sv1za
As
filed with the Securities and Exchange Commission on October
7, 2010
Registration
No. 333-169025
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No. 1 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VERINT SYSTEMS INC.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
Delaware
|
|
7373
|
|
11-3200514 |
(State or other jurisdiction of
|
|
(Primary Standard Industrial
|
|
(I.R.S. Employer |
incorporation or organization)
|
|
Classification Code Number)
|
|
Identification Number) |
330 South Service Road
Melville, NY 11747
(631) 962-9600
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Peter Fante, Esq.
Chief Legal Officer
Verint Systems Inc.
330 South Service Road
Melville, NY 11747
(631) 962-9600
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Randi C. Lesnick, Esq.
Jones Day
222 East 41st Street
New York, New York 10017
(212) 326-3939
Approximate date of commencement of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. o
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 the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary
to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an offer to sell these securities and
we are not soliciting offers to buy these securities in any state where the offer or sale is not
permitted.
Subject
to Completion, dated October 7, 2010
PRELIMINARY PROSPECTUS
2,434,783 Shares
VERINT SYSTEMS INC.
Common Stock
This
prospectus relates to the sale of 2,434,783 shares of our common
stock by the sole selling
stockholder identified in this prospectus, Comverse Technology, Inc. (Comverse). Comverse is our majority stockholder and, as of September
15, 2010, it beneficially owned 63.5% of our common stock assuming conversion of all of our Series
A Convertible Preferred Stock, par value $0.001 per share.
We will not receive any of the proceeds from the sale of
these shares. Our common stock is traded on the NASDAQ Global Market under the symbol VRNT. On
October 6, 2010, the last reported sale price of our common stock on the NASDAQ Global Market
was $30.89 per share.
Investing in our common stock involves a high degree of risk. Before buying any shares of our
common stock, you should carefully consider the risks set out under Risk Factors, beginning on
page 11 of this prospectus.
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
Total |
Public offering price |
|
$ |
|
|
|
$ |
|
|
Underwriting discounts and commissions |
|
$ |
|
|
|
$ |
|
|
Proceeds, before expenses, to the selling stockholder |
|
$ |
|
|
|
$ |
|
|
The underwriters have the option to purchase up to 365,217 additional shares from the selling
stockholder at the public offering price, less the underwriting discounts and commissions, to cover
over-allotments, if any, within 30 days of the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on or about , 2010.
Prospectus dated , 2010
[inside cover graphic to come]
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
1 |
|
|
|
|
11 |
|
|
|
|
33 |
|
|
|
|
35 |
|
|
|
|
36 |
|
|
|
|
37 |
|
|
|
|
39 |
|
|
|
|
42 |
|
|
|
|
83 |
|
|
|
|
101 |
|
|
|
|
108 |
|
|
|
|
145 |
|
|
|
|
148 |
|
|
|
|
150 |
|
|
|
|
154 |
|
|
|
|
158 |
|
|
|
|
160 |
|
|
|
|
160 |
|
|
|
|
160 |
|
|
|
|
161 |
|
|
|
|
F-1 |
|
EX-23.1 |
We, the selling stockholder,
and the underwriters have not authorized any other person to provide you with information different
from that contained in this prospectus. The selling stockholder is offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the common stock.
Some of the industry and market data contained in this prospectus are based on independent industry
publications or other publicly available information, which we believe
is reliable but have not independently verified, while other information is based on our
internal sources.
VERINT,
the VERINT logo, ACTIONABLE INTELLIGENCE, POWERING ACTIONABLE
INTELLIGENCE, INTELLIGENCE IN ACTION, ACTIONABLE INTELLIGENCE FOR A
SMARTER WORKFORCE, VERINT VERIFIED, WITNESS
ACTIONABLE SOLUTIONS, STAR-GATE, RELIANT, VANTAGE, X-TRACT, NEXTIVA, EDGEVR, ULTRA, AUDIOLOG,
WITNESS, the WITNESS logo, IMPACT 360, the IMPACT 360 logo, IMPROVE EVERYTHING, EQUALITY,
CONTACTSTORE, EYRETEL, BLUE PUMPKIN SOFTWARE, BLUE PUMPKIN, the BLUE PUMPKIN logo, EXAMETRIC and
the EXAMETRIC logo, CLICK2STAFF, STAFFSMART, AMAE SOFTWARE and the AMAE logo are trademarks and
registered trademarks of Verint Systems Inc. Other trademarks mentioned in this prospectus are the
property of their respective owners.
i
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus and may not contain all
of the information that may be important to you. You should read this entire prospectus carefully,
including the information set forth in Risk Factors and the information incorporated herein by
reference, before making an investment decision. In this prospectus, Verint, we, us, and
our refer to Verint Systems Inc. and its subsidiaries, unless the context otherwise requires.
Verint Systems Inc.
Our Company
Verint is a global leader in Actionable Intelligence® solutions and value-added
services. Our solutions enable organizations of all sizes to make 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 80% 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 market, our workforce optimization solutions help organizations enhance customer
service operations in contact centers, branches, and back-office environments to increase customer
satisfaction, reduce operating costs, identify revenue opportunities, and improve profitability. In
the security intelligence market, our video intelligence, public safety, and communications
intelligence solutions are vital to 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 workforce optimization and security
intelligence markets by leveraging our core competency in developing highly scalable,
enterprise-class applications with advanced, integrated analytics for both unstructured and
structured information. Our innovative solutions are developed by approximately 800 employees in
research and development, representing approximately one-third of our total employees, and are
evidenced by more than 480 patents and patent applications worldwide. In addition, we offer a
range of customer services, from initial implementation to ongoing maintenance and support, to
maximize the value our customers receive from our Actionable Intelligence solutions and to allow us
to extend our customer relationships beyond the initial sale.
Our Markets Enterprise Workforce Optimization and Security Intelligence
We deliver our Actionable Intelligence solutions to the enterprise workforce optimization 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, email, and other forms
of text communication. We provide our advanced Actionable Intelligence solutions through our
Enterprise Workforce Optimization (Workforce Optimization solutions), Video Intelligence (Video
Intelligence solutions), and Communications Intelligence and Investigative (Communications
Intelligence solutions) segments to enable our customers to collect and analyze large amounts of
both structured and unstructured information in order to make better decisions.
Our Workforce Optimization Segment
We are a leading provider of enterprise workforce optimization 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 enhancing
compliance. Marketed under the Impact 360® brand to contact centers, back offices,
branch and remote offices, and public safety centers, these solutions comprise a unified suite of
enterprise workforce optimization applications and services that include Internet Protocol (IP) and
1
Time-Division Multiplexing (TDM) voice recording, quality monitoring, speech and data analytics,
workforce management, customer feedback, eLearning and coaching, performance management, and
desktop process analytics.
The Workforce Optimization 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 centers. Consistent with this trend, we believe that organizations seek workforce
optimization solutions that enable them to strike a balance among driving sales, managing operating
costs, and delivering the optimal customer experience.
We believe that key trends driving demand for our Workforce Optimization solutions include:
|
|
|
Integration of workforce optimization applications to improve collaboration among
various functions throughout the enterprise. |
|
|
|
|
Greater insight through customer interaction analytics to improve the performance of
customer service operations. |
|
|
|
|
Adoption of workforce optimization across the enterprise to enable performance
measurement and improvement, consistent with what has historically been done in the contact
center. |
|
|
|
|
Migration to Voice over Internet Protocol (VoIP) technologies, which typically require
new deployments of workforce optimization solutions designed to support IP or hybrid TDM/IP
environments. |
Based on industry sources, we believe that revenue for workforce optimization vendors was at least
$1.0 billion in 2009. See Risk FactorsRisks Related to Our BusinessCompetition and MarketsOur
business is impacted by changes in general economic conditions and information technology spending
in particular.
Our Strengths in the Workforce Optimization Market
We believe that the following competitive strengths will enable us to sustain our leadership in the
workforce optimization market:
|
|
|
Our comprehensive, unified suite of workforce optimization applications offers our
customers many advantages in terms of both functionality and total cost of ownership. |
|
|
|
|
Our advanced customer interaction analytics enable our customers to better understand
workforce performance, the customer experience, and the factors underlying important
business trends. |
|
|
|
|
Our compelling Workforce Optimization solutions for back-office and branch operations
enable the same type of performance measurement and improvement that has historically been
available to contact centers. |
|
|
|
|
Our focus on delivering best-in-class customer service helps enable our customers to
derive maximum value from our Actionable Intelligence solutions. |
|
|
|
|
Our strong Original Equipment Manufacturer (OEM) partner relationships expand our
market coverage and provide our customers tighter integration with certain third-party
solutions. |
Our Video Intelligence Segment
We are a leading provider of networked IP video solutions designed to optimize security and enhance
operations. Our Video Intelligence Solutions portfolio includes IP video management software and
services, edge devices for capturing, digitizing, and transmitting video over different types of
wired and wireless networks, video analytics, and networked Digital Video Recorders (DVRs).
Marketed under the Nextiva® brand, this portfolio enables
2
organizations to deploy an end-to-end IP video solution with analytics or evolve to IP video
operations without discarding their previous investments in analog Closed Circuit Television (CCTV)
technology.
The Networked IP Video Market and Trends
We believe that terrorism, crime, and other security threats around the world are generating demand
for advanced video security solutions that can help detect threats and prevent security breaches.
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 participate in the multibillion dollar security industry, which consists of many smaller
targeted submarkets, including video intelligence. We believe that video security is going through
the aforementioned transition, and companies such as Verint that have a broad IP solution portfolio
can benefit by helping customers migrate to and benefit from IP technology.
Our Strengths in the Networked IP Video Market
We believe that the following competitive strengths will enable us to sustain our leadership in the
video intelligence market:
|
|
|
Our broad IP video solutions portfolio enables organizations to generate Actionable
Intelligence from video and related data. |
|
|
|
|
Our open platform facilitates interoperability with our customers existing business
and security systems and with complementary third-party products. |
|
|
|
|
We are able to help our customers cost-effectively migrate to networked IP video
without the need to discard their analog CCTV investments. |
Our Communications Intelligence Segment
We are a leading provider of Communications Intelligence solutions that help law enforcement,
national security, intelligence, and civilian government agencies effectively detect, investigate,
and neutralize criminal and terrorist threats. 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, fusion and data
management, Web intelligence, and tactical communications intelligence.
The Communications Intelligence Solutions Market and Trends
We believe that terrorism, criminal activities, including financial fraud and drug trafficking, 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 key trends driving demand for our Communications Intelligence solutions include:
|
|
|
Increasingly complex communications networks and growing network traffic, in particular
in IP and mobile networks. |
|
|
|
|
Growing demand for advanced intelligence and investigative solutions that enable law
enforcement and government agencies to integrate and analyze information from multiple
sources. |
3
|
|
|
Legal and regulatory compliance requirements. |
We participate in the multibillion dollar security industry, which consists of many smaller
targeted submarkets, including communications intelligence. We believe, because of the trends
discussed above, that companies such as Verint that have a broad and scalable communications
intelligence portfolio and a deep understanding of customer challenges can benefit by helping law
enforcement and government agencies generate Actionable Intelligence.
Our Strengths in the Communications Intelligence Market
We believe that the following competitive strengths will enable us to sustain our leadership in the
communications intelligence market:
|
|
|
Our broad Communications Intelligence 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), can quickly make sense of complex
scenarios, and can generate evidence and intelligence. |
|
|
|
|
Our solutions can be deployed on a stand-alone basis or provided as part of a
comprehensive, large-scale system and can also interface with third-party systems. This
flexibility addresses the needs of various government agencies that require advanced,
scalable solutions. |
|
|
|
|
Our long-term customer relationships allow us to gain insight into emerging challenges
and to 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 workforce
optimization 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 our leadership in this area and to further drive the adoption of Actionable
Intelligence solutions by delivering solutions to the enterprise workforce optimization and
security intelligence markets that integrate Actionable Intelligence from unstructured data
with data from other sources, including structured data, and that are designed to provide a
high return on investment. |
|
|
|
|
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
dialogue with our customers in order to understand their business objectives and
requirements. |
|
|
|
|
Continue to expand our market presence through partnerships and alliances including OEM
relationships. We have expanded our partnerships and alliances with integrators, resellers,
distributors, OEMs and others. We believe that these relationships broaden our market
coverage and we intend to continue expanding our existing relationships and 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 these purposes and expect to continue doing so in the future, as
strategic opportunities arise. |
4
Recent Developments
Beginning
with our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010 filed in June
2010, we resumed making timely filings with the Securities and Exchange Commission (SEC) after an
extended filing delay. We have also filed Annual Reports on Form 10-K containing audited financial
information for all prior periods for which we had not previously filed reports and Quarterly
Reports on Form 10-Q for certain other periods. For more information about our extended filing
delay arising from previously announced accounting reviews and
internal investigations at our majority stockholder, Comverse
Technology, Inc. (Comverse), and at Verint, together with the resulting restatement of certain
items and the making of other corrective adjustments to our previously-filed historical financial
statements, see our comprehensive Annual Report on Form 10-K for the years ended January 31, 2008,
2007, and 2006 filed on March 17, 2010.
We previously reported that on March 3, 2010, the SEC issued an Order Instituting Proceedings
pursuant to Section 12(j) of the Securities Exchange Act of 1934, as amended (Exchange Act) to
suspend or revoke the registration of our common stock because of our previous failure to file
certain annual and quarterly reports. On May 28, 2010, we entered into an agreement in principle
with the SECs Division of Enforcement regarding the terms of a settlement of the Section 12(j)
proceeding, which agreement was subject to approval by the SEC. On June 18, 2010, we satisfied the
requirements of such agreement and subsequently submitted an Offer of Settlement to the SEC. On
July 28, 2010, the SEC issued an Order accepting our Offer of Settlement and dismissing the Section
12(j) proceeding.
On July 6, 2010, our common stock was relisted on the NASDAQ Global Market under the symbol VRNT.
