s death. If, at the time of death, the Optionee is not vested as
7
to the entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If the Option is not so exercised
within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Leaves of Absence.
during any unpaid leave of absence.
(i) Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be suspended
approved by the Company or (B) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor.
(ii) A Service Provider shall not cease to be an Employee in the case of (A) any leave of absence
(iii) For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, then three (3) months following the 91st day of such leave, any Incentive
Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer
Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time
within which such person must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase
Agreement shall grant the Company a repurchase option exercisable within 90 days of the voluntary or involuntary termination of the
purchaser’s service with the Company for any reason (including death or disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation
of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may
determine.
and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions
(d) Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have rights
equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly
authorized transfer agent of the Company. No
8
adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is
exercised, except as provided in Section 14 of the Plan.
12. Limited Transferability of Options. Unless determined otherwise by the Administrator, Options and Stock Purchase
Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of
descent and distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee.
13. Restricted Stock Units. Restricted Stock Unit Awards shall be evidenced by award agreements specifying the number of
Restricted Stock Units subject to the award, in such form as the Board shall from time to time establish. Award agreements
evidencing Restricted Stock Units may incorporate all or any of the terms of the Plan by reference and shall comply with and be
subject to the following terms and conditions:
(a) Grant of Restricted Stock Unit Awards. Restricted Stock Unit Awards may be granted upon such
conditions as the Board shall determine, including, without limitation, upon the attainment of one or more performance goals
established by the Board.
(b) Purchase Price. No monetary payment (other than applicable tax withholding, if any) shall be required as
a condition of receiving a Restricted Stock Unit award, the consideration for which shall be services actually rendered to the Company
(or a Parent or Subsidiary) or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the
Participant shall furnish consideration in the form of cash or past services rendered to the Company (or a related entity) or for its
benefit having a value not less than the par value of the Shares issued upon settlement of the Restricted Stock Unit award.
(c) Vesting. Restricted Stock Unit Awards may (but need not) be made subject to vesting conditions based
upon the satisfaction of such service requirements, conditions, restrictions or performance criteria as shall be established by the Board
and set forth in the award agreement evidencing such award.
(d) Voting Rights, Dividend Equivalent Rights and Distributions. Employees shall have no voting rights with
respect to Shares represented by Restricted Stock Units until the date of the issuance of such Shares (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the Company). However, the Board, in its discretion, may
provide in the award agreement evidencing any Restricted Stock Unit award that the Employee shall be entitled to Dividend
Equivalent Rights with respect to the payment of cash dividends on Shares during the period beginning on the date such award is
granted and ending, with respect to each share subject to the award, on the earlier of the date the award is settled or the date on which
it is terminated. Such Dividend Equivalent Rights, if any, shall be paid by crediting the Employee with additional whole Restricted
Stock Units as of the date of payment of such cash dividends on Shares. The number of additional Restricted Stock Units (rounded to
the nearest whole number) to be so credited shall be determined by dividing (a) the amount of cash dividends paid on such date with
respect to the number of Shares represented by the Restricted Stock Units previously credited to the
9
Participant by (b) the Fair Market Value per share of a Share on such date. Such additional Restricted Stock Units shall be subject to
the same terms and conditions and shall be settled in the same manner and at the same time as the Restricted Stock Units originally
subject to the Restricted Stock Unit award.
(e) Effect of Termination of Service. Unless otherwise provided by the Board and set forth in the award
agreement evidencing a Restricted Stock Unit award, if an Employee’s service terminates for any reason, whether voluntary or
involuntary (including the Employee’s death or disability), then the Employee shall forfeit to the Company any Restricted Stock Units
pursuant to the award which remain subject to vesting conditions as of the date of the Employee’s termination of service.
(f) Settlement of Restricted Stock Unit Awards. Restricted Stock Units shall be paid in cash, Shares or other
securities or property, as determined by the Board, upon lapse of restrictions applicable thereto, or otherwise in accordance with the
applicable award agreements.
(g) Nontransferability of Restricted Stock Units. The right to receive Shares or other property pursuant to a
Restricted Stock Unit award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge,
encumbrance, or garnishment by creditors of the Employee or the Employee’s beneficiary, except transfer by will or by the laws of
descent and distribution. No Restricted Stock Units, or the Shares underlying such Restricted Stock Units, shall, prior to the
settlement of the Restricted Stock Units, be subject to any short position, “put equivalent position” or “call equivalent position” by the
Participant, as such terms are defined in Rule 16a-1 of the Exchange Act.
14. Adjustments; Dissolution or Liquidation; Merger or Change of Control.
(a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the
Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, shall (as it deems appropriate) adjust the number and class of Shares that may
be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Option, Stock Purchase Right,
or Restricted Stock Unit.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the
Administrator shall notify each Optionee or Restricted Stock Unit holder as soon as practicable prior to the effective date of such
proposed transaction. To the extent it has not been previously exercised, an Option or Restricted Stock Unit will terminate
immediately prior to the consummation of such proposed action
10
(c) Merger or Change of Control.
(i) With respect to grants prior to May 1, 2008 and subject to the rights and powers of the
Administrator to provide otherwise, in the event of (x) a merger of the Company with or into another entity (other than a merger
effected primarily for the purpose of changing the Company’s state of incorporation) or (y) a Change of Control, each outstanding
Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor entity (or a Parent or
Subsidiary of the successor entity). In the event that the successor entity (or a Parent or Subsidiary of the successor entity) refuses to
assume or substitute for an Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise such Option
or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which such Option or Stock Purchase Right would not
otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or Change of Control, the Administrator shall notify the Optionee in writing or electronically
that such Option or Stock Purchase Right shall be fully vested and exercisable for a period of time as determined by the Administrator,
and such Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, an
Option or Stock Purchase Right shall be considered assumed if, following the merger or Change of Control, the option or right is
terminated and confers the right to purchase or receive, for each Share of Optioned Stock subject to such Option or Stock Purchase
Right immediately prior to the merger or Change of Control, the consideration (whether stock, cash, or other securities or property)
received in the merger or Change of Control by holders of Common Stock for each Share held on the effective date of the merger or
Change of Control (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration received in the merger or Change of Control is not solely
common stock of the successor entity or its Parent, the Administrator may, with the consent of the successor entity, provide for the
consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right, to be solely common stock of the successor entity or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger or Change of Control.
(ii) With respect to grants occurring after to May 1, 2008 and subject to the rights and powers of the
Administrator to provide otherwise, in the event of (x) a merger of the Company with or into another entity (other than a merger
effected primarily for the purpose of changing the Company’s state of incorporation) or (y) a Change of Control, each outstanding
Option, Stock Purchase Right, or Restricted Stock Unit award shall be assumed or an equivalent option, right, or award substituted by
the successor entity (or a Parent or Subsidiary of the successor entity). In the event that the successor entity (or a Parent or Subsidiary
of the successor entity) refuses to assume or substitute for an Option, Stock Purchase Right, or Restricted Stock Unit award, the
Option, Stock Purchase Right or Restricted Stock Unit award shall terminate in full as of the effective date of any transaction
contemplated by (x) and (y) above, with respect to any unexercised or unvested portion thereof and the Employee shall have no further
right to exercise such Option, Stock Purchase Right, or Restricted Stock Unit. For the purposes of this paragraph, an Option, Stock
Purchase Right, or Restricted Stock Unit shall be considered assumed if, following the merger or Change of Control, the option or
11
right is terminated and confers the right to purchase or receive, for each Share subject to such Option, Stock Purchase Right, or
Restricted Stock Unit immediately prior to the merger or Change of Control, the consideration (whether stock, cash, or other securities
or property) received in the merger or Change of Control by holders of Common Stock for each Share held on the effective date of the
merger or Change of Control (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of
a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change of Control is not
solely common stock of the successor entity or its Parent, the Administrator may, with the consent of the successor entity, provide for
the consideration to be received upon the exercise of the Option or Stock Purchase Right or vesting of the Restricted Stock Unit
award, for each Share subject to the Option, Stock Purchase Right, or Restricted Stock Unit to be solely common stock of the
successor entity or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the
merger or Change of Control.
15. Time of Granting Options, Stock Purchase Rights and Restricted Stock Units. The date of grant of an Option, Stock
Purchase Right, or Restricted Stock Unit shall, for all purposes, be the date on which the Administrator makes the determination
granting such Option, Stock Purchase Right, or Restricted Stock Unit award or such later date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
necessary and desirable to comply with Applicable Laws.
(b) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall
impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator’s ability
to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
17. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
person exercising such Option to represent and warrant at the time of any
(b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the
12
such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is required.
18. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
19. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
20. Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company within twelve (12)
months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under
Applicable Laws.
13
APPENDIX A
TO
VOVICI CORPORATION (formerly known as PDC CORP.)