In July 2010, we amended our credit agreement to, among other things, (i) change the method of
calculation of the applicable interest rate margin to be based on Verints consolidated leverage
ratio from time to time, (ii) add a 1.50% London Interbank
Offered Rate (LIBOR) floor, (iii) increase the aggregate amount of
incremental revolving commitment and term loan increases permitted under the credit agreement from
$50.0 million to $200.0 million, and (iv) make certain changes to the negative covenants, including
providing covenant relief with respect to the permitted consolidated leverage ratio. Also in July
2010, we amended our credit agreement to increase the revolving credit commitments thereunder from
$15.0 million to $75.0 million. In addition, in July 2010 we terminated the interest rate swap we
entered into in May 2007 in connection with entry into the credit agreement that had, in effect,
fixed our interest exposure with respect to $450.0 million of the term loans thereunder at a 5.18%
interest rate. To terminate the swap prior to its May 2011 maturity, we paid approximately $21.7
million to the counterparty, representing the approximate present value of the expected remaining
quarterly settlement payments that otherwise were to have been due from us thereafter.
On October 5, 2010, the conversion feature of our Series A Convertible Preferred Stock,
par value $0.001 per share (preferred stock), was approved by our stockholders at a
special meeting of our stockholders. See Corporate
History and Information below
for more information on Comverses ownership of our preferred stock.
Corporate History and Information
As of
September 15, 2010, Comverse beneficially owned 63.5% of our common stock assuming conversion of
all of our preferred stock.
After giving effect to this offering, Comverse will hold
approximately 58.2% of our common stock
assuming no exercise of the underwriters over-allotment option and conversion of all of our
preferred stock into common stock and approximately 57.4% of our common stock assuming full exercise of the underwriters over-allotment option and conversion of all of our preferred stock into common stock.
See Principal and Selling
Stockholders. Because Comverse holds more than 50% of the voting power for the election of our directors,
Comverse exerts a controlling interest on our board of directors, which has determined that we are
eligible to and should rely on the controlled company exemption under NASDAQ Listing Rule
5615(c). As a result of our reliance on this exemption, we are not required to have a majority
independent board or fully independent standing nominating and compensation committees. See Risk
Factors Risks Related to Our Internal Investigation, Restatement, Internal Controls, and
Ownership 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 for more information on the risks we face in connection with our status as a
controlled company and Risk Factors Risks Related to Our Internal Investigation, Restatement,
Internal Controls, and Ownership Comverse can control our business and affairs, including our
board of directors, and will continue to control us after this offering for more information on
the risks we face in connection with Comverses beneficial ownership of a majority of our common
stock.
Our principal
executive offices are located at 330 South Service Road, Melville, New York 11747. Our telephone
number at that address is (631) 962-9600. Our website is www.verint.com. The information contained
on, or that can be accessed through, our website is not part of this prospectus, and you should not
rely on any such information in making a decision about whether to purchase shares of our common
stock.
Risks That We Face
You should consider carefully the risks described under the Risk Factors section and elsewhere in
this prospectus. These risks could materially and adversely impact our business, financial
condition, operating results, and cash flow, which could cause the trading price of our common
stock to decline and could result in a partial or total loss of your investment.
5
The Offering
|
|
|
|
Common stock offered by the selling
stockholder
|
|
2,434,783 shares |
|
|
|
Selling stockholder
|
|
Comverse Technology, Inc. |
|
|
|
Common stock outstanding (both before
and after this offering) (1)
|
|
35,157,845 shares |
|
|
|
Use of Proceeds
|
|
We will not receive any proceeds
from the sale of shares by the
selling stockholder. |
|
|
|
NASDAQ Global Market symbol
|
|
VRNT |
|
|
|
|
|
(1) |
|
The common stock to be outstanding after this offering is based on the number of shares
outstanding as of September 15, 2010, which excludes: |
|
|
|
|
|
|
3,085,301 shares of common stock issuable upon exercise of stock options outstanding as
of such date, at a weighted average exercise price of $24.46 per share; |
|
|
|
|
|
|
|
|
3,056,568 shares of common stock issuable upon the vesting of restricted stock units
outstanding as of such date, 638,450 of which vested on October 5, 2010; |
|
|
|
|
|
|
|
|
2,331,413 shares of common stock reserved as of such date for future issuance under our
equity incentive plans (which includes shares reserved for future issuance under our 2010 Long-Term Stock Incentive Plan approved by our stockholders on October 5, 2010); and |
|
|
|
|
|
|
|
|
approximately 10.2 million shares of common stock issuable upon the conversion of our
preferred stock if it were convertible as of such date. |
|
|
6
Summary Consolidated Financial Information
The summary consolidated statements of operations data for the years ended January 31, 2010, 2009
and 2008 and the summary consolidated balance sheet data as of January 31, 2010 and 2009 are
derived from our audited consolidated financial statements included elsewhere in this prospectus.
The summary consolidated statements of operations data for the three and six months ended July 31, 2010
and 2009 and summary consolidated balance sheet data as of July 31, 2010 are derived from our
unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited
consolidated financial statements were prepared on a basis consistent with our audited consolidated
financial statements and include, in the opinion of management, all adjustments necessary for the
fair presentation of the financial information contained in those statements. Historical results
are not necessarily indicative of results to be expected in the future.
You should read the summary consolidated financial data below together with Managements
Discussion and Analysis of Financial Condition and Results of Operations and our consolidated
financial statements and the related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
July 31, |
|
Six Months Ended
July 31, |
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
Year Ended January 31, |
in thousands (except per share data) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2008 |
Revenue |
|
$ |
180,676 |
|
|
$ |
169,269 |
|
|
$ |
353,289 |
|
|
$ |
344,417 |
|
|
$ |
703,633 |
|
|
$ |
669,544 |
|
|
$ |
534,543 |
|
Operating income (loss) |
|
|
23,799 |
|
|
|
13,709 |
|
|
|
19,817 |
|
|
|
49,718 |
|
|
|
65,679 |
|
|
|
(15,026 |
) |
|
|
(114,630 |
) |
Net income (loss) |
|
|
12,391 |
|
|
|
1,482 |
|
|
|
(3,225 |
) |
|
|
22,054 |
|
|
|
17,100 |
|
|
|
(78,577 |
) |
|
|
(197,545 |
) |
Net income (loss) attributable to Verint Systems Inc. |
|
|
11,475 |
|
|
|
1,598 |
|
|
|
(4,733 |
) |
|
|
21,232 |
|
|
|
15,617 |
|
|
|
(80,388 |
) |
|
|
(198,609 |
) |
Net income (loss) attributable to Verint Systems Inc. common shares |
|
|
7,921 |
|
|
|
(1,808 |
) |
|
|
(11,690 |
) |
|
|
14,564 |
|
|
|
2,026 |
|
|
|
(93,452 |
) |
|
|
(207,290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Verint Systems Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
Diluted |
|
|
0.23 |
|
|
|
(0.06 |
) |
|
|
(0.35 |
) |
|
|
0.45 |
|
|
|
0.06 |
|
|
|
(2.88 |
) |
|
|
(6.43 |
) |
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
33,272 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,462 |
|
|
|
32,478 |
|
|
|
32,394 |
|
|
|
32,222 |
|
Diluted |
|
|
35,006 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,606 |
|
|
|
33,127 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP operating income (1) |
|
$ |
46,323 |
|
|
$ |
44,639 |
|
|
$ |
88,602 |
|
|
$ |
101,808 |
|
|
$ |
195,627 |
|
|
$ |
120,444 |
|
|
$ |
75,405 |
|
Non-GAAP net income attributable to Verint Systems Inc. (1) |
|
|
31,151 |
|
|
|
31,293 |
|
|
|
56,146 |
|
|
|
70,419 |
|
|
|
132,963 |
|
|
|
69,627 |
|
|
|
41,745 |
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
|
|
(unaudited) |
|
January 31, |
in thousands |
|
2010 |
|
2010 |
|
2009 |
Total assets |
|
$ |
1,342,144 |
|
|
$ |
1,396,337 |
|
|
$ |
1,337,393 |
|
Long-term debt, including current maturities |
|
|
598,234 |
|
|
|
620,912 |
|
|
|
625,000 |
|
Preferred stock |
|
|
285,542 |
|
|
|
285,542 |
|
|
|
285,542 |
|
Total stockholders equity (deficit) |
|
|
1,642 |
|
|
|
(14,567 |
) |
|
|
(76,070 |
) |
|
|
|
(1) |
|
Each of non-GAAP operating income and non-GAAP net income attributable to Verint Systems
Inc. is a financial measure not prepared in accordance with generally accepted accounting
principles (GAAP). |
7
A reconciliation of
these non-GAAP financial measures to the most directly comparable GAAP financial measures appears at the end of this summary consolidated financial information. For
additional information, see Managements Discussion and Analysis of Financial Condition and
Results of Operations Results of Operations.
Non-GAAP financial measures should not be considered in isolation or as a substitute for comparable
GAAP financial measures. The non-GAAP financial measures we present have limitations in that they
do not reflect all of the amounts associated with our results of operations as determined in
accordance with GAAP and these non-GAAP financial measures should only be used to evaluate our
results of operations in conjunction with the corresponding GAAP financial measures. These
non-GAAP financial measures do not represent discretionary cash available to us to invest in the
growth of our business, and we may in the future incur expenses similar to the adjustments made in
these non-GAAP financial measures.
We believe that the non-GAAP financial measures we present provide meaningful supplemental
information regarding our operating results primarily because they exclude certain non-cash charges
or items that we do not believe are reflective of our ongoing operating results when budgeting,
planning and forecasting, determining compensation, and when assessing the performance of our
business with our individual operating segments or our senior management. We believe that these
non-GAAP financial measures also facilitate the comparison by management and investors of results
between periods and among our peer companies. However, those companies may calculate similar
non-GAAP financial measures differently than we do, limiting their usefulness as comparative
measures.
Non-GAAP operating income
We define
non-GAAP operating income as operating income (loss) adjusted to
eliminate (i) revenue
adjustments related to acquisitions, (ii) amortization and impairment of acquired technology, (iii) amortization of other acquired intangible assets,
(iv) impairments of goodwill and
other acquired intangible assets, (v) in-process research and
development, (vi) integration costs,
(vii) restructuring costs, (viii) other legal expenses
(recoveries), (ix) stock-based compensation
expenses, (x) other adjustments, and (xi) expenses related to our filing delay.
The following table provides further information regarding these adjustments and reconciles GAAP
operating income (loss) to non-GAAP operating income. The footnotes for this reconciliation appear
at the end of this summary consolidated financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
July 31, |
|
|
Six Months Ended
July 31, |
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
Year Ended January 31, |
|
in thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
GAAP operating income (loss) |
|
$ |
23,799 |
|
|
$ |
13,709 |
|
|
$ |
19,817 |
|
|
$ |
49,718 |
|
|
$ |
65,679 |
|
|
$ |
(15,026 |
) |
|
$ |
(114,630 |
) |
Revenue adjustments related to acquisitions (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,890 |
|
|
|
37,254 |
|
Amortization and impairment of acquired technology (b) (c) |
|
|
2,220 |
|
|
|
1,977 |
|
|
|
4,453 |
|
|
|
4,076 |
|
|
|
8,021 |
|
|
|
9,024 |
|
|
|
8,018 |
|
Amortization of other acquired intangible assets (b) |
|
|
5,338 |
|
|
|
5,586 |
|
|
|
10,677 |
|
|
|
11,516 |
|
|
|
22,268 |
|
|
|
25,249 |
|
|
|
19,668 |
|
Impairments of goodwill and other acquired intangible assets (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,961 |
|
|
|
22,934 |
|
In-process research and development (d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,682 |
|
Integration costs (e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,261 |
|
|
|
10,980 |
|
Restructuring costs (f) |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
22 |
|
|
|
141 |
|
|
|
5,685 |
|
|
|
3,308 |
|
Other legal expenses (recoveries) (g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,292 |
) |
|
|
8,708 |
|
Stock-based compensation expenses (h) |
|
|
8,035 |
|
|
|
13,138 |
|
|
|
26,004 |
|
|
|
19,694 |
|
|
|
44,245 |
|
|
|
36,011 |
|
|
|
31,061 |
|
Other adjustments (i) |
|
|
864 |
|
|
|
|
|
|
|
1,371 |
|
|
|
|
|
|
|
762 |
|
|
|
|
|
|
|
|
|
Expenses related to our filing delay (j) |
|
|
6,067 |
|
|
|
10,220 |
|
|
|
26,280 |
|
|
|
16,782 |
|
|
|
54,511 |
|
|
|
28,681 |
|
|
|
41,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP operating income |
|
$ |
46,323 |
|
|
$ |
44,639 |
|
|
$ |
88,602 |
|
|
$ |
101,808 |
|
|
$ |
195,627 |
|
|
$ |
120,444 |
|
|
$ |
75,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Non-GAAP net income attributable to Verint Systems Inc.
We define non-GAAP net income attributable to Verint Systems Inc. as net income (loss) attributable
to Verint Systems Inc. adjusted to eliminate (i) revenue
adjustments related to acquisitions, (ii)
amortization and impairment of acquired technology, (iii) amortization of other acquired
intangible assets, (iv) impairments of goodwill and other
acquired intangible assets, (v) in-process
research and development, (vi) integration costs,
(vii) restructuring costs, (viii) other legal expenses
(recoveries), (ix) stock-based compensation expenses,
(x) other adjustments, (xi) expenses related to
our filing delay, (xii) unrealized gains and losses on
investments and derivatives, and (xiii) non-cash
tax adjustments.
The following table provides further information regarding these adjustments and reconciles GAAP
net income (loss) attributable to Verint Systems Inc. to non-GAAP net income attributable to Verint
Systems Inc. The footnotes for this reconciliation appear at the end of this summary consolidated
financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
July 31, |
|
|
Six Months Ended
July 31, |
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
Year Ended January 31, |
|
in thousands |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
GAAP net income (loss) attributable to Verint Systems Inc. |
|
$ |
11,475 |
|
|
$ |
1,598 |
|
|
$ |
(4,733 |
) |
|
$ |
21,232 |
|
|
$ |
15,617 |
|
|
$ |
(80,388 |
) |
|
$ |
(198,609 |
) |
Revenue adjustments related to acquisitions (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,890 |
|
|
|
37,254 |
|
Amortization and impairment of acquired technology (b)(c) |
|
|
2,220 |
|
|
|
1,977 |
|
|
|
4,453 |
|
|
|
4,076 |
|
|
|
8,021 |
|
|
|
9,024 |
|
|
|
8,018 |
|
Amortization of other acquired intangible assets (b) |
|
|
5,338 |
|
|
|
5,586 |
|
|
|
10,677 |
|
|
|
11,516 |
|
|
|
22,268 |
|
|
|
25,249 |
|
|
|
19,668 |
|
Impairments of goodwill and other acquired intangible assets (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,961 |
|
|
|
22,934 |
|
In-process research and development (d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,682 |
|
Integration costs (e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,261 |
|
|
|
10,980 |
|
Restructuring costs (f) |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
22 |
|
|
|
141 |
|
|
|
5,685 |
|
|
|
3,308 |
|
Other legal expenses (recoveries) (g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,292 |
) |
|
|
8,708 |
|
Stock-based compensation expenses (h) |
|
|
8,035 |
|
|
|
13,138 |
|
|
|
26,004 |
|
|
|
19,694 |
|
|
|
44,245 |
|
|
|
36,011 |
|
|
|
31,061 |
|
Other adjustments (i) |
|
|
864 |
|
|
|
|
|
|
|
1,371 |
|
|
|
|
|
|
|
762 |
|
|
|
|
|
|
|
|
|
Expenses related to our filing delay (j) |
|
|
6,067 |
|
|
|
10,220 |
|
|
|
26,280 |
|
|
|
16,782 |
|
|
|
54,511 |
|
|
|
28,681 |
|
|
|
41,422 |
|
Unrealized gains and losses on investments and derivatives (k) |
|
|
(3,796 |
) |
|
|
(1,381 |
) |
|
|
(7,763 |
) |
|
|
(3,843 |
) |
|
|
(8,049 |
) |
|
|
(1,807 |
) |
|
|
26,703 |
|
Non-cash tax adjustments (l) |
|
|
948 |
|
|
|
146 |
|
|
|
(143 |
) |
|
|
940 |
|
|
|
(4,553 |
) |
|
|
16,352 |
|
|
|
23,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income attributable to Verint Systems Inc. |
|
$ |
31,151 |
|
|
$ |
31,293 |
|
|
$ |
56,146 |
|
|
$ |
70,419 |
|
|
$ |
132,963 |
|
|
$ |
69,627 |
|
|
$ |
41,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Revenue adjustments related to acquisitions represent (1) the impact of fair value
adjustments required under GAAP relating to acquired customer support contracts that would have
otherwise been recognized on a standalone basis and (2) certain sales concession adjustments
relating to accounts receivable balances that existed prior to the acquisition date, in each case
with respect to the acquisition of Witness Systems, Inc. (Witness) in May 2007. |
|
|
(b) |
|
Amortization of acquired technology, and amortization of other acquired intangible
assets, represent the amortization of intangible assets acquired in business combinations. These
expenses are non-cash charges, which are inconsistent in amount and frequency and are significantly
impacted by the timing and size of acquisitions. |
|
|
(c) |
|
Impairments of acquired technology, and impairments goodwill and other acquired
intangible assets, represent impairments of goodwill and intangible assets acquired in business
combinations. These expenses are non-cash charges that we do not believe are reflective of our
ongoing operations. |
9
|
|
|
|
|
(d) |
|
In-process research and development represent the fair value of incomplete research and
development projects that had not yet reached technological
feasibility and had no known
alternative future use as of the date of acquisition. These expenses are non-cash charges that we
do not believe are reflective of our ongoing operations. |
|
|
|
(e) |
|
Integration costs represent expenses directly related to the integration of Witness that we do
not believe are reflective of our ongoing operations. |
|
(f) |
|
Restructuring costs represent expenses associated with the restructuring of our operations due
to internal or external market factors that we do not believe are reflective of our ongoing
operations. |
|
|
|
(g) |
|
Other legal expenses (recoveries) represents other legal fees and settlements associated with
certain intellectual property litigation assumed in connection with the Witness acquisition that
we do not believe are reflective of our ongoing operations. |
|
|
|
(h) |
|
Stock-based compensation expenses represent expenses related to stock options, restricted
stock awards, and units and phantom stock that are primarily non-cash charges. In recent periods
we also incurred significant cash-settled stock compensation due to our extended filing delay and
restrictions on our ability to issue new shares to our employees. |
|
|
(i) |
|
Other adjustments represent legal and other professional fees
associated with acquisitions and certain extraordinary transactions
that we do not believe are reflective of our ongoing operations. |
|
|
(j) |
|
Expenses related to our filing delay represent expenses associated with our restatement of
previously filed financial statements and our extended filing delay. These expenses included
professional fees and related expenses as well as expenses associated with a special cash retention
program, in each case that we do not believe are reflective of our ongoing operations. |
|
(k) |
|
Unrealized gains and losses on investments and derivatives represent investment write-down in
auction rate securities and unrealized gain/(loss) on embedded derivatives, interest rate swaps,
and foreign currency derivatives. These gains/(losses) are non-cash charges. |
|
|
(l) |
|
Non-cash tax adjustments represent the difference between the amount of taxes we actually paid
and our GAAP tax provision on an annual basis. On a quarterly basis, this adjustment reflects our
expected annual effective tax rate on a cash basis. |
|
10
RISK FACTORS
You should carefully consider the following risks before investing in our common stock. These risks
could materially affect our business, results of operations or financial condition and cause the
trading price of our common stock to decline. You could lose part or all of your investment. Other
factors currently considered immaterial or unknown to us may have a material adverse impact on our
future operations.
Risks Related to Our Internal Investigation, Restatement, Internal Controls, and Ownership
We face challenges in completing our future SEC filings and cannot assure you that risks associated
with our previous extended filing delay have been eliminated or will not adversely affect us.
Although we have filed all periodic reports required by our agreement in principle with the SEC
staff, we cannot assure you that we will be able to timely complete our future SEC filings (as
discussed in greater detail in the risk factors below), and risks associated with our previous
extended filing delay may persist or intensify. Notwithstanding the completion of these filings and
the re-listing of our common stock on the NASDAQ Global Market, customers, partners, investors, and
employees may have lingering concerns about us or our financial condition in light of our extended
filing delay, the recently dismissed SEC administrative proceeding, our previous de-listing, or
general reputational harm caused by the foregoing. See We were the subject of an SEC
investigation relating to our reserve and stock option accounting practices and
an SEC proceeding relating to our failure to timely file required SEC reports. These concerns may
result in the potential loss or deferral of business opportunities or relationships or may increase
the costs to us of engaging in such opportunities. If we are unable to timely file our future SEC
filings or if continuing concerns on the part of customers, partners, investors, or employees
persist or intensify, our business, results of operations, financial condition, or stock price may
be materially and adversely affected, or our common stock may be de-registered by the SEC and/or
again de-listed by NASDAQ.
We have identified material weaknesses in our internal control over financial reporting as of
January 31, 2010 that, if not remedied, could result in a failure to prevent or timely detect a
material misstatement of our annual or interim financial statements.
Our management is responsible for establishing and maintaining adequate internal control over our
financial reporting, as defined in Rules 13a-15(e) promulgated under the Exchange Act. Our
management evaluated the design and effectiveness of our internal control over financial reporting
as of January 31, 2010 and identified material weaknesses related to monitoring, financial
reporting, revenue and cost of revenue, and income taxes. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis. As a result of these material weaknesses, our
management concluded that our internal control over financial reporting was not effective as of
January 31, 2010. For further information about these material weaknesses, see Controls and
Procedures under Item 9A of our Annual Report on Form 10-K for the year ended January 31, 2010 and
Item 4 of our Quarterly Reports on Form 10-Q for the quarterly
periods ended April 30, 2010 and July 31, 2010.
As of the date of this prospectus, we have implemented remedial measures designed to
address the material weaknesses identified as of January 31, 2010 related to monitoring, financial
reporting, revenue and cost of revenue, and income taxes.
As previously reported under
Item 9A Controls and Procedures of our Annual Report on Form
10-K for the year ended January 31, 2010, we implemented the following remedial measures:
Monitoring
|
|
|
designed and are completing our implementation of analytical procedures to review the
financial results at each of our subsidiary locations on a regular basis; |
|
|
Financial Reporting |
|
|
|
|
|
formalized and communicated our critical accounting policies and procedures to ensure
worldwide compliance with GAAP; |
|
|
|
|
|
|
implemented rigorous policies and procedures related to accounts requiring management
estimates, as well as other complex areas, which include multiple levels of review; |
|
|
|
|
|
|
|
appointed a VP of Global Accounting to help ensure accurate consistent application of
GAAP; |
11
|
|
|
expanded our accounting policy and controls organization by creating and filling new
positions with qualified accounting and finance personnel, increasing significantly the
number of persons who are Certified Public Accountants (CPAs) or the CPA international
equivalent; |
|
|
|
|
Revenue and Cost of Revenue |
|
|
|
|
|
expended substantial resources and performed extensive, substantive reviews of our
revenue recognition and cost of revenue policies and procedures; |
|
|
|
|
appointed a VP Finance and Global Revenue Controller and Regional Revenue Controllers,
and established a centralized revenue recognition department to address complex revenue
recognition matters and to provide oversight and guidance on the design of controls and
processes to enhance and standardize revenue recognition accounting application; |
|
|
|
|
|
significantly increased our investment in the design and implementation of enhanced
information technology systems and user applications commensurate with the complexity of
our business and our financial reporting requirements, including a broader and more
sophisticated implementation of our Enterprise Resource Planning system, particularly in
the area of revenue recognition accounting; |
|
|
|
|
|
provided training to increase our general understanding of revenue recognition
principles and enhance awareness of the implications associated with non-standard
arrangements requiring specific revenue recognition; |
|
|
|
|
Income Taxes |
|
|
|
|
|
|
established a corporate tax department, which now includes a Vice President, Domestic
Director, International Director, Tax Manager, and two full-time tax accountants; |
|
|
|
|
engaged external tax advisors to prepare and/or review significant tax provisions for
compliance with accounting guidance for income taxes, as well as any changes in local tax
law; |
|
|
|
|
implemented a tax software program designed to prepare the consolidated income tax
provisions and related footnote disclosures; |
|
|
|
|
engaged subject matter experts with specialized international and consolidated income
tax knowledge to assist in creating, implementing, and documenting a consolidated tax
process; |
|
|
|
|
|
|
|
implemented policies and procedures related to amounts requiring management estimates,
such as uncertain tax positions and valuation allowances, which include multiple levels of
review; |
|
|
|
|
|
implemented policies and procedures designed to standardize tax provision computations
and ensure reconciliations of key tax accounts were accurate in all material respects and
properly reviewed by management; |
|
|
|
|
trained personnel involved in the preparation and review of income tax accounts; and |
|
|
|
|
formalized internal reporting, monitoring, and oversight of tax compliance and tax
audits. |
As a result of these remedial measures, we believe that the design of the control activities for
monitoring, financial reporting, and income taxes is effective.
However, as of the date of this prospectus, we are not able to conclude that the identified
material weaknesses have been remediated because these remedial measures have not been operating for a sufficient period of time or because these remedial measures
are not intended to be executed until later in the year, as well as because the operating effectiveness of these measures has not yet been tested.
In addition to the remedial efforts described above and as previously reported in Item 4 of
our Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2010, we have implemented
the following remedial measures relating to revenue and cost of revenue:
|
|
|
|
hired additional resources at our subsidiary locations with primary responsibility for revenue
recognition; |
|
|
|
|
|
|
implemented additional levels of review over various aspects of the revenue recognition
process to ensure proper accounting treatment; and |
|
|
|
|
|
|
conducted detailed training on the complexities of current GAAP related to software revenue
recognition. |
|
Although remediation efforts occurred in the area of revenue and cost of revenue, the actions taken or the controls designed
were not in place or had not operated for a sufficient period of time to allow us to conclude that
the identified material weakness in this area had been remediated
as of the date of this prospectus.
We continue to monitor the operation of these remedial measures as of the date of this prospectus
and will perform an evaluation of the operating effectiveness of our internal control over
financial reporting as of January 31, 2011. If these remedial measures are not operating
effectively, or if additional material weaknesses in our internal controls are discovered in the
future, we may fail to meet our future reporting obligations on a timely basis, our financial
statements may contain material misstatements, our operating results may be harmed, and we may be
subject to litigation. Any failure to remediate the identified material weaknesses or the
identification of any additional material weaknesses in our internal controls would also adversely
affect the results of future management evaluations regarding the effectiveness of our internal
control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act of
2002. Continuing or future material weaknesses could also cause investors to lose confidence in our
reported financial information, leading to a decline in our stock price.
12
The extraordinary processes underlying the preparation of the financial statements contained in
this prospectus may not have been adequate, and our financial statements remain subject to the risk
of future restatement.
The completion of our audits for the years ended January 31, 2010, 2009, 2008, 2007, and 2006, the
restatement of certain items and the making of other corrective adjustments to our financial
statements for periods through January 31, 2005, and the revenue recognition review undertaken in
connection therewith, involved many months of review and analysis, including highly technical
analyses of our contracts and business practices, equity-based compensation instruments, tax
accounting, and the proper application of applicable accounting guidance. The completion of our
financial statement audits also followed the completion of an extremely detailed forensic audit as
part of our internal investigation. Given the complexity and scope of these exercises, and
notwithstanding the very extensive time, effort, and expense that went into them, we cannot assure
you that these extraordinary processes were adequate or that additional accounting errors will not
come to light in the future in these or other areas.
In addition, 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. As a result, ongoing interpretations of these rules and
pronouncements or the adoption of new rules and pronouncements could require changes in our
accounting practices or financial reporting. We cannot assure you that, if such changes arise, we
will be able to timely implement them or will not experience future reporting delays.
If additional accounting errors come to light in areas reviewed as part of our extraordinary
processes or otherwise, or if ongoing interpretations of applicable accounting rules and
pronouncements result in unanticipated changes in our accounting practices or financial reporting,
future restatements of our financial statements may be required.
We cannot assure that our regular financial statement preparation and reporting processes are or
will be adequate or that future restatements will not be required.
As
discussed in the preceding risk factor, some of the processes underlying the preparation of the
financial statements contained in this prospectus were extraordinary. We have now begun to rely
and expect, going forward, to increasingly rely on our regular financial statement preparation and
reporting processes. In addition to the remedial measures discussed in the risk factor above which are intended to
address our identified material weaknesses, we continue to enhance our regular processes as of the
date of this prospectus. As a result, until we are able to conclude that all material weaknesses
have been remediated and, until other enhancements have been in place and operational for a longer
period of time, we cannot assure you that the changes and enhancements made to date are adequate or
will operate as expected. In addition, we cannot assure you that we will not discover additional
errors, that future financial reports will not contain material misstatements or omissions, that
future restatements will not be required, that additional material weaknesses in our internal
controls over financial reporting will not be identified, or that we will be able to timely comply
with our reporting obligations in the future.