2006 AMENDED AND RESTATED STOCK PLAN
California Residents Only.
This Appendix A to the Vovici Corporation 2006 Amended and Restated Stock Plan shall apply only to Optionees
and Purchasers who are residents of the State of California and who are receiving Awards under the Plan. Capitalized terms contained
herein shall have the same meanings given to them in the Plan, unless otherwise provided by this Appendix A. Notwithstanding any
provisions contained in the Plan to the contrary and to the extent required by Applicable Laws, the following terms shall apply to all
Awards granted to residents of the State of California, until such time as the Administrator amends this Appendix A.
(a) Nonstatutory Stock Options granted to a person who, at the time of grant of such Option, owns stock
representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, shall
have an exercise price not less than 110% of the Fair Market Value per Share on the date of grant. Nonstatutory Stock Options
granted to any other person shall have an exercise price that is not less than eighty-five percent (85%) of the Fair Market Value per
Share on the date of grant. Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as
required above pursuant to a merger or other corporate transaction.
(b) Restricted Stock may only be issued pursuant to the exercise of a Stock Purchase Right granted under the Plan.
The purchase price of such Restricted Stock shall be in an amount the Administrator deems appropriate in accordance with Applicable
Laws.
(c) The term of each Option shall be stated in the Option Agreement, provided, however, that the term shall be no
more than ten (10) years from the date of grant thereof. The term of each Restricted Stock Purchase Agreement shall be no more than
ten (10) years from the date the agreement is entered into.
(d) Unless determined otherwise by the Administrator, Options or Stock Purchase Rights may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may
be exercised during the lifetime of the Optionee, only by the Optionee. If the Administrator in its sole discretion makes an Option or
Stock Purchase Right transferable, such Option or Stock Purchase Right may only be transferred (i) by will, (ii) by the laws of descent
and distribution, or (iii) to family members (within the meaning of Rule 701 of the Securities Act of 1933, as amended) through gifts
or domestic relations orders, as permitted by Rule 701 of the Securities Act of 1933, as amended.
conditions as determined by the Administrator and set forth in the Option
(e) Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such
Agreement. Except in the case of Options granted to officers, Directors and Consultants, Options shall become exercisable at a rate of
no less than twenty percent (20%) per year over five (5) years from the date the Options are granted.
(f) Unless employment or service is terminated for cause (as defined by the Administrator), the Optionee may
exercise his or her Option within thirty (30) days of termination, or such longer period of time as specified in the Option Agreement,
to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as
set forth in the Option Agreement).
(g) If Optionee’s employment or service terminates as a result of the Optionee’s Disability, Optionee may exercise
his or her Option within six (6) months of termination, or such longer period of time as specified in the Option Agreement, to the
extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth
in the Option Agreement).
(h) If Optionee dies while a Service Provider, the Option may be exercised within six (6) months following
Optionee’s death, or such longer period of time as specified in the Option Agreement, to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the
Optionee’s designated beneficiary, personal representative, or by the person(s) to whom the Option is transferred pursuant to the
Optionee’s will or in accordance with the laws of descent and distribution.
the earlier of the date of adoption of the Plan or the date the Plan is approved by the stockholders.
(i) No Option or Stock Purchase Right shall be granted to a resident of California more than ten (10) years after
(j) The Company shall provide to each Optionee and Purchaser, not less frequently than annually during the period
such Optionee or Purchaser has one or more Awards outstanding, copies of annual financial statements. The Company shall not be
required to provide such statements to key Employees whose duties in connection with the Company assure their access to equivalent
information.
(k) In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or
other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company
affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, may (in its sole discretion) adjust the number and class of shares of common stock that
may be delivered under the Plan and/or the number, class, and price of shares covered by each outstanding Option; provided, however,
that the Administrator shall make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
this Appendix A in accordance with Section 16 of the Plan.
(l) This Appendix A shall be deemed to be part of the Plan and the Administrator shall have the authority to amend
A-2
Exhibit 10.27
, 20
[Name of Recipient]
[Address]
Dear [Name]:
Notice of Grant of Performance-Based Restricted Stock Units
Congratulations! You have been granted a performance-based Restricted Stock Unit award (the “Award”) pursuant to the
terms and conditions of the Verint Systems Inc. (the “Company”) [2004 Stock Incentive Compensation Plan][2010 Long-Term
Stock Incentive Plan][, as modified by the [UK Sub-Plan thereunder][Canadian Sub-Plan thereunder][Israeli Supplement
thereto][India Addendum],] (the “Plan”) and the attached Verint Systems Inc. Performance-Based Restricted Stock Unit Award
Agreement (the “Agreement”). The details of your Award are specified below and in the attached Agreement. Capitalized terms used
in this Notice of Grant and not otherwise defined shall have the meanings given in the Plan or the Agreement.
Granted To:
ID#:
Grant Date:
Target Number
of Units Granted:
Price Per Unit:
Vesting Schedule:
[Name]
[ID Number]
[ ]
[Number] (with the opportunity to earn up to
[Number](1) additional Restricted Stock Units)
U.S.$0.00
The Restricted Stock Units granted hereby shall vest on the dates or at
the times set forth in the Agreement, upon the achievement of specified
performance goals, but in any event, no earlier than:
(a) [ , 20 with respect to the Period 1 Units];
(b) [ , 20 with respect to the Period 2 Units]; and
(1) Not to exceed 100% of the Target Number of Units (i.e., if the Target Number of Restricted Stock Units is 100, the opportunity
for additional Restricted Stock Units may not exceed 100, for a grand total of 200).
Cash Cancel Option:
(c) [ , 20 with respect to the Period 3 Units].(2)
On each vesting date, the Board of Directors of the Company shall have
the right, in its sole and absolute discretion, to cancel some or all of the
portion of the Award vesting on such vesting date and to instead cause
the Verint entity which employs you to pay you in cash (in accordance
with such entity’s normal payroll practices) the Fair Market Value of
one Share for each Restricted Stock Unit being cancelled (less
applicable withholding).
Verint Systems Inc.
By my signature below or my online acceptance hereof (if provided to me electronically), I hereby acknowledge my receipt
of this Award granted on the date shown above, which has been issued to me under the terms and conditions of the Plan and the
Agreement. I agree that the Award is subject to all of the terms and conditions of this Notice of Grant, the Plan, and the Agreement.
If I am a resident of Canada, I also acknowledge having requested that this Notice and all documents referred to herein be
drafted in the English language. Je reconnais également avoir exigé que ce document ainsi que tout document auquel ce document
fait référence, soient rédigés en langue anglaise.
Signature:
Date:
(2) In the case of Period 3, such date shall be no earlier than the third anniversary of the date of Board or Committee approval of the
grant for awards under the 2004 Plan.
2
VERINT SYSTEMS INC.
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT
This Performance-Based Restricted Stock Unit Award Agreement (“Agreement”) and the Verint Systems Inc. [2004 Stock Incentive
Compensation Plan][2010 Long-Term Stock Incentive Plan][, as modified by the [UK Sub-Plan thereunder][Canadian Sub-
Plan thereunder][Israeli Supplement thereto][India Addendum],] (the “Plan”) govern the terms and conditions of the
Performance-Based Restricted Stock Unit Award (the “Award”) specified in the Notice of Grant of Performance-Based Restricted
Stock Units (the “Notice of Grant”) delivered herewith entitling the person to whom the Notice of Grant is addressed (“Grantee”) to
receive from Verint Systems Inc. (the “Company”) the target number of performance-based Restricted Stock Units indicated in the
Notice of Grant and the opportunity to earn additional Restricted Stock Units (if provided for in the Notice of Grant), as described
herein, subject to the terms and conditions of this Agreement. [The Award is a Performance Compensation Award intended to
qualify as “performance-based compensation” under Section 162(m) of the Code.](3)
1 RESTRICTED STOCK UNITS; VESTING
1.1 Grant of Performance-Based Restricted Stock Units.
(a) Subject to the terms of this Agreement, the Company hereby grants to Grantee the target number of performance-based
Restricted Stock Units indicated in the Notice of Grant (the “Target Units”), and the opportunity to earn additional Restricted
Stock Units (if provided for in the Notice of Grant), as described herein, (the “Overachievement Units”, and together with the
Target Units, the “Total Units”), vesting of which depends upon the Company’s performance during each Performance
Period (defined below), as specified for each such Performance Period.
(b) Grantee’s right to receive all or any portion of the Total Units will be contingent upon the Company’s achievement of one or
more performance goals specified in a performance matrix as an exhibit to this Agreement (the “Performance Matrix”)
measured over the following periods (each, a “Performance Period” and, collectively, the “Performance Periods”):
(i) Vesting of up to the first one-third of the Total Units (the “Period 1 Units”) will be contingent upon the achievement
of the performance goal(s) during the period from [ ] through [ ] (“Period 1”);
(3) Include for 162(m) officers.
3
(ii) Vesting of up to the second one-third of the Total Units (the “Period 2 Units”) will be contingent upon the
achievement of the performance goal(s) during the period from [ ] through [ ] (“Period
2”); and
(iii) Vesting of up to the final one-third of the Total Units (the “Period 3 Units”) will be contingent upon the
achievement of the performance goal(s) during the period from [ ] through [ ] (“Period
3”).
(c) The performance goal(s) and related “Target”, “Threshold”, and “Maximum” levels (as described below) and any associated
definitions for each Performance Period will be set by the Board or the Committee, in the discretion of the Board or the
Committee, at the time of grant or at any time thereafter so long as the performance goal(s) for a given Performance Period
are set prior to the conclusion of such Performance Period, and to the extent practicable, on or before the 90 day of such
Performance Period. Following establishment, all such information will be memorialized in the Performance Matrix and
provided to Grantee. A sample Performance Matrix is attached as Exhibit A hereto.
th
(d) If and when the Restricted Stock Units vest in accordance with the terms of this Agreement and the Notice of Grant without
forfeiture, and upon the satisfaction of all other applicable conditions as to the Restricted Stock Units, one Share shall be
issuable to Grantee for each Restricted Stock Unit that vests on such date, which Shares, except as otherwise provided herein
or in the Notice of Grant, will be free of any Company-imposed transfer restrictions. Except as otherwise provided below,
any fractional Restricted Stock Unit remaining after the Award is fully vested shall be discarded and shall not be converted
into a fractional Share.
1.2 Achievement of Payout Percentages and Vesting of Performance-Based Restricted Stock Units.
(a) Below Threshold. If upon conclusion of the relevant Performance Period, achievement of a performance goal for that
Performance Period falls below the “Threshold” level for such performance goal, as set forth in the applicable Performance
Matrix, a payout percentage of 0% for such Performance Period in respect of such performance goal shall be achieved.
(b) At a Level or Between Levels. If, upon conclusion of the relevant Performance Period, achievement of a performance goal
for that Performance Period equals a specified level for such performance goal as set forth in the applicable Performance
Matrix (other than the “Maximum” level), the payout percentage specified for such level in the Performance Matrix shall be
achieved. However, if, upon conclusion of the relevant Performance Period, achievement of a performance goal for that
Performance Period exceeds a specified level for such performance goal as set forth in the applicable Performance Matrix
(i.e., above
4
the “Threshold” level but less than the “Maximum” level), the payout percentage shall be calculated on a linear basis based
on (i) where the actual achievement of such performance goal falls between the two nearest specified levels as set forth in the
Performance Matrix and (ii) the corresponding payout percentages specified in the Performance Matrix. Notwithstanding the
foregoing, if, upon conclusion of such Performance Period, achievement of such performance goal for that Performance
Period exceeds the “Target” level (but is less than the “Maximum” level) the payout percentage for such Performance Period
in respect of such performance goal shall only exceed the payout percentage specified for the Target level if the Notice of
Grant indicates that Overachievement Units are eligible to be earned.
(c) Equals or Exceeds Maximum. If the Notice of Grant indicates that Overachievement Units are eligible to be earned, and
upon conclusion of the relevant Performance Period, achievement of a performance goal for that Performance Period equals
or exceeds the “Maximum” level for such performance goal, as set forth in the applicable Performance Matrix, a payout
percentage of 200% for such Performance Period in respect of such performance goal shall be achieved.
(d) Vesting of Units; Independence of Performance Goals. The number of Restricted Stock Units that will vest in a given
Performance Period shall, unless otherwise specified in the Performance Matrix, be determined by multiplying the
“combined average payout percentage achieved” by the number of Target Units eligible to be earned in such Performance
Period. The “combined average payout percentage achieved” shall, unless otherwise specified in the Performance Matrix, be
the quotient of (A) and (B), where (A) is the sum of the actual payout percentages achieved for each performance goal, and
(B) is the number of performance goals. If the foregoing calculation would result in the vesting of a fraction of a Restricted
Stock Unit, the result of the calculation will be rounded down to the nearest whole Restricted Stock Unit.
(e) Determination of Earned Award. Not later than 60 days following the Board’s receipt of the Company’s audited financial
statements covering the relevant Performance Period, the Board or the Committee will determine (i) whether and to what
extent the performance goal(s) have been satisfied for each Performance Period, (ii) the number of Restricted Stock Units
that shall have become vested hereunder and (iii) whether all other conditions to receipt of the Shares have been met. The
Board or Committee’s determination of the foregoing shall be final and binding on Grantee absent a showing of manifest
error. Notwithstanding any other provision of this Agreement, no Restricted Stock Units for a given Performance Period
shall vest (x) until the Board or Committee has made the foregoing determinations for such Performance Period and (y) prior
to the date discussed in the next paragraph.
5
(f) Time Vesting Limitation. Notwithstanding the determination of the Board or the Committee pursuant to the previous
paragraph, the Period 1 Units, Period 2 Units, and Period 3 Units shall not vest prior to the respective dates specified in the
Notice of Grant.
(g) Other Vesting Provisions.
(i) Any Restricted Stock Units that do not become vested based on the foregoing provisions with respect to a given
Performance Period will be automatically forfeited by Grantee without consideration.
(ii) [On each vesting date, the Board shall have the right, in its sole and absolute discretion, to cancel some or all
of the portion of the Award vesting on such vesting date and to instead cause the Verint entity which employs
Grantee to pay Grantee in cash the Fair Market Value of one Share for each Restricted Stock Unit being
cancelled (less applicable withholding). All cash payments to Grantee hereunder will be made by the Verint
entity which employs Grantee in accordance with its normal payroll practices either on or promptly following
the date of the Company action which gives rise to such payment; provided, however, that the Company shall
have the authority to delay any such payments to the extent necessary to comply with Section 409A(a)(2)(B)
(i) of the Code (relating to payments made to “specified employees”); in such event, any payment to which
Grantee would otherwise be entitled during the six (6) month period following the date Grantee ceases to be
employed by or otherwise in the service of the Company will be issued on the first business day following the
expiration of such six (6) month period.]
1.3 Forfeiture.
(a) Except as otherwise provided herein, Grantee’s right to receive any of the Restricted Stock Units is contingent upon his or
her remaining in the Continuous Service of the Company or a Subsidiary or Affiliate through the respective vesting dates
specified in the Notice of Grant. If Grantee’s Continuous Service terminates for any reason, all Restricted Stock Units which
are then unvested shall, unless otherwise determined by the Board or the Committee in its sole discretion or subject to a
separate written agreement between the parties, be cancelled and the Company shall thereupon have no further obligation
thereunder. For the avoidance of doubt, subject to a separate written agreement between the parties, Grantee acknowledges
and agrees that he or she has no expectation that any Restricted Stock Units will vest on the termination of his or her
Continuous Service for any reason and that he or she will not be entitled to make a claim for any loss occasioned by such
forfeiture as part of any claim for breach of his or her employment or service contract or otherwise.
6
1.4 Delivery.
(a) Subject to Section 1.6 and any other applicable conditions hereunder, as soon as administratively practicable following the
vesting of Restricted Stock Units in accordance with the terms of this Agreement (but in no event later than the date the short-
term deferral period under Section 409A of the Code expires with respect to such vested Shares), the Company shall issue the
applicable Shares and, at its option, (i) deliver or cause to be delivered to Grantee a certificate or certificates for the applicable
Shares or (ii) transfer or arrange to have transferred the Shares to a brokerage account of Grantee designated by the Company.
(b) Notwithstanding the foregoing, the issuance of Shares upon the vesting of a Restricted Stock Unit shall be delayed in the event
the Company reasonably anticipates that the issuance of Shares would constitute a violation of U.S. federal securities laws,
other applicable law, or Nasdaq rules. If the issuance of the Shares is delayed by the provisions of this paragraph, such
issuance shall occur at the earliest date at which the Company reasonably anticipates issuing the Shares will not cause such a
violation. For purposes of this paragraph, the issuance of Shares that would cause inclusion in gross income or the application
of any penalty provision or other provision of the Code or other tax legislation applicable to Grantee is not considered a
violation of applicable law.
1.5 Restrictions.
(a) Except as provided herein, Grantee shall not have any rights as a stockholder with respect to any Shares to be distributed under
the Plan until he or she has become the holder of such Shares as provided in the Plan.
(b) The Award is subject to the transferability restrictions under the Plan.
1.6 Tax; Withholding.
(a) The Company shall determine the amount of any withholding or other tax required by law to be withheld or paid by the
Company or its Subsidiary with respect to any income recognized by Grantee with respect to the Restricted Stock Units or the
issuance of Shares pursuant to the terms of the Restricted Stock Units.