13
The circumstances which gave rise to our internal investigation, restatement, and extended filing
delay have resulted in litigation and continue to create the risk of litigation against us, which
could be expensive and could damage our business.
Generally, companies that have undertaken internal investigations or restatements face greater risk
of litigation or other actions. Although we have not been named as a defendant in any shareholder
class actions or derivative lawsuits relating to our internal investigation, restatement, or
extended filing delay, there can be no assurance that such actions or lawsuits will not be
initiated against us or our current or former officers, directors, or other personnel in the
future. Comverse and some of its former directors and officers and
a current director were
named as defendants in several class and derivative actions relating to Comverses internal
investigations. In addition, we have in the past and may in the future become subject to
litigation or threatened litigation from current or former personnel as a result of our suspension
of option exercises during our extended filing delay period, the expiration of equity awards during
such period, or other employment-related matters relating to our internal investigation,
restatement, or extended filing delay. This litigation or any future litigation may be time
consuming and expensive, and may distract management from the conduct of our business. Any such
litigation could have a material adverse effect on our business, financial condition, and results
of operations, and may expose us to costly indemnification obligations to current or former
officers, directors, or other personnel, regardless of the outcome of such matter.
We were the subject of an SEC investigation relating to our reserve and stock option accounting
practices and an SEC proceeding relating to our failure to timely file required SEC reports.
Comverse was the subject of an SEC investigation and resulting civil action regarding the improper
backdating of stock options and other accounting practices, including the improper establishment,
maintenance, and release of reserves, the reclassification of certain expenses, and the intentional
inaccurate presentation of backlog. See Legal ProceedingsComverse Investigation-Related Matters
for more information concerning Comverses SEC investigation and related civil actions.
On July 20, 2006, we announced that, in connection with the SEC investigation into Comverses past
stock option grants which was in process at that time, we had received a letter requesting that we
voluntarily provide to the SEC certain documents and information related to our own stock option
grants and practices. We voluntarily responded to this request. On April 9, 2008, as we
previously reported, we received a Wells Notice from the staff of the SEC arising from the
staffs investigation of our past stock option grant practices and certain unrelated accounting
matters. These accounting matters were also the subject of our internal investigation. On March
3, 2010, the SEC filed a settled enforcement action against us in the United States District Court
for the Eastern District of New York relating to certain of our accounting reserve practices.
Without admitting or denying the allegations in the SECs complaint, we consented to the issuance
of a Final Judgment permanently enjoining us from violating Section
17(a) of the Securities Act of 1933, as amended (Securities Act),
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 13a-1 and 13a-13
thereunder. The settled SEC action did not require us to pay any monetary penalty and sought no
relief beyond the entry of a permanent injunction. The SECs related press release noted that, in
accepting the settlement offer, the SEC considered our remediation and cooperation in the SECs
investigation. The settlement was approved by the United States District Court for the Eastern
District of New York on March 9, 2010.
We previously reported that on March 3, 2010 the SEC issued an Order Instituting Proceedings
pursuant to Section 12(j) of the Exchange Act to suspend or revoke the registration of our common
stock because of our previous failure to file certain annual and quarterly reports. On May 28,
2010, we entered into an agreement in principle with the SECs Division of Enforcement regarding
the terms of a settlement of the Section 12(j) proceeding, which agreement was subject to approval
by the SEC. On June 18, 2010, we satisfied the requirements of such agreement and subsequently
submitted an Offer of Settlement to the SEC. On July 28, 2010, the SEC issued an Order accepting
our Offer of Settlement and dismissing the Section 12(j) proceeding.
In addition, as a result of our acquisition of Witness, we are subject to an additional SEC inquiry
relating to certain of Witness stock option grants. On October 27, 2006, Witness received notice
from the SEC of an informal non-public inquiry relating to the stock option grant practices of
Witness from February 1, 2000 through the date of the notice. On July 12, 2007, we received a copy
of the Formal Order of Investigation from the SEC relating to substantially the same matter as the
informal inquiry. We and Witness have fully cooperated, and intend to continue
14
to fully cooperate, if called upon to do so, with the SEC regarding this matter. In addition, the
U.S. Attorneys Office for the Northern District of Georgia was given access to the documents and
information provided by Witness to the SEC. While we have not heard from the SEC or the U.S.
Attorneys office on this matter since June 2008, we have no assurance that one or both will not
further pursue the matter.
We cannot predict whether we will
face additional government inquiries, investigations, or other actions related to these other
matters or the outcome of any current or future matters. An adverse ruling in any regulatory proceeding could
impose upon us fines, penalties, or other remedies which could have a material adverse effect on
our results of operations and financial condition. Even if we are
successful in defending against a regulatory proceeding, such a proceeding may be time
consuming, expensive, and distracting from the conduct of our business and could have a material
adverse effect on our business, financial condition, and results of operations. In the event of
any such proceeding, we may also become subject to costly indemnification obligations to
current or former officers, directors, or employees, which may or may not be covered by insurance.
We may not have sufficient insurance to cover our liability in any future litigation claims either
due to coverage limits or as a result of insurance carriers seeking to deny coverage of such
claims.
We face a variety of litigation-related liability risks, including liability for indemnification of
(and advancement of expenses to) current and former directors, officers, and employees under
certain circumstances, pursuant to our certificate of incorporation, by-laws, other applicable
agreements, and/or Delaware law.
Prior to the announcement of the Comverse special committee investigation, our directors and
officers were included in a director and officer liability insurance policy that covered all
directors and officers of Comverse and its subsidiaries, which policy remains the sole source of
insurance in connection with the matters related to such investigation. The Comverse insurance
coverage may not be adequate to cover any claims against us in connection with such matters and may
not be available to us due to the exhaustion of the coverage limits by Comverse in connection with
the claims already asserted against Comverse and its personnel.
Following the announcement of the Comverse special committee investigation, we sought and obtained
our own director and officer liability insurance policy for our directors and officers. We cannot
assure you that the limits of our directors and officers liability insurance coverage will be
sufficient to cover our potential exposure.
In addition, the underwriters of our present coverage or our old shared coverage with Comverse may
seek to avoid coverage in certain circumstances based upon the terms of the respective policies, in
which case we would have to self-fund any indemnification amounts owed to our directors and
officers and bear any other uninsured liabilities.
If we do not have sufficient directors and officers insurance coverage under our present or
historical insurance policies, or if our insurance underwriters are successful in avoiding
coverage, our results of operations and financial condition could be materially adversely affected.
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.
The sole selling stockholder, Comverse, controls a majority of our outstanding common stock. As a
result, 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, which is comprised of a majority of directors appointed by Comverse,
may and intends to rely upon, exemptions from several
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. |
Additionally, Comverse has the right to have its nominees represented on our compensation committee
and our corporate governance and nominating committee. 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 Comverses designees to our board of directors represent a majority of our board and determine to
rely upon such exemptions. See Risk Factors Risks
Related to Our Internal Investigation, Restatement, Internal Controls, and Ownership Comverse can
control our business and affairs, including our board of directors, and will continue to control us
after this offering for more information on the risks we face in connection with Comverses
beneficial ownership of a majority of our common stock.
We have been adversely affected as a result of being a consolidated, controlled subsidiary of
Comverse and may continue to be adversely affected in the future.
We have been adversely affected as a result of being a consolidated, controlled subsidiary of
Comverse and may continue to be adversely affected in the future. These adverse effects arise in
part, though not exclusively, from the Comverse special committee investigation. Under applicable
accounting rules, we were required to record stock-based compensation expenses on our books for
Comverse stock options granted to our employees while we were a wholly owned subsidiary of Comverse
which were found to have been improperly accounted for as part of the Comverse special committee
investigation. Because we were dependent upon Comverse to provide us with the amount of these
charges, we were forced to wait until the conclusion of the Comverse special committee
investigation to record them, which was the initial reason we were not able to timely complete our
required SEC filings. The subsequent expansion of the Comverse special committee investigation
into other accounting issues further delayed our receipt of the required information. In addition,
because of our previous inclusion in
15
Comverses consolidated tax group and our related tax sharing agreement with Comverse, as further
discussed below, we were also forced to wait for Comverse to substantially complete its analysis of
certain tax information, including information related to the net operating loss carryforwards
(NOLs), allocated to us as of our May 2002 initial public offering (IPO), in order to complete the
restatement of our historical financial statements, the preparation of our current financial
statements, and associated audits. In addition to our own internal investigation and revenue
recognition review, these investigations and reviews required significant time, expense, and
management distraction, contributed to a protracted delay in the completion of our SEC filings, and
have caused significant concerns on the part of customers, partners, investors, and employees.
Future delays at Comverse, if any, may again delay the completion of the preparation of our future
financial statements, associated audits and SEC filings, which could have an adverse effect on our
business. In addition, if errors are discovered in the information provided to us by Comverse, we
may be required to correct or restate our financial statements. In part because of the issues
identified at Comverse and our relationship with Comverse, we have also been subject to enhanced
scrutiny by third parties, including customers, prospects, suppliers, service providers, and
regulatory authorities, all of which have adversely affected our business, and the cost, duration,
and risks associated with our restatement and audits have increased.
We may continue to be adversely affected by events at Comverse so long as we remain one of its
majority-owned subsidiaries. In particular, Comverses strategic plans regarding its assets,
including its ownership interest in our stock, may adversely affect us or our business.
Our previous inclusion in Comverses consolidated tax group and our related tax sharing agreement
with Comverse may expose us to additional tax liabilities.
Prior to our IPO in May 2002, we were included in Comverses United States federal income tax return.
Following our IPO, we began filing a separate United States federal income tax return for our own
consolidated group; however, we remained party to a tax-sharing agreement with Comverse for prior
periods. As a result, Comverse may unilaterally make decisions that could impact our liability for
income taxes for periods prior to the IPO. Additionally, adjustments to the consolidated groups
tax liability for periods prior to our IPO could affect our NOLs from Comverse and cause us to
incur additional tax liability in future periods. The foregoing could result from, among other
things, any agreements between Comverse and the Internal Revenue Service relating to issues that
could be raised upon examination or the filing of amended United
States federal income tax returns by Comverse on
our behalf.
In addition, notwithstanding the terms of the tax sharing agreement, United States federal income tax law provides that
each member of a consolidated federal income tax group is severally liable for the groups entire
tax obligation; as a result, under certain circumstances, we could be liable for taxes of other
members of the Comverse consolidated group if, for example, United States federal income tax assessments were not
paid. Similar principles apply for certain combined state income tax return filings.
Comverse can control our business and affairs, including our board of directors, and will continue
to control us after this offering.
Because Comverse beneficially owns and following this offering will continue to beneficially own a
majority of our common stock, 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. Our preferred stock, all of which is held by
Comverse, entitles it to further control over significant corporate transactions.
The conversion feature of the preferred stock was approved by our stockholders at a special
meeting of our stockholders on October 5, 2010. As of September 15, 2010, if it were convertible,
the preferred stock could have been converted into approximately 10.2 million shares of our common
stock, giving Comverse beneficial ownership of 63.5% of our common stock.
By virtue of its majority ownership 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 or executives of Comverse as six of
our eleven directors. These directors have fiduciary duties to both us and Comverse and may become
subject to conflicts of interest on certain matters where Comverses 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
16
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 Comverses 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, or, subject to the terms of our credit agreement, declare and pay dividends.
We may lose business opportunities to Comverse that might otherwise be available to us.
In connection with our May 2002 IPO, we entered into a business opportunities agreement with
Comverse that addresses certain 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. In general, we
are precluded under this agreement from pursuing opportunities offered to officers or employees of
Comverse who may also be our directors, officers, or employees, unless Comverse fails to pursue
these opportunities. As a result, we may lose valuable business opportunities to Comverse, which
could have an adverse effect on our results of operations.
As a result of the delay in completing our financial statements, the timing and cost of raising
capital may be adversely affected.
As a result of the delay in completing our financial statements, we have been limited in our
ability to register securities for sale by us or for resale by other security holders, which has
adversely affected our ability to raise capital. Additionally, we will remain ineligible to use
Form S-3 to register securities until we have timely filed all periodic reports under the Exchange
Act for at least 12 calendar months. In the meantime, we would need to continue to use Form S-1 to
register securities with the SEC for capital raising transactions or issue such securities in
private placements, in either case, potentially increasing the costs of raising capital during that
period.
Risks Related to Our Business
Competition and Markets
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 or recessions around the world may cause companies and governments to delay,
reduce, or even cancel planned spending. In particular, declines in information technology
spending have affected the market for our products, especially in industries 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. Moreover, as a result of current
economic conditions, like many companies, we have engaged in significant cost-saving measures over
the last two years. We cannot assure you that these measures will not negatively impact our
ability to execute on our objectives and grow in the future, 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, and grow. Even if we are able to
maintain or increase our market share for a particular product, revenue or profitability could
decline due to pricing pressures, increased competition from other types of products, or because
the product is in a maturing industry.
17
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. Some of our competitors are
also significantly larger than us and some of these companies have increased their presence in our
markets in recent years through internal development, partnerships, and acquisitions. There has
also been significant consolidation among our competitors, which has improved the competitive
position of several of these companies, and enabled new competitors to emerge in all of our
markets. In addition, we may face competition from solutions developed internally by our customers
or partners. To the extent 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. If
we are forced to take these kinds of actions to maintain market share, our revenue and
profitability may suffer or we may adversely impact our longer-term ability to execute or compete.
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 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 and the emergence of new industry
standards can exert pricing pressure on existing products and/or can render our existing products
obsolete and unmarketable. It is critical to our success that, in all of our markets, we are able
to:
|
|
|
anticipate and respond to changes in technology and industry standards; |
|
|
|
|
successfully develop and introduce new, enhanced, and competitive products which meet
our customers changing needs; and |
|
|
|
|
deliver these new and enhanced products on a timely basis while adhering to our high
quality standards. |
We may not be able to successfully develop new products or introduce new applications for existing
products. In addition, new products and applications that we introduce may not achieve market
acceptance. If we are unable to introduce new products that address the needs of our customers or
that achieve market acceptance, there may be a material adverse impact on our revenue and on our
financial results.
Because many of our solutions are sophisticated, we must invest greater resources in sales and
installation processes with greater risk of loss if we are not successful.
In many cases, it is necessary for us to educate our potential customers about the benefits and
value of our solutions because many of our solutions are not simple, mass-market items with which
customers are already familiar. In addition, many of our solutions are sophisticated and may not
be readily usable by customers without our assistance in training, system integration, and
configuration. The greater need to work with and educate customers as part of the sales process
and, after completion of a sale, during the installation process for many of our products,
increases the time and difficulty of completing transactions, makes it more difficult to
efficiently deploy limited resources, and creates risk that we will have invested in an opportunity
that ultimately does not come to fruition. If we are unable to demonstrate the benefits and value
of our solutions to customers and efficiently convert our sales leads into successful sales and
installations, our results may be adversely affected.
18
Many of our sales are made by competitive bid, which often requires us to expend significant
resources, which we may not recoup.
Many of our sales, particularly in larger installations, are made by competitive bid. Successfully
competing in competitive bidding situations subjects us to risks associated with the frequent need
to bid on programs in advance of the completion of their design, which may result in unforeseen
technological difficulties and cost overruns, as well as making substantial investments of time and
money in research and development and marketing activities for contracts that may not be awarded to
us. If we do not ultimately win a bid, we may obtain little or no benefit from these expenditures
and may not be able to recoup these costs on future projects.
Even where we are not involved in a competitive bidding process, due to the intense competition in
our markets and increasing customer demand for shorter delivery periods, we must in some cases
begin the implementation of a project before the corresponding order has been finalized, increasing
the risk that we will have to write off expenses associated with potential orders that do not come
to fruition.
The nature of our business and our varying business models may impact and make it difficult for us
to predict our operating results.
It is difficult for us to forecast the timing of revenue from product sales because customers often
need a significant amount of time to evaluate our products before a purchase, and sales are
dependent on budgetary and, in the case of government customers, other bureaucratic processes. The
period between initial customer contact and a purchase by a customer may vary from as little as a
few weeks to more than a year. During the evaluation period, customers may defer or scale down
proposed orders for various reasons, including:
|
|
|
changes in budgets and purchasing priorities; |
|
|
|
|
reductions in need to upgrade existing systems; |
|
|
|
|
deferrals in anticipation of enhanced or new products; |
|
|
|
|
introduction of new products by our competitors; or |
|
|
|
|
lower prices offered by our competitors. |
In addition, we have historically derived a significant portion of our revenue from contracts for
large system installations with major customers and we continue to emphasize sales to larger
customers in our product development and marketing strategies. Contracts for large installations
typically involve a lengthy and complex bidding and selection process, and our ability to obtain
particular contracts is inherently difficult to predict. The timing and scope of these
opportunities are difficult to forecast, and the pricing and margins may vary substantially from
transaction to transaction. As a result, our future operating results may be volatile and vary
significantly from period to period.
While we have no single customer that is material to our total revenue, we do have many significant
customers in each of our segments, notably in our Video Intelligence segment and our Communications
Intelligence segment, and periodically receive multi-million dollar orders. The deferral or loss
of one or more significant orders or customers or a delay in an expected implementation of such an
order could materially adversely affect our segment operating results.
In recent years, an increasing percentage of our revenue has come from software sales as compared
to hardware sales. This trend has only been amplified with the addition of the Witness business.
As with other software-focused companies, this has meant that more of our quarterly business has
come in the last few weeks of each quarter. In addition, customers have increasingly been placing
orders close to, or even on, the requested delivery date. The trend of shorter periods between
order date and delivery date, along with this trend of business moving to the end of the quarter,
has further complicated the process of accurately predicting revenue or making sales forecasts on a
quarterly basis.
19
Under applicable accounting standards and guidance, revenue for some of our software and hardware
transactions is recognized at the time of delivery, while revenue from other software and hardware
transactions is required to be deferred over a period of years. To a large extent, this depends on
the terms we offer to customers and resellers, including terms relating to pricing, future
deliverables, and post-contract customer support (PCS). As a result, it is difficult for us to
accurately predict at the outset of a given period how much of our future revenue will be
recognized within that period and how much will be required to be deferred over a longer period.
See Managements Discussion and Analysis of Financial Condition and Results of Operations for
additional information.
We base our current and future expense levels on our internal operating plans and sales forecasts,
and our operating costs are, to a large extent, fixed. As a result, we may not be able to
sufficiently reduce our operating costs in any period to compensate for an unexpected near-term
shortfall in revenue.
If we are unable to maintain our relationships with resellers, systems integrators, and other third
parties that market and sell our products, our business, financial condition, results of
operations, and ability to grow could be materially adversely impacted.
Approximately half of our revenue is generated by sales made through partners, distributors,
resellers, and systems integrators. If our relationship in any of these sales channels
deteriorates or terminates, we may lose important sales and marketing opportunities. In pursuing
new partnerships and strategic alliances, we must often compete for the opportunity with similar
solution providers. In order to effectively compete for such opportunities, we must introduce
products tailored not only to meet specific partner needs, but also to evolving customer and
prospective customer needs, and include innovative features and functionality easy for partners to
sell and install. Even if we are able to win such opportunities on terms we find acceptable, there
is no assurance that we will be able to realize the benefits we anticipate. Our competitors often
seek to establish exclusive relationships with these sales channels or, at a minimum, to become a
preferred partner for these sales channels. Some of our sales channel partners also partner with
our competitors and may even offer our products and those of our competitors as alternatives when
presenting bids to end customers. Our ability to achieve revenue growth depends to a significant
extent on maintaining and adding to these sales channels and if we are unable to do so our revenue
could be materially adversely affected.
Certain provisions in agreements that we have entered into may expose us to liability that is not
limited in amount by the terms of the contract.
Certain contract provisions, principally confidentiality and indemnification obligations in certain
of our license agreements, could expose us to risks of loss that, in some cases, are not limited to
a specified maximum amount. Even where we are able to negotiate limitation of liability
provisions, these provisions may not always be enforced depending on the facts and circumstances of
the case at hand. If we or our products fail to perform to the standards required by our
contracts, we could be subject to uncapped liability for which we may or may not have adequate
insurance and our business, financial condition, and results of operations could be materially
adversely affected.
Our products may contain undetected defects which could impair their market acceptance and may
result in customer claims for substantial damages if our products fail to perform properly.
Our products are complex and involve sophisticated technology that performs critical functions to
highly demanding standards. Our existing and future products may develop operational problems. In
addition, new products or new versions of existing products may contain undetected defects or
errors. If we do not discover such defects, errors, or other operational problems until after a
product has been released and used by the customer or partner, we may incur significant costs to
correct such defects, errors, or other operational problems, including product liability claims or
other contract liabilities to customers or partners. In addition, defects or errors in our
products may result in claims for substantial damages and questions regarding the integrity of the
products, which could cause adverse publicity and impair their market acceptance.
20
If the regulatory environment does not evolve as expected or does not favor our products, our
results may suffer.
The regulatory environment relating to our solutions is still evolving and, in the security market
in particular, has been driven to a significant extent by legislative and regulatory actions, such
as the Communications Assistance for Law Enforcement Act (CALEA), in
the United States, and
standards established by the European Telecommunications Standards Institute (ETSI), in Europe, as
well as initiatives to strengthen security for critical infrastructure, such as airports. These
actions and initiatives are evolving and are at all times subject to change based on factors beyond
our control, such as political climate, budgets, and even current events. While we attempt to
anticipate these actions and initiatives through our product offerings and refinements thereto, we
cannot assure you that we will be successful in these efforts, that our competitors will not do so
more successfully than us, or that changes in these actions or initiatives or the underlying
factors which affect them will not occur which will reduce or eliminate this demand. If any of the
foregoing should occur, or if our markets do not grow as anticipated for any other reason, our
results may suffer. In addition, changes to these actions or initiatives, including changes to
technical requirements, may require us to modify or redesign our products in order to maintain
compliance, which may subject us to significant additional expense.
Conversely, as the telecommunications industry continues to evolve, state, federal, and foreign
governments (including supranational government organizations such as the European Union) and
industry associations may increasingly regulate the monitoring of telecommunications and telephone
or internet monitoring and recording products such as ours. We believe that increases in
regulation could come in a number of forms, including increased regulations regarding privacy or
protection of personal information such as social security numbers, credit card information, and
employment records. The adoption of these types of regulations or changes to existing regulations
could cause a decline in the use of our solutions or could result in increased expense for us if we
must modify our solutions to comply with these regulations. Moreover, these types of regulations
could subject our customers or us to liability. Whether or not these kinds of regulations are
adopted, if we do not adequately address the privacy concerns of consumers, companies may be
hesitant to use our solutions. If any of these events occur, our business could be materially
adversely affected.
For certain products and components, we rely on a limited number of suppliers and manufacturers and
if these relationships are interrupted we may not be able to obtain substitute suppliers or
manufacturers on favorable terms or at all.
Although we generally use standard parts and components in our products, we do rely on
non-affiliated suppliers for certain non-standard components which may be critical to our products,
including both hardware and software, and on manufacturers of assemblies that are incorporated into
our products. While we endeavor to use larger, more established suppliers and manufacturers
wherever possible, in some cases, these providers may be smaller, more early-stage companies,
particularly with respect to suppliers of new technologies we may incorporate into our products
that we have not developed internally. Although we do have agreements in place with most of these
providers, which include appropriate protections such as source code escrows where needed, these
agreements are generally not long-term and these contractual protections offer limited practical
benefits to us in the event our relationship with a key provider is interrupted. If these
suppliers or manufacturers 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 in our relationships with these suppliers or manufacturers, we will
be required to locate alternative sources of supply or manufacturing, to internally develop the
applicable technologies, to redesign our products to accommodate an alternative technology, or to
remove certain features from our products. This could increase the costs of, and create delays in,
delivering our products or reduce the functionality of our products, which could adversely affect
our business and financial results.
If we cannot recruit or retain qualified personnel, our ability to operate and grow our business
may be limited.
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,
including managers, finance personnel, sales and marketing personnel, and technical personnel, who
understand and have experience with our products,
21
services, and industry. The market for such personnel is intensely competitive in most, if not
all, of the geographies in which we operate, and on occasion we have had to relocate personnel to
fill positions in locations where we could not attract qualified experienced personnel. If we are
unable to attract and retain qualified employees, on reasonable economic and other terms or at all,
our ability to grow could be impaired, our ability to timely report our financial results could be
adversely affected, and our operations and financial results could be materially adversely
affected.
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,
customer support, and administrative services. The countries in which we have our most significant
foreign operations include Israel, the United Kingdom, Canada, India, Hong Kong, and Germany, 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; |
|
|
|
|
customizing products for foreign countries; |
|
|
|
|
legal uncertainties regarding liability and intellectual property rights; |
|
|
|
|
hiring and retaining qualified foreign employees; and |
|
|
|
|
difficulty in accounts receivable collection and longer collection periods. |
Any or all of these factors could materially affect our business or results of operations.
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. Restrictive laws, policies, or practices in
certain countries directed toward Israel or companies having operations in Israel may also limit
our ability to sell some of our products in those countries.
Conditions in Israel may materially adversely affect our operations and personnel and may limit our
ability to produce and sell our products.
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 Arab 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
22
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.
Regulatory and Government Contracting
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, 2010 and the three and six months ended July
31, 2010, 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; |
|
|
|
|
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. |
As a result of the consent judgment we entered into with the SEC relating to our reserves
accounting practices, we and our subsidiaries are required, for three years from the date of the
settlement, to disclose that this civil judgment was rendered against us in any proposals to
perform new government work for U.S. federal agencies. In addition, we and our subsidiaries must
amend our representations in existing grants and contracts with U.S. federal agencies to reflect
the civil judgment. While this certification does not bar us from receiving government grants or
contracts from U.S. federal agencies, each government procurement official has the discretion to
determine whether it considers us and our subsidiaries responsible companies for purposes of each
transaction. The government procurement officials may also seek advice from government agency
debarring officials to determine if we and our subsidiaries should be considered for suspension or
debarment from receiving government contracts or grants from U.S. federal agencies.
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. Our government contracts may contain, or under applicable law may be deemed to
contain, provisions not typically found in private commercial contracts, including provisions
enabling the government party to:
|
|
|
terminate or cancel existing contracts for convenience; |
|
|
|
|
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; |
23
|
|
|
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. |
The effect of these provisions may significantly increase our cost to perform the contract or defer
our ability to recognize revenue from such contracts. In some cases, this may mean that we must
begin recording expenses on a contract in advance of being able to recognize the corresponding
revenue. If a government customer terminates a contract with us for convenience, we may not
recover our incurred or committed costs, receive any settlement of expenses, or earn a profit on
work completed prior to the termination. If a government customer terminates a contract for
default, we may not recover these amounts, and, in addition, we may be liable for any costs
incurred by the government customer in procuring undelivered items and services from another
source. Further, an agency within a government may share information regarding our termination
with other agencies. As a result, our ongoing or prospective relationships with other government
agencies could be impaired.
We may not be able to receive or retain the necessary licenses or authorizations required for us to
export some of our products that we develop or manufacture in specific countries.
We are required to obtain export licenses or qualify for other authorizations from the United
States, Israel, and other governments to export some of the products that we develop or manufacture
in these countries and, in any event, are required to comply with applicable export control laws of
each country generally. There can be no assurance that we will be successful in obtaining or
maintaining the licenses and other authorizations required to export our products from applicable
government authorities. In addition, export laws and regulations are revised from time to time and
can be extremely complex in their application; if we are found not to have complied with applicable
export control laws, we may be fined or penalized by, among other things, having our ability to
obtain export licenses curtailed or eliminated, possibly for an extended period of time. Our
failure to receive or maintain any required export licenses or authorizations or our penalization
for failure to comply with applicable export control laws would hinder our ability to sell our
products and could materially adversely affect our business, financial condition, and results of
operations.
U.S. and foreign governments could refuse to buy our Communications Intelligence solutions or could
deactivate our security clearances in their countries thereby restricting or eliminating our
ability to sell these solutions in those countries and perhaps other countries influenced by such a
decision.
Some of our subsidiaries maintain security clearances in the United States and other countries in
connection with the development, marketing, sale, and support of our Communications Intelligence
solutions. These clearances are reviewed from time to time by the applicable government agencies
in these countries and, following these reviews, our security clearances are either maintained or
deactivated. Our security clearances can be deactivated for many reasons, including that the
clearing agencies in some countries may object to the fact that we do business in certain other
countries or the fact that our local subsidiary is affiliated with or controlled by an entity based
in another country. In the event that our security clearances are deactivated in any particular
country, we would lose the ability to sell our Communications Intelligence solutions in that
country for projects that require security clearances. Additionally, any inability to obtain or
maintain security clearances in a particular country may affect our ability to sell our
Communications Intelligence solutions in that country generally (even for non-secure projects). We
have in the past, and may in the future, have our security clearances deactivated. Any inability
to obtain or maintain clearances can materially adversely affect our results of operations.