(b) Neither the Company nor any Subsidiary, Affiliate or agent makes any representation or undertaking regarding the treatment
of any tax or withholding in connection with the grant or vesting of the Award or the subsequent sale of Shares subject to the
Award. The Company and its Subsidiaries and Affiliates do not commit and are under no obligation to structure the Award to
reduce or eliminate Grantee’s tax liability.
(c) Notwithstanding the withholding provision in the Plan:
7
(i) If in the tax jurisdiction in which Grantee resides, a tax withholding obligation arises upon vesting of the Award
(regardless of when the Shares underlying the Award are delivered to Grantee), or for non-employee directors of the
Company in any jurisdiction, on each date the Award actually vests, if (1) the Company does not have in place an
effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or there is not a
Securities Act exemption available under which Grantee may sell Shares or (2) Grantee is subject to a Company-
imposed trading blackout, unless Grantee has made other arrangements satisfactory to the Company, the Company
will (x) with respect to employees of the Company, withhold from the Shares to be delivered to Grantee such number
of Shares as are sufficient in value (as determined by the Company in its sole discretion) to cover the minimum
amount of the tax withholding obligation and (y) with respect to non-employee directors of the Company, settle 40%
of the portion of the Award then vesting in cash by paying Grantee cash (in accordance with the Company’s normal
payroll practices) equal to the Fair Market Value of one Share for each Restricted Stock Unit being settled in such
manner.
(ii) If in the tax jurisdiction in which Grantee resides a tax withholding obligation arises upon delivery of the Shares
underlying the Restricted Stock Units (regardless of when vesting occurs), then following each date the Award
actually vests, the Company will defer the delivery of the Shares otherwise deliverable to Grantee until the earliest of
(1) the date Grantee’s employment with the Company (or a Subsidiary or Affiliate) is terminated (by either party),
(2) the date that the short-term deferral period under Section 409A of the Code expires with respect to such vested
Shares, or (3) the date on which the Company has in place an effective registration statement under the Securities Act
or there is a Securities Act exemption available under which Grantee may sell Shares and on which Grantee is not
subject to a Company-imposed trading blackout (the earliest of such dates, the “Delivery Date”). If on the Delivery
Date (1) the Company does not have in place an effective registration statement under the Securities Act or there is
not a Securities Act exemption available under which Grantee may sell Shares or (2) Grantee is subject to a
Company-imposed trading blackout, unless Grantee has made other arrangements satisfactory to the Company, the
Company will withhold from the Shares to be delivered to Grantee such number of Shares as are sufficient in value
(as determined by the Company in its sole discretion) to cover the minimum amount of the tax withholding
obligation.
(d) Grantee is ultimately liable and responsible for all taxes owed by Grantee in connection with the Award, regardless of any
action the Company or any of its Subsidiaries, Affiliates or agents takes with respect to any tax withholding obligations that
arise in connection with the Award. Accordingly, Grantee agrees
8
to pay to the Company or its relevant Subsidiary or Affiliate as soon as practicable, including through additional payroll
withholding (if permitted under applicable law), any amount of required tax withholding that is not satisfied by any such
action of the Company or its Subsidiary or Affiliate.
(e) The Committee shall be authorized, in its sole discretion, to establish such rules and procedures relating to the use of Shares of
common stock to satisfy tax withholding obligations as it deems necessary or appropriate to facilitate and promote the
conformity of Grantee’s transactions under this Agreement with Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, if such rule is applicable to transactions by Grantee.
1.7 Detrimental Activity. In the event the Committee determines or discovers during or after the course of Grantee’s employment
or service that Grantee committed an act during the course of employment or service that constitutes or would have constituted Cause
for termination, the Committee shall have the right, to the maximum extent permissible under applicable law, to cancel any or all of
Grantee’s then outstanding Awards (whether or not vested).
2 CERTAIN DEFINITIONS
Defined terms not defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan [and Appendix A].
(4)
3 REPRESENTATIONS OF GRANTEE
Grantee hereby represents to the Company that Grantee has read and fully understands the provisions of this Agreement, and Grantee
acknowledges that Grantee is relying solely on his or her own advisors with respect to the tax consequences of this Award. Grantee
acknowledges that this Agreement has not been reviewed or approved by any regulatory authority in his or her country of residence or
otherwise.
(4) Include for grants under the 2004 plan.
9
4 NOTICES
All notices or communications under this Agreement shall be in writing, addressed as follows:
To the Company:
Verint Systems Inc.
330 South Service Road
Melville, NY 11747-3201
U.S.A.
+(631) 962-9600 (phone)
+(631) 962-9623 (fax)
Attn: Chief Legal Officer
To Grantee:
as set forth in the Company’s payroll
records
Any such notice or communication shall be (a) delivered by hand (with written confirmation of receipt) or sent by a nationally
recognized overnight delivery service (receipt requested) or (b) sent certified or registered mail, return receipt requested, postage
prepaid, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of
receipt shall determine the time at which notice was given. Grantee will promptly notify the Company in writing upon any change in
Grantee’s mailing address or e-mail address.
5 BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of Grantee and the assigns and
successors of the Company.
6 ENTIRE AGREEMENT; AMENDMENT
The Plan, this Agreement and the Notice of Grant represent the entire agreement of the parties with respect to the subject matter hereof.
The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, the
Award; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would
impair the rights of Grantee or any holder or beneficiary of the Award previously granted shall not be effective as to Grantee without
the written consent of Grantee, holder or beneficiary, further, provided, that the consent of Grantee or any holder or beneficiary shall
not be required to an amendment that is deemed necessary by the Company to ensure compliance with (a) the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 or any regulations promulgated thereunder, including as a result of the implementation of
any recoupment policy the Company adopts to comply with the requirements set forth in the Dodd-Frank
10
Act and (b) Section 409A of the Code as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or
guidance, or any other applicable equivalent tax law, rule, or regulation, as the Company deems appropriate or advisable.
7 GOVERNING LAW
The rules and regulations relating to this Agreement shall be determined in accordance with the laws of the State of New York, applied
without giving effect to its conflict of laws principles. Each party to this Agreement hereby consents and submits himself, herself or
itself to the jurisdiction of the courts of the state of New York for the purposes of any legal action or proceeding arising out of this
Agreement. Nothing in this Agreement shall affect the right of the Company to commence proceedings against Grantee in any other
competent jurisdiction, or concurrently in more than one jurisdiction, or to serve process, pleadings and other papers upon Grantee in
any manner authorized by the laws of any such jurisdiction. Grantee irrevocably waives:
(a) any objection which it may have now or in the future to the laying of the venue of any action, suit or proceeding in
any court referred to in this Section; and
(b) any claim that any such action, suit or proceeding has been brought in an inconvenient forum.
8 SEVERABILITY
If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any
person or this Agreement, or would disqualify this Agreement under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of this Agreement, such provision shall be stricken as to such jurisdiction,
person or this Agreement and the remainder of this Agreement shall remain in full force and effect.
9 ONE-TIME GRANT; NO RIGHT TO CONTINUED SERVICE OR PARTICIPATION; EFFECT ON OTHER
PLANS
The award evidenced by this Agreement is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute a
commitment to make any future awards. Neither this Agreement nor the Notice of Grant shall be construed as giving Grantee the right
to be retained in the employ of, or in any consulting relationship to, or as a director on the Board or board of directors, as applicable, of,
the Company or any Subsidiary or Affiliate of the Company. Further, the Company or a Subsidiary or Affiliate of the Company may at
any time dismiss Grantee from employment or discontinue any consulting relationship, free from any liability or any claim under the
Plan or this Agreement, unless otherwise expressly provided in the Plan, this Agreement or any applicable employment contract or
agreement. Payment received by Grantee pursuant to
11
this Agreement and the Notice of Grant shall not be considered salary or other compensation for purposes of any severance pay or
similar allowance and shall not be included in the determination of benefits under any pension, group insurance or other benefit plan of
the Company or any Subsidiary or Affiliate in which Grantee may be enrolled, except as provided under the terms of such plans, or as
determined by the Board.
10 NO STRICT CONSTRUCTION
No rule of strict construction shall be implied against the Company, the Committee, or any other person in the interpretation of any of
the terms of this Agreement, the Notice of Grant or any rule or procedure established by the Committee.
11 USE OF THE WORD “GRANTEE”
Wherever the word “Grantee” is used in any provision of this Agreement under circumstances where the provision should logically be
construed to apply to the executors, the administrators, or the person or persons to whom the Restricted Stock Units may be transferred
by will or the laws of descent and distribution, the word “Grantee” shall be deemed to include such person or persons.
12 FURTHER ASSURANCES
Grantee agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional
documents, instruments and agreements which may be reasonably required by the Company or the Committee, as the case may be, to
implement the provisions and purposes of this Agreement.