Whether or not we are able to maintain our security clearances, law enforcement and intelligence
agencies in certain countries may decline to purchase Communications Intelligence solutions if they
were not developed or manufactured in that country. As a result, because our Communications
Intelligence solutions are developed or manufactured in whole or in part in Israel or in Germany,
there may be certain countries where some or all of the law enforcement and intelligence agencies
are unwilling to purchase our Communications Intelligence solutions. If we are unable to sell our
Communications Intelligence solutions in certain countries for this reason, our results of
operations could be materially adversely affected.
24
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. Customers are also increasingly focused on
the security of our products. While our customers use of our products in no way affords us access
to the customers sensitive or confidential information or data, we may come into contact with such
information or data when we perform services or support functions for our customers. We have
implemented policies and procedures to help ensure the proper handling of such information and
data, including background screening of services personnel, non-disclosure agreements, access
rules, and controls on our information technology systems. We also work to ensure the security of
our products, 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 or other security lapses or
risks by us or our products, whether or not valid, could reduce demand for our products or
otherwise expose us to financial or reputational harm.
Intellectual Property
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. The
laws of certain countries do not protect our proprietary rights to the same extent as the laws of
the United States. Therefore, in certain jurisdictions we may be unable to protect our
intellectual property adequately against unauthorized third-party use or infringement, which could
adversely affect our competitive position.
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 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, 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. These claims
may require us to initiate or defend protracted and costly litigation, regardless of the merits of
these claims. If any
25
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.
Reliance on or loss of third-party licensing agreements could materially adversely affect our
business, financial condition, and results of operations.
While most of our products are developed internally, we also purchase technology, license
intellectual property rights, and oversee third-party development and localization of certain
products or components. If we lose or are unable to maintain licenses or distribution rights, we
could incur additional costs or experience unexpected delays until an alternative solution can be
internally developed or licensed from another third party and integrated into our products or we
may be forced to redesign our products or remove certain features from our products. See
Competition and Markets For certain products and components, we rely on a limited number of
suppliers and manufacturers and if these relationships are interrupted we may not be able to obtain
substitute suppliers or manufacturers on favorable terms or at all above for additional
information. Additionally, when purchasing or licensing products and services from third parties,
we endeavor to negotiate appropriate warranties, indemnities, and other protections. We cannot
assure you, however, that all such third-party contracts contain adequate protections or that all
such third parties will be able to provide the protections we have negotiated. To the extent we
are not able to negotiate adequate protections from these third parties or these third parties are
unwilling or unable to provide the protections we have negotiated, our business, financial
condition, and results of operations could be materially adversely affected.
Use of free or open source software could expose our products to unintended restrictions and could
materially adversely affect our business, financial condition, and results of operations.
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 provide protections in the event the open source software infringes a third
partys 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. In addition, the terms of many open source software licenses
have not yet been interpreted by U.S. or foreign courts and as a result there is a risk that such
licenses could be construed in a manner that imposes unanticipated conditions or restrictions on
products that use such software. The introduction of certain kinds of open source software into
our products or a court decision construing an open source software license in an unexpected way
could require us to seek licenses from third parties in order to continue offering affected
products, to re-engineer affected products, to discontinue sales of affected products, or to
release all or portions of the source code of affected products under the terms of the applicable
open source software licenses. Any of these developments could materially adversely affect our
business, financial condition, and results of operations.
Risks Related to Our Capital Structure and Finances
We incurred significant indebtedness in connection with our acquisition of Witness, which makes us
highly leveraged, subjects us to restrictive covenants, and could adversely affect our operations.
Risks associated with being highly leveraged.
At
July 31, 2010, we had outstanding indebtedness of approximately
$598.2 million. As a result of
our significant indebtedness, we are highly leveraged. Our leverage position may, among other
things:
26
|
|
|
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. There can be no assurance that ratings agencies will not
downgrade our credit rating, which could impede our ability to refinance existing debt or secure
new debt or otherwise increase our future cost of borrowing and could create additional concerns on
the part of customers, partners, investors, and employees about our financial condition and results
of operations.
Risks associated with our leverage ratio and financial statement delivery covenants.
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, as provided below. See Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and Capital Resources for additional information.
Our ability to comply with the leverage ratio covenant is highly dependent upon our ability to
continue to grow earnings from quarter to quarter, which requires us to increase revenue while
limiting increases in expenses or, if we are unable to increase or maintain revenue, to reduce
expenses. Our ability to satisfy our debt obligations and our leverage ratio covenant will depend
upon our future operating performance, which will be affected by prevailing economic conditions and
financial, business, and other factors, many of which are beyond our control. Alternatively, we
may seek to maintain compliance with the leverage ratio covenant by reducing our outstanding debt
by raising additional funds through a number of means, including, but not limited to, securities
offerings or asset sales. There can be no assurance that we will be able to grow our earnings,
reduce our expenses, and/or raise funds to reduce our outstanding debt to the extent necessary to
maintain compliance with this covenant. In addition, any expense reductions undertaken to maintain
compliance may impair our ability to compete by, among other things, limiting research and
development or hiring of key personnel. The complexity of our revenue accounting and the continued
shift of our business to the end of the quarter (discussed in greater detail above) has also
increased the difficulty in accurately forecasting quarterly revenue and therefore in predicting
whether we will be in compliance with the leverage ratio requirements at the end of each quarter.
The credit agreement also includes a requirement that we deliver audited consolidated financial
statements to the lenders within 90 days of the end of each fiscal year. In the past we have not
timely delivered such financials statements as required by the credit agreement (see Managements
Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital
Resources for additional information) and may in the future fail to make such deliveries. If
audited consolidated financial statements are not so delivered, and such failure of delivery is not
remedied within 30 days thereafter, an event of default occurs.
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, sell assets, raise additional capital
through an additional securities offering, 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,
sale or securities offering or refinancing or restructuring on reasonable terms or at all.
27
Limitations resulting from the restrictive covenants in the credit agreement.
Our credit agreement also includes a number of restrictive covenants which limit our ability to,
among other things:
|
|
|
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.
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 that we issued to Comverse in connection
with the Witness acquisition.
In connection with the Witness acquisition, we issued 293,000 shares of 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 (after the conversion feature of the preferred stock has been
approved by our stockholders) will result in substantial dilution to the other common stockholders.
The conversion feature of the preferred stock was approved by our stockholders at a special
meeting of our stockholders on October 5, 2010. As of September 15, 2010, if it were convertible,
the preferred stock could have been converted into approximately 10.2 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. However, as noted above, we are
subject to restrictions on our ability to engage in acquisitions and investments under the terms of
our credit agreement. Acquisitions or investments that are not immediately accretive to earnings
may also make it more difficult for us to maintain compliance with the maximum leverage ratio
covenant under the credit agreement.
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.
The process of integrating an acquired companys business into our operations and investing in new
technologies may result in unforeseen operating difficulties and expenditures, which may require a
significant amount of our managements attention that would otherwise be focused on the ongoing
operation of our business. 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 unexpected challenges in reconciling business practices, particularly in
foreign geographies. Due to rapidly changing market conditions, we may also find the value of our
acquired technologies
28
and related intangible assets, such as goodwill, as recorded in our financial statements, to be
impaired, resulting in charges to operations. The magnitude of these risks is greater in the case
of large acquisitions, such as our 2007 acquisition of Witness. See Note 4, Business
Combinations to the audited consolidated financial statements included elsewhere in this
prospectus. 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 for our business.
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 $898.5 million, or approximately 64% of our total assets,
as of January 31, 2010 and approximately $897.8 million, or
approximately 67% of our total assets,
as of July 31, 2010. 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. No events or circumstances
indicating the potential for goodwill impairment were identified during the year ended January 31,
2010 or the three and six months ended July 31, 2010. 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. We did not
record any non-cash impairment charges for the year ended
January 31, 2010 or the three and six months
ended July 31, 2010, but we did record non-cash impairment charges for the years ended January 31,
2009 and 2008, totaling $26.0 million and $23.4 million, respectively. These non-cash impairment
charges related to acquisitions made in our Video Intelligence segment (related to the MultiVision
Intelligence Surveillance Limited (MultiVision) acquisition) and in our Workforce Optimization
performance management consulting business (related to the Opus Group, LLC acquisition, the CM
Insight Limited acquisition, and a portion of the Witness acquisition). 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. See Note 5, Intangible Assets and Goodwill to the
audited consolidated financial statements included elsewhere in this prospectus.
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, Germany, the United Kingdom, 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 and 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 British pound and the euro, fluctuations in the
value of these currencies relative to the U.S. dollar could impact our revenue (on a U.S. dollar
basis) and materially adversely affect our results of operations.
Our ability to realize value from and use our NOLs will impact our tax liability.
We have significant deferred tax assets as a result of prior net operating losses. These deferred tax assets can
provide us with significant future 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 Comverses 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. Although we do not believe that this offering should cause an ownership change under
Section 382, this offering, coupled with other future issuances or sales of our stock (including certain direct or
indirect transactions involving our stock that are outside of our control) could make it more likely that an ownership
change might occur in the future. 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 tax liability will increase in that
jurisdiction.
29
Research and development and tax benefits we receive in Israel may be reduced or eliminated in the
future and our receipt of these benefits subjects us to certain restrictions.
We receive grants from the Office of the Chief Scientist (OCS) of Israel 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 we submit to the
OCS each year. In addition, in recent years, the Government of Israel has reduced the benefits
available under these programs and these programs may be discontinued or curtailed in the future.
The continued reduction in these benefits or the termination of our eligibility to receive these
benefits may adversely affect our financial condition and results of operations.
The Israeli law under which these OCS grants are made also 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. We may seek permission from the OCS to manufacture these products or transfer these
technologies out of Israel, but we cannot assure you that any such request would be approved, and
even if approved, we may be required to pay significant royalties or fees to the OCS. If we fail
to comply with these restrictions, we may be required to repay the grants we received from the OCS
and could also become subject to monetary or criminal penalties.
Our facility in Israel has been granted approved enterprise status and we are therefore eligible
for tax benefits under the Israeli Law for Encouragement of Capital Investments. The Government of
Israel may reduce or eliminate the tax benefits available to approved enterprise programs such as
the programs provided to us. There can be no assurance that these tax benefits will continue in
the future at their current levels or at all. If these tax benefits are reduced or eliminated, the
amount of tax that we pay in Israel will increase. In addition, if we fail to comply with any of
the conditions and requirements of the investment programs, the tax benefits we have received may
be rescinded and we may be required to disgorge the amount of the tax benefit received, together
with interest and penalties.
Risks Related to Our Common Stock
We do not plan to pay dividends on our common stock for the foreseeable future.
We intend to retain our earnings to support the development and expansion of our business, to repay
debt and for other corporate purposes and, as a result, we do not plan to pay cash dividends on our
common stock in the foreseeable future. Our payment of any future dividends will be at the
discretion of our board of directors after taking into account various factors, including our
financial condition, operating results, cash needs, growth plans and the terms of any credit
facility or other restrictive debt agreements that we may be a party to at the time or senior
securities we may have issued. Our credit facility limits us from paying cash dividends or other
payments or distributions with respect to our capital stock. In addition, the terms of any future
facility or other restrictive debt credit agreement may contain similar restrictions on our ability
to pay any dividends or make any distributions or payments with respect to our capital stock. In
addition, holders of our preferred stock are entitled to cumulative dividends before any dividends
may be declared or set aside on our common stock.
Furthermore, our ability to pay dividends to our stockholders is subject to the restrictions set
forth under Delaware law. We cannot assure you that we will meet the criteria specified under
Delaware law in the future, in which case we may not be able to pay dividends on our common stock
even if we were to choose to do so.
The price of our common stock fluctuates significantly, and this may make it difficult for you to
resell the common stock when you want to or at prices you find attractive.
30
There has been significant volatility in the market price and trading volume of equity securities,
including our common stock, some of which is unrelated to the financial performance of the
companies issuing the securities. The public offering price for the shares of common stock being
sold in this offering reflects recent prices of our common stock as reported on the NASDAQ Global
Market and may not be indicative of prices that will prevail in the open market following this
offering. You may not be able to resell your shares at or above the public offering price due to
fluctuations in the market price of our common stock caused by changes in our operating performance
or prospects and other factors.
Some specific factors that may have a significant effect on our common stock market price include:
|
|
|
actual or anticipated quarterly fluctuations in our operating and financial results; |
|
|
|
|
developments related to investigations, proceedings, or litigation that involve us; |
|
|
|
|
changes in financial estimates and recommendations by financial analysts; |
|
|
|
|
dispositions, acquisitions, and financings; |
|
|
|
|
actions of our current stockholders, including sales of our common stock by existing
stockholders and our directors and executive officers; |
|
|
|
|
success of competitive service offerings or technologies; |
|
|
|
|
fluctuations in the stock price and operating results of our competitors; |
|
|
|
|
investors general perception of us; |
|
|
|
|
regulatory developments; and |
|
|
|
|
developments related to the industries in which we compete. |
Because our common stock has been re-listed on the NASDAQ Global Market only since July 6, 2010, we
cannot predict the extent to which investor interest in our company will lead to the development of
an active trading market on the NASDAQ Global Market or otherwise or how liquid that market might
become. Unless there is an active trading market for our common stock, you may have difficulty
selling any shares of our common stock that you purchase. Consequently, you may not be able to sell
our common stock at prices equal to or greater than the price you paid in this offering.
Sales or potential sales of our common stock by us or our significant stockholders may cause the
market price of our common stock to decline.
We are not restricted from issuing additional shares of common stock, including shares issuable
pursuant to securities that are convertible into or exchangeable for, or that represent the right
to receive, common stock. As of September 15, 2010, we had 35.2 million shares of common stock
outstanding. In addition, as of that date, approximately 6.1 million shares of our common stock
were issuable pursuant to outstanding stock options and awards which had not yet vested or which
had been previously acquired upon vesting but had not yet been delivered. Additional shares of
common stock are also available to be granted under our existing equity plans or may be granted
under future equity plans.
In addition, under two registration rights agreements that we entered into with Comverse, Comverse
has registration rights with respect to its common stock and preferred stock holdings in Verint. As
of September 15, 2010, if it were convertible, the preferred stock could have been converted into
approximately 10.2 million shares of our common stock. The conversion feature of the preferred
stock was approved by our stockholders at a special meeting of our stockholders on October 5,
2010.
Also, for the first time since the beginning of our extended filing delay in March 2006, our
directors and certain members of management have recently been
allowed to resume sales of shares of our common stock in
the public markets or in other registered offerings (subject to our securities trading policy and
applicable securities law). As a result, these individuals, including each of our named executive
officers, have sold and may continue to sell, for personal financial planning and asset
diversification purposes, shares of our common stock through block trades in negotiated
transactions or by any other lawful methods permitted by applicable registration statements. Please
see Principal and Selling Stockholders for information regarding the beneficial ownership of our
common stock by our named executive officers and directors.
31
Anti-takeover provisions in Delaware corporate law may make it difficult for our stockholders to
replace or remove our current board of directors and could deter or delay third-parties from
acquiring us, which may adversely affect the marketability and market price of our common stock.
We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation
Law (DGCL). Under these provisions, if anyone becomes an interested stockholder, we may not enter
into a business combination with that person for three years without special approval, which
could discourage a third party from making a takeover offer and could delay or prevent a change of
control. For purposes of Section 203, interested stockholder means, generally, someone owning
more than 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or
more of our outstanding voting stock during the past three years, subject to certain exceptions as
described in Section 203.
Under any change of control, the lenders under our credit facility would have the right to require
us to repay all of our outstanding obligations under the facility. Upon the occurrence of a
Fundamental Change, as defined by the Certificate of Designation setting forth the terms of the
preferred stock, and which includes a change of control, the holders of our preferred stock have
the right to require us to repurchase their shares of preferred stock at the then current
liquidation preference (subject to certain exceptions set forth in the Certificate of Designation).
Holders of our preferred stock have liquidation and other rights that are senior to the rights of
the holders of our common stock.
Our board of directors has the authority to designate and issue preferred stock that may have
dividend, liquidation and other rights that are senior to those of
our common stock. As of September 15,
2010, 293,000 shares of our preferred stock have been issued and are outstanding.
The conversion feature of the preferred stock was approved by our stockholders at a special
meeting of our stockholders on October 5, 2010. As of September 15, 2010, if it were convertible,
the preferred stock could have been converted into approximately 10.2 million shares of our common
stock.
Holders of our
preferred stock are entitled to cumulative dividends before any dividends may be declared or set
aside on our common stock. Upon our voluntary or involuntary liquidation, dissolution or winding
up, before any payment is made to holders of our common stock, holders of our preferred stock are
entitled to receive an initial liquidation preference of $1,000 per share, plus any accrued and
unpaid dividends, which liquidation preference was approximately
$332.2 million as of July 31,
2010. This will reduce the remaining amount of our assets, if any, available to distribute to
holders of our common stock. See Description of Capital Stock for additional information
regarding the rights of our preferred stock.
32
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements discussed in this prospectus 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:
|
|
|
|
risks relating to the filing of our SEC reports, including the occurrence of known
contingencies or unforeseen events that could delay our future filings, management distractions,
and significant expense; |
|
|
|
|
|
risks that our credit rating could be downgraded or placed on a credit watch based on,
among other things, our financial results or delays in the filing of our periodic reports; |
|
|
|
|
risks associated with being a consolidated, controlled subsidiary of Comverse and
formerly part of Comverses consolidated tax group, including risk of any future impact on
us resulting from Comverses special committee investigation and restatement or related
effects, and risks related to our dependence on Comverse to provide us with accurate
financial information, including with respect to stock-based compensation expense and NOLs
for our financial statements; |
|
|
|
|
uncertainties regarding the impact of general economic conditions, particularly in
information technology spending, on our business; |
|
|
|
|
risks that our financial results will cause us not to be compliant with the leverage
ratio covenant under our credit facility or that any delays in the filing of future SEC
reports could cause us not to be compliant with the financial statement delivery covenant
under our credit facility; |
|
|
|
|
risks that 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 will experience liquidity or working capital issues and related risk that
financing sources will be unavailable to us on reasonable terms or at all; |
|
|
|
|
|
uncertainties regarding the future impact on our business of
our now concluded internal investigation,
restatement, and extended filing delay, including customer, partner, employee, and investor
concern, and potential customer and partner transaction deferrals or losses; |
|
|
|
|
|
risks relating to the remediation or inability to adequately remediate material
weaknesses in our internal controls over financial reporting and relating to the proper
application of highly complex accounting rules and pronouncements in order to produce
accurate SEC reports on a timely basis; |
|
|
|
|
risks relating to our implementation and maintenance of adequate systems and internal
controls for our current and future operations and reporting needs; |
|
|
|
|
risks of possible future restatements if the processes used to produce the financial
statements contained in our SEC reports are inadequate; |
33
|
|
|
|
|
risks associated with future regulatory actions or private litigation relating to our
internal investigation, restatement, or previous delays in filing required SEC reports; |
|
|
|
|
|
|
risks that we will be unable to maintain our listing on the NASDAQ Global Market; |
|
|
|
|
risks associated with Comverse controlling our board of directors and a majority of our
common stock (and therefore the results of any significant stockholder vote); |
|
|
|
|
risks associated with significant leverage resulting from our current debt position; |
|
|
|
|
risks due to aggressive competition in all of our markets, including with respect to
maintaining margins and sufficient levels of investment in the business and with respect to
introducing quality products which achieve market acceptance; |
|
|
|
|
risks created by continued consolidation of competitors or introduction of large
competitors in our markets with greater resources than us; |
|
|
|
|
risks associated with significant foreign and international operations, including
exposure to fluctuations in exchange rates; |
|
|
|
|
risks associated with complex and changing local and foreign regulatory environments; |
|
|
|
|
risks associated with our ability to recruit and retain qualified personnel in all
geographies in which we operate; |
|
|
|
|
challenges in accurately forecasting revenue and expenses; |
|
|
|
|
risks associated with acquisitions and related system integrations; |
|
|
|
|
risks relating to our ability to improve our infrastructure to support growth; |
|
|
|
|
risks that our intellectual property rights may not be adequate to protect our business
or that others may make claims on our intellectual property or claim infringement on their
intellectual property rights; |
|
|
|
|
risks associated with a significant amount of our business coming from domestic and
foreign government customers; |
|
|
|
|
risks that we improperly handle sensitive or confidential information or perception of
such mishandling; |
|
|
|
|
risks associated with dependence on a limited number of suppliers for certain components
of our products; |
|
|
|
|
risks that we are unable to maintain and enhance relationships with key resellers,
partners, and systems integrators; and |
|
|
|
|
|
risks that use of our tax benefits may be restricted or eliminated in the
future. |
|
These risks, uncertainties and challenges, as well as other factors, are discussed in greater
detail in the Risk Factors section of this prospectus. You are cautioned not to place undue
reliance on forward-looking statements, which reflect our managements view only as of the date of
this prospectus. 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.
34
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by the selling stockholder. All net
proceeds from the sale of the common stock covered by this prospectus will be received by the
selling stockholder.
The selling stockholder will pay all underwriting fees, commissions, and discounts, any transfer
taxes, and all legal fees and expenses incurred by it in disposing of the shares. We will bear all
other costs, fees and expenses incurred in effecting the registration of the shares covered by this
prospectus, including, without limitation, all registration and filing fees and fees and expenses
of our counsel and our accountants.
35
CAPITALIZATION
The
following table sets forth our cash, cash equivalents, restricted
cash and bank time deposits and capitalization as of July 31, 2010.
You should read this information, together with our consolidated financial statements and the
related notes included elsewhere in this prospectus and the Managements Discussion and Analysis
of Financial Condition and Results of Operations section and other financial information contained
in this prospectus.
|
|
|
|
|
|
|
As
of July 31, 2010 (1) |
|
|
|
(in thousands, except |
|
|
|
share and per share data) |
|
Cash and cash equivalents |
|
$ |
128,199 |
|
Restricted cash and bank time deposits |
|
|
14,893 |
|
|
|
|
|
Total cash, cash equivalents, restricted cash and bank time deposits |
|
$ |
143,092 |
|
|
|
|
|
|
|
|
|
|
Debt: |
|
|
|
|
Term loan facility |
|
$ |
583,234 |
|
Revolving credit facility |
|
|
15,000 |
|
|
|
|
|
Total debt |
|
|
598,234 |
|
|
|
|
|
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 $332,196 |
|
|
285,542 |
|
|
|
|
|
Stockholders
equity: |
|
|
|
|
Common stock $0.001 par value; authorized 120,000,000 shares.
Issued 34,911,000 shares and outstanding 34,651,000 shares |
|
|
35 |
|
Additional paid-in capital |
|
|
478,031 |
|
Treasury
stock, at cost 260,000 shares |
|
|
(6,639 |
) |
Accumulated deficit |
|
|
(425,071 |
) |
Accumulated other comprehensive loss |
|
|
(46,432 |
) |
Non-controlling interest |
|
|
1,718 |
|
|
|
|
|
Total
stockholders equity |
|
|
1,642 |
|
|
|
|
|
|
Total capitalization |
|
$ |
885,418 |
|
|
|
|
|
|
|
|
|
(1) |
|
Does not reflect the payment of approximately $21.7 million made in
August 2010 to terminate our interest rate swap. |
|
36
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Market Information
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 as reported by the
NASDAQ Global Market. On October 6, 2010, the last reported sale price of our common stock on the
NASDAQ Global Market was $30.89 per share.
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
January 31, |
|
Period |
|
Low |
|
High |
2011
|
|
7/6/10 - 10/6/10
|
|
$19.63
|
|
$31.49 |
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.
The following table sets forth the range of high and low sales prices as reported by the Pink
Sheets from February 1, 2008 through July 2, 2010.
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
January 31, |
|
Period |
|
Low |
|
High |
2009
|
|
2/1/08 - 4/30/08
5/1/08 - 7/31/08
8/1/08 - 10/31/08
11/1/08 - 1/31/09
|
|
$14.80
$19.50
$ 8.95
$ 5.40
|
|
$21.85
$24.60
$23.20
$13.00 |
|
|
|
|
|
|
|
2010
|
|
2/1/09 - 4/30/09
5/1/09 - 7/31/09
8/1/09 - 10/31/09
11/1/09 - 1/31/10
|
|
$ 3.10
$ 5.30
$11.31
$15.05
|
|
$ 6.75
$12.85
$17.25
$19.35 |
|
|
|
|
|
|
|
2011
|
|
2/1/10 - 4/30/10
5/1/10 - 7/2/10
|
|
$17.73
$22.20
|
|
$28.00
$27.00 |
Holders
There were
66 holders of record of our common stock at September 15, 2010. Such record holders include
holders who are nominees for an undetermined number of beneficial owners.
Dividends
We have not declared or paid and have no current plans to declare or pay any cash 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
Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity
and Capital Resources for a more detailed discussion of these restrictions. Holders of our
preferred stock are entitled to cumulative dividends before any dividends may be declared or set
aside on our common stock. See Description of Capital Stock and Note 8, Convertible Preferred
Stock to the audited consolidated financial statements included elsewhere in this prospectus for a
more detailed discussion of these restrictions. Our preferred stock currently accrues a dividend at
the rate of 3.875% per year.
37
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.
38
SELECTED FINANCIAL DATA
The selected consolidated statements of operations data for the years ended January 31, 2010, 2009
and 2008 and the selected consolidated balance sheet data as of January 31, 2010 and 2009 are
derived from our audited consolidated financial statements included elsewhere in this prospectus.
The selected consolidated statements of operations data for the years ended January 31, 2007 and
2006 and the selected consolidated balance sheet data as of January 31, 2008, 2007 and 2006 are
derived from our audited consolidated financial statements not included in this prospectus. The
selected consolidated statements of operations data for the three and six months ended July 31, 2010 and
2009 and the consolidated balance sheet data as of July 31, 2010 are derived from our unaudited
consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated
financial statements were prepared on a basis consistent with our audited consolidated financial
statements and include, in the opinion of management, all adjustments necessary for the fair
presentation of the financial information contained in those statements. Historical results are not
necessarily indicative of results to be expected in the future.
You should read the selected consolidated financial data below together with Managements
Discussion and Analysis of Financial Condition and Results of Operations and our consolidated
financial statements and the related notes included elsewhere in this prospectus.
Consolidated Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
July 31, |
| Six Months Ended
July 31, |
| |
| |
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
|
Year Ended January 31, |
in thousands (except per share data) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
Revenue |
|
$ |
180,676 |
|
|
$ |
169,269 |
|
|
$ |
353,289 |
|
|
$ |
344,417 |
|
|
$ |
703,633 |
|
|
$ |
669,544 |
|
|
$ |
534,543 |
|
|
$ |
368,778 |
|
|
$ |
278,754 |
|
Operating income (loss) |
|
|
23,799 |
|
|
|
13,709 |
|
|
|
19,817 |
|
|
|
49,718 |
|
|
|
65,679 |
|
|
|
(15,026 |
) |
|
|
(114,630 |
) |
|
|
(47,253 |
) |
|
|
4,112 |
|
Net income (loss) |
|
|
12,391 |
|
|
|
1,482 |
|
|
|
(3,225 |
) |
|
|
22,054 |
|
|
|
17,100 |
|
|
|
(78,577 |
) |
|
|
(197,545 |
) |
|
|
(39,598 |
) |
|
|
2,482 |
|
Net income (loss) attributable to Verint Systems Inc. |
|
|
11,475 |
|
|
|
1,598 |
|
|
|
(4,733 |
) |
|
|
21,232 |
|
|
|
15,617 |
|
|
|
(80,388 |
) |
|
|
(198,609 |
) |
|
|
(40,519 |
) |
|
|
1,664 |
|
Net income (loss) attributable to Verint Systems Inc. common shares |
|
|
7,921 |
|
|
|
(1,808 |
) |
|
|
(11,690 |
) |
|
|
14,564 |
|
|
|
2,026 |
|
|
|
(93,452 |
) |
|
|
(207,290 |
) |
|
|
(40,519 |
) |
|
|
1,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Verint Systems Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
$ |
(1.26 |
) |
|
$ |
0.05 |
|
Diluted |
|
|
0.23 |
|
|
|
(0.06 |
) |
|
|
(0.35 |
) |
|
|
0.45 |
|
|
|
0.06 |
|
|
|
(2.88 |
) |
|
|
(6.43 |
) |
|
|
(1.26 |
) |
|
|
0.05 |
|
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
33,272 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,462 |
|
|
|
32,478 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
32,156 |
|
|
|
31,781 |
|
Diluted |
|
|
35,006 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,606 |
|
|
|
33,127 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
32,156 |
|
|
|
32,620 |
|
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
January 31, |
in thousands |
|
2010 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
2006 |
Total assets |
|
$ |
1,342,144 |
|
|
$ |
1,396,337 |
|
|
$ |
1,337,393 |
|
|
$ |
1,492,275 |
|
|
$ |
593,676 |
|
|
$ |
609,558 |
|
Long-term debt, including current maturities |
|
|
598,234 |
|
|
|
620,912 |
|
|
|
625,000 |
|
|
|
610,000 |
|
|
|
1,058 |
|
|
|
1,325 |
|
Preferred stock |
|
|
285,542 |
|
|
|
285,542 |
|
|
|
285,542 |
|
|
|
293,663 |
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
1,642 |
|
|
|
(14,567 |
) |
|
|
(76,070 |
) |
|
|
30,325 |
|
|
|
198,890 |
|
|
|
220,569 |
|
Certain financial data in these tables for years ended prior to January 31, 2010 has been
adjusted to reflect the adoption of a change in accounting for noncontrolling interests, as further
discussed in Note 1, Summary of Significant Accounting Policies to the audited consolidated
financial statements included elsewhere in this prospectus.