13 CONSENT TO TRANSFER PERSONAL DATA
The Company and its Subsidiaries hold certain personal information about Grantee, that may include Grantee’s name, home address
and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, any
Shares of stock held in the Company, or details of any entitlement to Shares of stock awarded, canceled, purchased, vested, or unvested,
for the purpose of implementing, managing, and administering the Award or the Agreement (“Data”). Grantee hereby agrees that the
Company and/or its Subsidiaries may transfer Data amongst themselves as necessary for the purpose of implementation, administration,
and management of Grantee’s participation in the Award or the Agreement, and the Company and/or any of its Subsidiaries may each
further transfer Data to any third parties assisting the Company in the implementation, administration, and management of the Award or
the Agreement. These recipients may be located throughout the world, including outside Grantee’s country of residence (or outside of
the European Economic Area, for Grantees located within the European Economic Area). Such countries may not provide for a similar
level of data protection as provided for by local law (such as, for example, European privacy directive 95/46/EC and local
implementations thereof). Grantee hereby authorizes those
12
recipients — even if they are located in a country outside of Grantee’s country of residence (or outside of the European Economic Area,
for Grantees located within the European Economic Area) — to receive, possess, use, retain, and transfer the Data, in electronic or
other form, for the purpose of implementing, administering, and managing Grantee’s participation in the Award or the Agreement,
including any requisite transfer of such Data as may be required for the administration of the Award or the Agreement and/or the
subsequent holding of Shares of stock on Grantee’s behalf by a broker or other third party with whom Grantee or the Company may
elect to deposit any Shares of stock acquired pursuant to the Award or the Agreement. Grantee is not obliged to consent to such
collection, use, processing and transfer of personal data and may, at any time, review Data, require any necessary amendments to it, or
withdraw the consent contained in this Section by contacting the Company in writing. However, withdrawing or withholding consent
may affect Grantee’s ability to participate in the Award or the Agreement. More information on the Data and/or the consequences of
withholding or withdrawing consent can be obtained from the Company’s legal department.
14 GOVERNING PLAN DOCUMENT
This Agreement is subject to all the provisions of the Plan, the provisions of which are hereby made a part of this Agreement, and is
further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the
Plan control.
15 CERTAIN COUNTRY-SPECIFIC PROVISIONS
For residents of the UK only:
Grantee agrees, as a condition to its acceptance of the Award, to satisfy any requirement of the Company or any Subsidiary that, prior
to vesting of all or any part of the Award, Grantee enter into a joint election under section 431(1) of the UK Income Tax (Earnings and
Pensions) Act 2003, the effect of which is that the Shares issued on vesting will be treated as if they were not restricted securities.
Tax withholding obligations under this Agreement shall include, without limitation:
(i) United Kingdom (UK) income tax; and
(ii) UK primary class 1 (employee’s) national insurance contributions.
For residents of Canada only:
I acknowledge having requested that this Agreement and all documents referred to herein be drafted in the English language. Je
reconnais également avoir exigé que ce document ainsi que tout document auquel ce document fait référence, soient rédigés en langue
anglaise.
13
Tax withholding obligations under this Agreement shall include federal and provincial income tax, Canadian Pension Plan
contributions, and Employment Insurance premiums (including the provincial equivalents) as applicable.
For residents of Hong Kong only:
The Data Protection Principles specified in the Personal Data (Privacy) Ordinance (Cap. 486 of the Laws of Hong Kong) will apply to
any Data upon its transfer to any place outside of Hong Kong.
For residents of Israel only:
By my signature on this Agreement, I acknowledge that the Award is granted under and governed by (i) this Agreement, (ii) the Plan, a
copy of which has been provided to me or made available for my review, (iii) the Israeli Supplement (“the Supplement”), a copy of
which has been provided to me or made available for my review; (iv) Section 102(b)(2) of the Income Tax Ordinance (New Version)
— 1961 and the Rules promulgated in connection therewith, and (v) the Trust Agreement, a copy of which has been provided to me or
made available for my review. Furthermore, by my signature on this Agreement, I agree that the Awards will be issued to the Trustee
to hold on my behalf, pursuant to the terms of the Section 102, the Section 102 Rules and the Trust Agreement.
In addition, by my signature on this Agreement, I confirm that I am familiar with the terms and provisions of Section 102, particularly
the Capital Gains Track described in subsection (b)(2) thereof, and I agree that I will not require the Trustee to release the Awards or
Company shares to me, or to sell the Awards or Company shares to a third party, during the Holding Period, unless permitted to do so
by applicable law.
All capitalized terms in this undertaking shall have the meaning granted to them under the Supplement.
END OF AGREEMENT
14
EXHIBIT A
Sample Performance Matrix
Performance Equity Award Granted [ ], 20[ ]
Performance Period Ending January 31, 20[ ]
(Period [ ] of 3)
Target Units for Performance Period:
Total Units for Performance Period:
Revenue Achieved in Performance Period(5)
Threshold ([ ]% of Revenue Target)
Target (100% of Revenue Target)
Maximum ([ ]% of Revenue Target)
Operating Income Achieved in Performance
Period(7)
Threshold ([ ]% of Operating Income Target)
Target (100% of Operating Income Target)
Maximum ([ ]% of Operating Income Target)
Revenue Payout Percentage in Performance
Period
[ ]%
[ ]%
200%(6)
Operating Income Payout Percentage in
Performance Period
[ ]%
[ ]%
200%(8)
(5) May include more than three data points.
(6) If the Notice of Grant does not make Overachievement Units available for over-performance, replace this line of the table with
“Maximum: Not Applicable”.
(7) May include more than three data points.
(8) See footnote 6 above.
15
(9)[Appendix A
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the following meanings:
“Cause” as a reason for Grantee’s termination of employment or service shall have the meaning assigned such term in the
employment, severance or similar agreement, if any, between Grantee and the Company or a Subsidiary or Affiliate of the Company.
If Grantee is not a party to an employment, severance or similar agreement with the Company or a Subsidiary or Affiliate of the
Company in which such term is defined, then “Cause” shall mean Grantee’s: (A) conviction of, or plea of guilty or nolo contendere to,
a felony or indictment for a crime involving dishonesty, fraud or moral turpitude; (B) willful and intentional breach of Grantee’s
obligations to the Company or a Subsidiary or Affiliate of the Company; (C) willful misconduct, or any dishonest or fraudulent act or
omission; (D) violation of any securities or financial reporting laws, rules or regulations or any policy of the Company or a Subsidiary
or Affiliate of the Company relating to the foregoing; (E) violation of the policies of the Company or a Subsidiary or Affiliate of the
Company on harassment, discrimination or substance abuse; or (F) gross negligence, gross neglect of duties or gross insubordination
in Grantee’s performance of duties with the Company or a Subsidiary or Affiliate of the Company.
“Share” means the common stock of the Company, par value $.001 per share, or such other class or kind of shares or other securities
resulting from the adjustment application under the Plan.]
(9) Include Appendix A only for grants under the 2004 plan.
16
Exhibit 10.28
, 20
[Name of Recipient]
[Address]
Dear [Name]:
Notice of Grant of Restricted Stock Units(1)
Congratulations! You have been granted a Restricted Stock Unit award (the “Award”) pursuant to the terms and conditions
of the Verint Systems Inc. (the “Company”) [2004 Stock Incentive Compensation Plan][2010 Long-Term Stock Incentive Plan][,
as modified by the [UK Sub-Plan thereunder][Canadian Sub-Plan thereunder][Israeli Supplement thereto][India
Addendum],] (the “Plan”) and the attached Verint Systems Inc. Restricted Stock Unit Award Agreement (the “Agreement”). The
details of your Award are specified below and in the attached Agreement. Capitalized terms used in this Notice of Grant and not
otherwise defined shall have the meanings given in the Plan or the Agreement.
Granted To:
ID#:
Grant Date:
[Name]
[ID Number]
[ ]
Units Granted:
[Number]
Price Per Unit:
U.S.$0.00
Vesting Schedule:
The Restricted Stock Units granted hereby shall vest on each of the following
dates:
(a) [1/3] on [ ];
(b) [1/3] on [ ]; and
(c) [1/3] on [ ].
Cash Cancel Option:
On each vesting date, the Board of Directors of the Company shall have the right,
in its sole and absolute discretion, to cancel some or all of the
(1) For grants awarded in 2011 and prior, this Notice of Grant and Agreement are applicable to grants awarded under the 1996 plan.
portion of the Award vesting on such vesting date and to instead cause the Verint
entity which employs you to pay you in cash (in accordance with such entity’s
normal payroll practices) the Fair Market Value of one Share for each Restricted
Stock Unit being cancelled (less applicable withholding).
Verint Systems Inc.
By my signature below or my online acceptance hereof (if provided to me electronically), I hereby acknowledge my receipt
of this Award granted on the date shown above, which has been issued to me under the terms and conditions of the Plan and the
Agreement. I agree that the Award is subject to all of the terms and conditions of this Notice of Grant, the Plan, and the Agreement.
If I am a resident of Canada, I also acknowledge having requested that this Notice and all documents referred to herein be
drafted in the English language. Je reconnais également avoir exigé que ce document ainsi que tout document auquel ce document
fait référence, soient rédigés en langue anglaise.
Signature:
Date:
2
VERINT SYSTEMS INC.
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Restricted Stock Unit Award Agreement (“Agreement”) and the Verint Systems Inc. [2004 Stock Incentive Compensation
Plan][2010 Long-Term Stock Incentive Plan][, as modified by the [UK Sub-Plan thereunder][Canadian Sub-Plan thereunder]
[Israeli Supplement thereto][India Addendum],] (the “Plan”) govern the terms and conditions of the Restricted Stock Unit Award
(the “Award”) specified in the Notice of Grant of Restricted Stock Units (the “Notice of Grant”) delivered herewith entitling the
person to whom the Notice of Grant is addressed (“Grantee”) to receive from Verint Systems Inc. (the “Company”) the number of
Restricted Stock Units indicated in the Notice of Grant.
1 RESTRICTED STOCK UNITS; VESTING
1.1 Grant of Restricted Stock Units.
(a) The Award of the Restricted Stock Units is made subject to the terms and conditions of the Plan, this Agreement and the
Notice of Grant. If and when the Restricted Stock Units vest in accordance with the terms of the Plan, this Agreement and
the Notice of Grant without forfeiture, and upon the satisfaction of all other applicable conditions as to the Restricted Stock
Units, one Share shall be issuable to Grantee for each Restricted Stock Unit that vests on such date, which Shares, except as
otherwise provided herein or in the Notice of Grant, will be free of any Company-imposed transfer restrictions. Any
fractional Restricted Stock Unit remaining after the Award is fully vested shall be discarded and shall not be converted into a
fractional Share.
1.2 Restrictions.
(a) Except as provided herein, Grantee shall not have any rights as a stockholder with respect to any Shares to be distributed
under the Plan until he or she has become the holder of such Shares as provided in the Plan.
(b) The Award is subject to the transferability restrictions under the Plan.
1.3 Vesting.
(a) Subject to the terms and conditions of this Agreement, the applicable percentage or fraction (per the Notice of Grant) of
Restricted Stock Units awarded hereunder shall be deemed vested and no longer subject to forfeiture under this Agreement
on the applicable vesting date in accordance with the schedule set forth in the Notice of Grant.
3
(b) Vesting shall cease upon the date Grantee’s Continuous Service terminates for any reason, unless otherwise determined by
the Board or the Committee in its sole discretion.
(c) [On each vesting date, the Board shall have the right, in its sole and absolute discretion, to cancel some or all of the
portion of the Award vesting on such vesting date and to instead cause the Verint entity which employs Grantee to
pay Grantee in cash the Fair Market Value of one Share for each Restricted Stock Unit being cancelled (less
applicable withholding). All cash payments to Grantee hereunder will be made by the Verint entity which employs
Grantee in accordance with its normal payroll practices either on or promptly following the date of the Company
action which gives rise to such payment; provided, however, that the Company shall have the authority to delay any
such payments to the extent necessary to comply with Section 409A(a)(2)(B)(i) of the Code (relating to payments made
to “specified employees”); in such event, any payment to which Grantee would otherwise be entitled during the six
(6) month period following the date Grantee ceases to be employed by or otherwise in the service of the Company will
be issued on the first business day following the expiration of such six (6) month period.]
1.4 Forfeiture.
(a) If Grantee’s Continuous Service terminates for any reason, all Restricted Stock Units which are then unvested shall, unless
otherwise determined by the Committee in its sole discretion, be cancelled and the Company shall thereupon have no further
obligation thereunder. For the avoidance of doubt, subject to a separate written agreement between the parties, Grantee
acknowledges and agrees that he or she has no expectation that any Restricted Stock Units will vest on the termination of his
or her Continuous Service for any reason and that he or she will not be entitled to make a claim for any loss occasioned by
such forfeiture as part of any claim for breach of his or her employment or service contract or otherwise.
1.5 Delivery.
(a) Subject to Section 1.6 and any other applicable conditions hereunder, as soon as administratively practicable following the
vesting of Restricted Stock Units in accordance with the terms of this Agreement (but in no event later than the date the
short-term deferral period under Section 409A of the Code expires with respect to such vested Shares), the Company shall
issue the applicable Shares and, at its option, (i) deliver or cause to be delivered to Grantee a certificate or certificates for the
applicable Shares or (ii) transfer or arrange to have transferred the Shares to a brokerage account of Grantee designated by
the Company.
(b) Notwithstanding the foregoing, the issuance of Shares upon the vesting of a Restricted Stock Unit shall be delayed in the
event the Company reasonably
4
anticipates that the issuance of Shares would constitute a violation of U.S. federal securities laws, other applicable law, or
Nasdaq rules. If the issuance of the Shares is delayed by the provisions of this paragraph, such issuance shall occur at the
earliest date at which the Company reasonably anticipates issuing the Shares will not cause such a violation. For purposes of
this paragraph, the issuance of Shares that would cause inclusion in gross income or the application of any penalty provision
or other provision of the Code or other tax legislation applicable to Grantee is not considered a violation of applicable law.
1.6 Tax; Withholding.
(a) The Company shall determine the amount of any withholding or other tax required by law to be withheld or paid by the
Company or its Subsidiary with respect to any income recognized by Grantee with respect to the Restricted Stock Units or
the issuance of Shares pursuant to the terms of the Restricted Stock Units.
(b) Neither the Company nor any Subsidiary, Affiliate or agent makes any representation or undertaking regarding the treatment
of any tax or withholding in connection with the grant or vesting of the Award or the subsequent sale of Shares subject to the
Award. The Company and its Subsidiaries and Affiliates do not commit and are under no obligation to structure the Award
to reduce or eliminate Grantee’s tax liability.
(c) Notwithstanding the withholding provision in the Plan:
(i) If in the tax jurisdiction in which Grantee resides, a tax withholding obligation arises upon vesting of the Award
(regardless of when the Shares underlying the Award are delivered to Grantee), or for non-employee directors of the
Company in any jurisdiction, on each date the Award actually vests, if (1) the Company does not have in place an
effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or there is not a
Securities Act exemption available under which Grantee may sell Shares or (2) Grantee is subject to a Company-
imposed trading blackout, unless Grantee has made other arrangements satisfactory to the Company, the Company
will (x) with respect to employees of the Company, withhold from the Shares to be delivered to Grantee such
number of Shares as are sufficient in value (as determined by the Company in its sole discretion) to cover the
minimum amount of the tax withholding obligation and (y) with respect to non-employee directors of the Company,
settle 40% of the portion of the Award then vesting in cash by paying Grantee cash (in accordance with the
Company’s normal payroll practices) equal to the Fair Market Value of one Share for each Restricted Stock Unit
being settled in such manner.
5
(ii) If in the tax jurisdiction in which Grantee resides a tax withholding obligation arises upon delivery of the Shares
underlying the Restricted Stock Units (regardless of when vesting occurs), then following each date the Award
actually vests, the Company will defer the delivery of the Shares otherwise deliverable to Grantee until the earliest
of (1) the date Grantee’s employment with the Company (or a Subsidiary or Affiliate) is terminated (by either party),
(2) the date that the short-term deferral period under Section 409A of the Code expires with respect to such vested
Shares, or (3) the date on which the Company has in place an effective registration statement under the Securities
Act or there is a Securities Act exemption available under which Grantee may sell Shares and on which Grantee is
not subject to a Company-imposed trading blackout (the earliest of such dates, the “Delivery Date”). If on the
Delivery Date (1) the Company does not have in place an effective registration statement under the Securities Act or
there is not a Securities Act exemption available under which Grantee may sell Shares or (2) Grantee is subject to a
Company-imposed trading blackout, unless Grantee has made other arrangements satisfactory to the Company, the
Company will withhold from the Shares to be delivered to Grantee such number of Shares as are sufficient in value
(as determined by the Company in its sole discretion) to cover the minimum amount of the tax withholding
obligation.
(d) Grantee is ultimately liable and responsible for all taxes owed by Grantee in connection with the Award, regardless of any
action the Company or any of its Subsidiaries, Affiliates or agents takes with respect to any tax withholding obligations that
arise in connection with the Award. Accordingly, Grantee agrees to pay to the Company or its relevant Subsidiary or
Affiliate as soon as practicable, including through additional payroll withholding (if permitted under applicable law), any
amount of required tax withholding that is not satisfied by any such action of the Company or its Subsidiary or Affiliate.
(e) The Committee shall be authorized, in its sole discretion, to establish such rules and procedures relating to the use of Shares
of common stock to satisfy tax withholding obligations as it deems necessary or appropriate to facilitate and promote the
conformity of Grantee’s transactions under this Agreement with Rule 16b-3 under the Securities Exchange Act of 1934, as
amended, if such rule is applicable to transactions by Grantee.
6
1.7 Detrimental Activity. In the event the Committee determines or discovers during or after the course of Grantee’s
employment or service that Grantee committed an act during the course of employment or service that constitutes or would have
constituted Cause for termination, the Committee shall have the right, to the maximum extent permissible under applicable law, to
cancel any or all of Grantee’s then outstanding Awards (whether or not vested).
2 CERTAIN DEFINITIONS
Defined terms not defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan [and Appendix A].
(2)
3 REPRESENTATIONS OF GRANTEE
Grantee hereby represents to the Company that Grantee has read and fully understands the provisions of this Agreement, and Grantee
acknowledges that Grantee is relying solely on his or her own advisors with respect to the tax consequences of this Award. Grantee
acknowledges that this Agreement has not been reviewed or approved by any regulatory authority in his or her country of residence or
otherwise.
4 NOTICES
All notices or communications under this Agreement shall be in writing, addressed as follows:
To the Company:
Verint Systems Inc.
330 South Service Road
Melville, NY 11747-3201
U.S.A.
+(631) 962-9600 (phone)
+(631) 962-9623 (fax)
Attn: Chief Legal Officer
To Grantee:
as set forth in the Company’s payroll
records
Any such notice or communication shall be (a) delivered by hand (with written confirmation of receipt) or sent by a nationally
recognized overnight delivery service (receipt requested) or (b) sent certified or registered mail, return receipt requested, postage
prepaid, addressed as above (or to such other address as such party may
(2) Include for grants under the 2004 plan.
7
designate in writing from time to time), and the actual date of receipt shall determine the time at which notice was given. Grantee will
promptly notify the Company in writing upon any change in Grantee’s mailing address or e-mail address.
5 BINDING AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of Grantee and the assigns and
successors of the Company.
6 ENTIRE AGREEMENT; AMENDMENT
The Plan, this Agreement and the Notice of Grant represent the entire agreement of the parties with respect to the subject matter
hereof. The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate, the Award; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination
that would impair the rights of Grantee or any holder or beneficiary of the Award previously granted shall not be effective as to
Grantee without the written consent of Grantee, holder or beneficiary, further, provided, that the consent of Grantee or any holder or
beneficiary shall not be required to an amendment that is deemed necessary by the Company to ensure compliance with (a) the Dodd-
Frank Wall Street Reform and Consumer Protection Act of 2010 or any regulations promulgated thereunder, including as a result of
the implementation of any recoupment policy the Company adopts to comply with the requirements set forth in the Dodd-Frank Act
and (b) Section 409A of the Code as amplified by any Internal Revenue Service or U.S. Treasury Department regulations or guidance,
or any other applicable equivalent tax law, rule, or regulation, as the Company deems appropriate or advisable.
7 GOVERNING LAW
The rules and regulations relating to this Agreement shall be determined in accordance with the laws of the State of New York,
applied without giving effect to its conflict of laws principles. Each party to this Agreement hereby consents and submits himself,
herself or itself to the jurisdiction of the courts of the state of New York for the purposes of any legal action or proceeding arising out
of this Agreement. Nothing in this Agreement shall affect the right of the Company to commence proceedings against Grantee in any
other competent jurisdiction, or concurrently in more than one jurisdiction, or to serve process, pleadings and other papers upon
Grantee in any manner authorized by the laws of any such jurisdiction. Grantee irrevocably waives:
8
(a) any objection which it may have now or in the future to the laying of the venue of any action, suit or proceeding in
any court referred to in this Section; and
(b) any claim that any such action, suit or proceeding has been brought in an inconvenient forum.
8 SEVERABILITY
If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any
person or this Agreement, or would disqualify this Agreement under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in
the determination of the Committee, materially altering the intent of this Agreement, such provision shall be stricken as to such
jurisdiction, person or this Agreement and the remainder of this Agreement shall remain in full force and effect.
9 ONE-TIME GRANT; NO RIGHT TO CONTINUED SERVICE OR PARTICIPATION; EFFECT ON OTHER
PLANS
The award evidenced by this Agreement is a voluntary, discretionary bonus being made on a one-time basis and it does not constitute
a commitment to make any future awards. Neither this Agreement nor the Notice of Grant shall be construed as giving Grantee the
right to be retained in the employ of, or in any consulting relationship to, or as a director on the Board or board of directors, as
applicable, of, the Company or any Subsidiary or Affiliate of the Company. Further, the Company or a Subsidiary or Affiliate of the
Company may at any time dismiss Grantee from employment or discontinue any consulting relationship, free from any liability or any
claim under the Plan or this Agreement, unless otherwise expressly provided in the Plan, this Agreement or any applicable
employment contract or agreement. Payment received by Grantee pursuant to this Agreement and the Notice of Grant shall not be
considered salary or other compensation for purposes of any severance pay or similar allowance and shall not be included in the
determination of benefits under any pension, group insurance or other benefit plan of the Company or any Subsidiary or Affiliate in
which Grantee may be enrolled, except as provided under the terms of such plans, or as determined by the Board.
10 NO STRICT CONSTRUCTION
No rule of strict construction shall be implied against the Company, the Committee, or any other person in the interpretation of any of
the terms of this Agreement, the Notice of Grant or any rule or procedure established by the Committee.
9
11 USE OF THE WORD “GRANTEE”
Wherever the word “Grantee” is used in any provision of this Agreement under circumstances where the provision should logically be
construed to apply to the executors, the administrators, or the person or persons to whom the Restricted Stock Units may be transferred
by will or the laws of descent and distribution, the word “Grantee” shall be deemed to include such person or persons.
12 FURTHER ASSURANCES
Grantee agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional
documents, instruments and agreements which may be reasonably required by the Company or the Committee, as the case may be, to
implement the provisions and purposes of this Agreement.
13 CONSENT TO TRANSFER PERSONAL DATA
The Company and its Subsidiaries hold certain personal information about Grantee, that may include Grantee’s name, home address
and telephone number, date of birth, social security number or other employee identification number, salary, nationality, job title, any
Shares of stock held in the Company, or details of any entitlement to Shares of stock awarded, canceled, purchased, vested, or unvested,
for the purpose of implementing, managing, and administering the Award or the Agreement (“Data”). Grantee hereby agrees that the
Company and/or its Subsidiaries may transfer Data amongst themselves as necessary for the purpose of implementation, administration,
and management of Grantee’s participation in the Award or the Agreement, and the Company and/or any of its Subsidiaries may each
further transfer Data to any third parties assisting the Company in the implementation, administration, and management of the Award or
the Agreement. These recipients may be located throughout the world, including outside Grantee’s country of residence (or outside of
the European Economic Area, for Grantees located within the European Economic Area). Such countries may not provide for a similar
level of data protection as provided for by local law (such as, for example, European privacy directive 95/46/EC and local
implementations thereof). Grantee hereby authorizes those recipients — even if they are located in a country outside of Grantee’s
country of residence (or outside of the European Economic Area, for Grantees located within the European Economic Area) — to
receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purpose of implementing, administering, and
managing Grantee’s participation in the Award or the Agreement, including any requisite transfer of such Data as may be required for
the administration of the Award or the Agreement and/or the subsequent holding of Shares of stock on Grantee’s behalf by a broker or
other third party with whom Grantee or the Company may elect to deposit any Shares of stock acquired pursuant to the Award or the
Agreement. Grantee is not obliged to consent to such collection, use, processing and transfer of personal data and may, at any time,
review Data, require any necessary amendments to it, or withdraw the consent contained in this Section by contacting the Company in
writing. However, withdrawing or withholding consent may affect Grantee’s ability to participate in the Award or the
10
Agreement. More information on the Data and/or the consequences of withholding or withdrawing consent can be obtained from the
Company’s legal department.
14 GOVERNING PLAN DOCUMENT
This Agreement is subject to all the provisions of the Plan, the provisions of which are hereby made a part of this Agreement, and is
further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the provisions of this Agreement and those of the Plan, the provisions of the
Plan control.
15 CERTAIN COUNTRY-SPECIFIC PROVISIONS
For residents of the UK only:
Grantee agrees, as a condition to its acceptance of the Award, to satisfy any requirement of the Company or any Subsidiary that, prior
to vesting of all or any part of the Award, Grantee enter into a joint election under section 431(1) of the UK Income Tax (Earnings and
Pensions) Act 2003, the effect of which is that the Shares issued on vesting will be treated as if they were not restricted securities.
Tax withholding obligations under this Agreement shall include, without limitation:
(i) United Kingdom (UK) income tax; and
(ii) UK primary class 1 (employee’s) national insurance contributions.
For residents of Canada only:
I acknowledge having requested that this Agreement and all documents referred to herein be drafted in the English language. Je
reconnais également avoir exigé que ce document ainsi que tout document auquel ce document fait référence, soient rédigés en langue
anglaise.
Tax withholding obligations under this Agreement shall include federal and provincial income tax, Canadian Pension Plan
contributions, and Employment Insurance premiums (including the provincial equivalents) as applicable.
For residents of Hong Kong only:
The Data Protection Principles specified in the Personal Data (Privacy) Ordinance (Cap. 486 of the Laws of Hong Kong) will apply to
any Data upon its transfer to any place outside of Hong Kong.
11
For residents of Israel only:
By my signature on this Agreement, I acknowledge that the Award is granted under and governed by (i) this Agreement, (ii) the Plan, a
copy of which has been provided to me or made available for my review, (iii) the Israeli Supplement (“the Supplement”), a copy of
which has been provided to me or made available for my review; (iv) Section 102(b)(2) of the Income Tax Ordinance (New Version)
— 1961 and the Rules promulgated in connection therewith, and (v) the Trust Agreement, a copy of which has been provided to me or
made available for my review. Furthermore, by my signature on this Agreement, I agree that the Awards will be issued to the Trustee
to hold on my behalf, pursuant to the terms of the Section 102, the Section 102 Rules and the Trust Agreement.
In addition, by my signature on this Agreement, I confirm that I am familiar with the terms and provisions of Section 102, particularly
the Capital Gains Track described in subsection (b)(2) thereof, and I agree that I will not require the Trustee to release the Awards or
Company shares to me, or to sell the Awards or Company shares to a third party, during the Holding Period, unless permitted to do so
by applicable law.
All capitalized terms in this undertaking shall have the meaning granted to them under the Supplement.
END OF AGREEMENT
12
(3)[Appendix A
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the following meanings:
“Cause” as a reason for Grantee’s termination of employment or service shall have the meaning assigned such term in the employment,
severance or similar agreement, if any, between Grantee and the Company or a Subsidiary or Affiliate of the Company. If Grantee is
not a party to an employment, severance or similar agreement with the Company or a Subsidiary or Affiliate of the Company in which
such term is defined, then “Cause” shall mean Grantee’s: (A) conviction of, or plea of guilty or nolo contendere to, a felony or
indictment for a crime involving dishonesty, fraud or moral turpitude; (B) willful and intentional breach of Grantee’s obligations to the
Company or a Subsidiary or Affiliate of the Company; (C) willful misconduct, or any dishonest or fraudulent act or omission;
(D) violation of any securities or financial reporting laws, rules or regulations or any policy of the Company or a Subsidiary or Affiliate
of the Company relating to the foregoing; (E) violation of the policies of the Company or a Subsidiary or Affiliate of the Company on
harassment, discrimination or substance abuse; or (F) gross negligence, gross neglect of duties or gross insubordination in Grantee’s
performance of duties with the Company or a Subsidiary or Affiliate of the Company.
“Share” means the common stock of the Company, par value $.001 per share, or such other class or kind of shares or other securities
resulting from the adjustment application under the Plan.]
(3) Include Appendix A only for grants under the 2004 plan.
13
Subsidiaries of Verint Systems Inc.
(as of January 31, 2012)
EXHIBIT 21.1
Name
Blue Pumpkin Software Israel Ltd.
CIS Comverse Information Systems Ltd.
Febrouin Investments Ltd.
Focal Info Bulgaria EOOD
Focal Info Israel Ltd.
Global Management Technologies, LLC
Global Management Technologies Asia-Pacific PTY Limited
Global Management Technologies Europe Limited
Iontas, Inc.
Iontas Limited
Jacou Participações Ltda.
MultiVision Holdings Limited
Rontal Engineering Applications (2001) Ltd.
Rontal-USA Inc.
Suntech S.A.
Suntech Participações Ltda.
Syborg GmbH
Syborg Grundbesitz GmbH
Syborg Informationsysteme b.h. OHG
Verint Americas Inc.
Verint Blue Pumpkin Software GmbH
Verint Blue Pumpkin Software LLC
Verint Systems (Asia Pacific) Limited
Verint Systems (Australia) PTY Ltd.
Verint Systems (India) Private Ltd.
Verint Systems Japan K.K.
Verint Systems (Macau) Limited
Verint Systems (Singapore) Pte. Ltd. (1)
Verint Systems (Zhuhai) Limited
Verint Systems B.V.
Verint Systems Canada Inc.
Verint Systems Cayman Limited
Verint Systems GmbH
Verint Systems Ltd.
Verint Systems Poland sp.z.o.o.
Jurisdiction of
Incorporation or
Organization
Israel
Israel
Cyprus
Bulgaria
Israel
Delaware
Australia
United Kingdom
Delaware
Ireland
Brazil
British Virgin Islands
Israel
Delaware
Brazil
Brazil
Germany
Germany
Germany
Delaware
Germany
Delaware
Hong Kong
Australia
India
Japan
Macau
Singapore
People’s Republic of China
The Netherlands
Canada
Cayman Islands
Germany
Israel
Poland
Verint Systems SAS
Verint Systems UK Ltd.
Verint Technology Inc.
Verint Technology UK Limited
Verint Video Solutions AB
Verint Video Solutions Inc.
Verint Video Solutions SL
Verint Video Solutions UK Limited
Verint Witness Systems Canada Inc.
Verint Witness Systems Deutschland GmbH
Verint Witness Systems
Verint Witness Systems LLC
Verint Witness Systems S.A. de CV
Verint Witness Systems Services S.A. de CV
Verint Witness Systems Software, Hardware, E Servicos Do Brasil Ltda
Verint WS Holdings Ltd.
View Links Euclipse Ltd.
Vovici LLC
Witness Systems Software (India) Private Limited
France
United Kingdom
Delaware
United Kingdom
Sweden
Nevada
Spain
United Kingdom
Canada
Germany
United Kingdom
Delaware
Mexico
Mexico
Brazil
United Kingdom
Israel
Delaware
India
(1) We own a 50% equity interest in this entity and do not have the power to unilaterally direct or cause the direction of the
management and policies of this entity.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-98965, 333-98967, 333-120269, 333-167618, 333-
169005, 333-169768, 333-171006, 333-173421, 333-173454, and 333-174820 on Form S-8 of our report dated April 2, 2012, relating
to the consolidated financial statements of Verint Systems Inc. (which report expresses an unqualified opinion and includes an
explanatory paragraph regarding the adoption of the Financial Accounting Standards Board’s Accounting Standards Update (“ASU”)
2009-13, Multiple Deliverable Revenue Arrangements and ASU 2009-14, Certain Revenue Arrangements That Include Software
Elements), and our report dated April 2, 2012, relating to the effectiveness of Verint Systems Inc.’s internal control over financial
reporting, appearing in the Annual Report on Form 10-K of Verint Systems Inc. for the year ended January 31, 2012.
EXHIBIT 23.1
/s/ DELOITTE & TOUCHE LLP
New York, New York
April 2, 2012
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Dan Bodner, certify that:
1. I have reviewed this annual report on Form 10-K of Verint Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: April 2, 2012
By:
/s/ Dan Bodner
Dan Bodner
President and Chief Executive Officer
Principal Executive Officer
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Douglas E. Robinson, certify that:
1. I have reviewed this annual report on Form 10-K of Verint Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: April 2, 2012
By:
/s/ Douglas E. Robinson
Douglas E. Robinson
Chief Financial Officer
Principal Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Verint Systems Inc. (the “Company”) on Form 10-K for the period ended January 31, 2012
(the “Report”), I, Dan Bodner, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
EXHIBIT 32.1
Dated: April 2, 2012
By:
/s/ Dan Bodner
Dan Bodner
President and Chief Executive Officer
Principal Executive Officer
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not,
except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by
reference.
CERTIFICATION REQUIRED BY 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Verint Systems Inc. (the “Company”) on Form 10-K for the period ended January 31, 2012
(the “Report”), I, Douglas E. Robinson, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
EXHIBIT 32.2
Dated: April 2, 2012
By:
/s/Douglas E. Robinson
Douglas E. Robinson
Chief Financial Officer
Principal Financial Officer
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not,
except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by
reference.
vrnt-20120131.xml
vrnt-20120131.xsd
vrnt-20120131_cal.xml
vrnt-20120131_def.xml
vrnt-20120131_lab.xml
vrnt-20120131_pre.xml