During the five year period ended January 31, 2010, we acquired a number of businesses, the more
significant of which were the acquisitions of MultiVision in January 2006, Mercom Systems Inc., in July 2006, and Witness in May 2007. The operating results of acquired businesses have
been included in our consolidated financial
39
statements since their respective acquisition dates and have contributed to our revenue growth.
The May 2007 acquisition of Witness had significant impacts on our revenue and operating results
for the years ended January 31, 2010, 2009, and 2008.
Operating results for the period 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 extended filing delay status. |
Operating results for the period ended January 31, 2009 include:
|
|
|
a full years 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 organization; |
|
|
|
|
net proceeds after legal fees of approximately $4.3 million associated with the
settlement of pre-existing litigation between 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; |
|
|
|
|
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 extended filing delay
status; and |
|
|
|
|
non-cash goodwill impairment charges of $26.0 million. |
Operating results for the period 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; |
40
|
|
|
interest expense on our term loan of $34.4 million; |
|
|
|
|
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 extended filing delay
status; |
|
|
|
|
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; |
|
|
|
|
stock-based compensation expense of $31.0 million; and |
|
|
|
|
non-cash goodwill and intangible asset impairment charges of $23.4 million. |
Operating results for the year ended January 31, 2007 include:
|
|
|
$19.2 million for a one-time settlement charge related to our exit from a
royalty-bearing program with the OCS; and |
|
|
|
|
approximately $4 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 extended filing delay status. |
Operating results for the year ended January 31, 2006 include a $2.6 million charge in connection
with a customer dispute.
41
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following managements discussion and analysis of our financial condition and results of
operations should be read in conjunction with Business, Selected Financial Data, and the
consolidated financial statements and the related notes thereto which appear elsewhere in this
prospectus. 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 the Risk
Factors section.
Business Overview
Verint is a global leader in Actionable Intelligence solutions and value-added services. Our
solutions enable organizations of all sizes to make 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 80% 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 market, our Workforce Optimization solutions help organizations enhance customer
service operations in contact centers, branches, and back-office environments to increase customer
satisfaction, reduce operating costs, identify revenue opportunities, and improve profitability.
In the security intelligence market, our Video Intelligence, public safety, and Communications
Intelligence solutions are vital to government and commercial organizations in their efforts to
protect people and property and neutralize terrorism and crime.
We support our customers around the globe directly and with an extensive network of selling and
support partners.
Our Business
We serve two markets through three operating segments. Our Workforce Optimization segment serves
the enterprise workforce optimization market, while our Video Intelligence segment and
Communications Intelligence segment serve the security intelligence market.
In our Workforce Optimization segment, we are a leading provider of enterprise workforce
optimization 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 enhancing compliance. Marketed under the Impact 360 brand
to contact centers, back offices, branch and remote offices, and public safety centers, these
solutions comprise a unified suite of enterprise workforce optimization applications and services
that include IP and TDM voice recording and quality monitoring, speech and data analytics,
workforce management, customer feedback, eLearning and coaching, performance management, and
desktop productivity/application analysis. These applications can be deployed stand-alone or in an
integrated fashion. Key business and technology trends driving this segment include a growing
interest in a unified workforce optimization suite and sophisticated customer interaction
analytics, the adoption of workforce optimization solutions outside contact centers, and the
ongoing upgrade of TDM voice systems to VoIP telephony
infrastructure. For the three and six months ended
July 31, 2010 and the years ended January 31, 2010, 2009, and 2008, this segment represented
approximately 52%, 54%, 53%, 53%, and 49% of our total revenue, respectively.
In our Video Intelligence segment, we are a leading provider of networked IP video solutions
designed to optimize security and enhance operations. Our Video Intelligence Solutions portfolio
includes IP video management software and services, edge devices for capturing, digitizing, and
transmitting video over different types of wired and wireless networks, video analytics, and
networked DVRs. Marketed under the Nextiva brand, this portfolio enables organizations to deploy
an end-to-end IP video solution with analytics or evolve to IP video operations without discarding
their investments in analog CCTV technology. Key business and technology trends in the Video
42
Intelligence segment include increased demand for advanced security solutions due to ongoing
terrorism and security threats around the world and the transition from relatively passive analog
CCTV video systems to more sophisticated network-based IP video
solutions. For the three and six months
ended July 31, 2010 and the years ended January 31, 2010, 2009, and 2008, this segment represented
approximately 21%, 20%, 21%, 19%, and 28% of our total revenue, respectively.
In our Communications Intelligence segment, we are a leading provider of communications
intelligence and investigative solutions that help law enforcement, national security,
intelligence, and civilian government agencies effectively detect, investigate, and neutralize
criminal and terrorist threats. 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, fusion and data
management, Web 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. Key business and technology
trends in this segment include the demand for innovative communications intelligence and
investigative solutions due to terrorism, criminal activities, and other security threats, an
expanding range of communication and information media, the increasing complexity of communications
networks and growing network traffic, and legal and compliance
requirements. For the three and six months
ended July 31, 2010 and the years ended January 31, 2010, 2009, and 2008, this segment represented
approximately 27%, 26%, 26%, 28%, and 23% 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:
|
|
|
Decreased information technology spending. During the current global recession,
information technology spending has decreased, and the market for our products and services
has been adversely affected. Customers are delaying, reducing, and eliminating their
spending on information technology, and we believe this has adversely affected our results. |
|
|
|
|
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, or make certain investments in our
business. These limitations may impede our ability to execute upon our business strategy. |
See also Risk Factors for a more complete description of these and other risks that may impact
future revenue and profitability.
43
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, and training services. Our
customer arrangements typically include several of these elements. 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 considered probable
and whether fees are fixed or determinable. In addition, our multiple-element arrangements must be
carefully reviewed to determine whether the fair value of each element can be established, which is
a critical factor in determining the timing of the arrangements revenue recognition.
The majority of our software license arrangements contain multiple elements including software,
hardware, PCS, and professional services, such as installation, consulting, and training. We
allocate revenue to delivered elements of the arrangement using the residual value method (Residual
Method), whereby revenue is allocated to the undelivered elements based on vendor specific
objective evidence of the fair value (VSOE), of the undelivered elements with the remaining
arrangement fee allocated to the delivered elements and recognized as revenue assuming all other
revenue recognition criteria are met. 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.
Our policy for establishing VSOE for installation, consulting, and training is based upon an
analysis of separate sales of services, which are then compared with the fees charged when the same
elements are included in a multiple-element arrangement.
PCS revenues are 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 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 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.
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
44
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. We evaluate many
factors in determining the estimated economic life of our products, including the support period of
the product, technological obsolescence, product roadmaps, and customer expectations. We have
concluded that our software products have estimated economic lives of from five to seven years.
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 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.
For shipment of products which include embedded firmware that has been deemed incidental, we
recognize revenue provided that persuasive evidence of an arrangement exists, delivery has occurred
or services have been rendered, the fee is fixed or determinable, and collectability of the fee is
reasonably assured. For shipments of hardware products, delivery is considered to have occurred
upon shipment, provided that the risks of loss, and title in certain jurisdictions, have been
transferred to the customer.
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 customers
existing environment. 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
projects profitability can be estimated or the services have been completed. In addition, if VSOE
does not exist for the contracts PCS element, but some level of profit is assured, the zero gross
margin approach of applying percentage of completion accounting is used based on the extent of
costs incurred. Once the services are completed, the remaining unrecognized portion of the
arrangement fee is recognized ratably over the remaining PCS period. In the event some level of
profitability on a contract cannot be assured, the completed-contract method of revenue recognition
is applied. 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.
In certain of our arrangements accounted for under contract accounting methods, the fee is
contingent on the return on investment our customers receive from our products and services.
Revenue from these arrangements is recognized under the completed-contract method of accounting
when the contingency is resolved and collectability is assured, which in most cases is upon final
receipt of payment.
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 a software license arrangement obligates us
to deliver specified future products or upgrades, revenue under the arrangement is initially
deferred and is recognized only when the specified future products or upgrades are delivered, or
when the obligation to deliver specified future products expires, whichever occurs earlier.
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 customers 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
45
periodically on the basis of updated customer financial statement information, payment performance,
and other factors.
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 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 arrangements revenue into product revenue and service revenue for
financial reporting purposes. For these arrangements, we review our VSOE for training,
installation, and PCS services from similar transactions and stand-alone service arrangements and
prepare comparisons to peers, in order to determine reasonable and consistent approximations of
fair values of service revenue for statement of operations classification purposes with the
remaining amount being allocated to product revenue. 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
Business
acquisitions completed prior to January 31, 2009 have been
accounted for using purchase method
standards effective prior to that date. New purchase accounting standards were effective for us on
February 1, 2009. Under purchase accounting standards, we allocate the purchase price of acquired
companies to the tangible and intangible assets acquired and liabilities assumed as well as to
in-process research and development costs based upon their estimated fair values at the acquisition
date. These fair values are 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.
46
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 the in-process research and development into commercially
viable products and estimated cash flows from the projects when completed; |
|
|
|
|
the acquired companys brand and competitive position, as well as assumptions about the
period of time the acquired brand will continue to be used in the combined companys
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.
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.
Our goodwill impairment evaluation is based upon comparing the fair value to the carrying value of
our reporting units containing goodwill. To test for potential impairment, we first perform an
assessment of the fair value of our reporting units. We utilize three primary approaches to
determine 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 weighting 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.
The fair value of each reporting unit is compared to its carrying value to determine whether there
is an indication of impairment in value. If an indication of impairment exists, we perform a
second analysis to measure the amount of impairment, if any.
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-
47
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.
During the years ended January 31, 2009 and 2008, we recorded non-cash charges to recognize
impairments of goodwill and other intangible assets of $26.0 million, and $23.4 million,
respectively. We did not record any impairment of goodwill for the
three and six months ended July 31,
2010 or for the year ended January 31, 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, 2009, 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
assessment are reasonable and appropriate, a material change in any of our assumptions or external
factors could trigger impairments not originally identified.
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 the 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 the change in deferred taxes during the year. 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 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
48
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.
Impact of Our VSOE/Revenue Recognition Policies on Our Results of Operations
When VSOE does not exist for all delivered elements of an arrangement, we recognized revenue under
the Residual Method. In essence, the value of our products is derived by ascertaining the fair
value of all undelivered elements (i.e., PCS and other services) and subtracting the value of the
undelivered elements from the total arrangement value. If the fair value of all undelivered
elements cannot be determined, revenue recognition is deferred for all elements, including
delivered elements, until all elements are delivered. However, if the only undelivered element is
PCS, the entire arrangement fee is recognized ratably over the PCS period.
As we have previously disclosed, we determined that for many of the arrangements we examined in
previously reported periods (including periods included in this prospectus), we were unable to
determine the fair value of all or some of the elements within the multiple-element arrangement, as
required by accounting guidance for revenue recognition. Further, for certain transactions
occurring during periods reported herein, we were similarly unable to determine the fair value of
all or some of the elements.
Following is a general overview of how we recognize revenue for multiple-element arrangements by
segment.
Workforce Optimization Segment
Beginning in the year ended January 31, 2009, VSOE for professional services was established for
the majority of our Workforce Optimization transactions which allowed for the recognition of
product revenue prior to the services being performed. Prior to the
year ended January 31, 2009, VSOE for professional services was not established for a majority of our Workforce
Optimization transactions and, as a result, product revenue that could have otherwise been
recognized upon delivery is being deferred until all services associated with the arrangement are
completed. This results in revenue recognition being deferred for up to several quarters depending
on the nature of the arrangement.
In addition, during the three year period covered by our Annual Report on Form 10-K for the year
ended January 31, 2010, we were also unable to establish VSOE of PCS services related to certain
other Workforce Optimization transactions. As a result, product revenue that could otherwise been
recognized upon delivery is being recognized ratably over either the term of the PCS services or
the estimated economic life of the software product.
During the three year period covered by our Annual Report on Form 10-K for the year ended January
31, 2010, in our Workforce Optimization segment, approximately 55% of our revenue was recognized
when delivery of our products or performance of our services occurred using the Residual Method and
approximately 45% was recognized ratably over either the PCS term or the period that the customer
was entitled to renew their PCS but not to exceed the estimated economic life of the product or
contractual period (Ratable Method).
49
Video Intelligence Segment
Beginning in the year ended January 31, 2010, VSOE for PCS services was established for certain
arrangements in our Video Intelligence segment. In the years ended January 31, 2009 and 2008 we
were unable to adequately establish VSOE for our PCS service plans due to the lack of actual
subsequent renewals and not having the ability to identify Video Intelligence customers that were
under current PCS service plans. Accordingly, in the years ended January 31, 2009 and 2008, we
recognized revenue for these arrangements over the support period, limited to the estimated
economic life of the product.
During the three year period covered by our Annual Report on Form 10-K for the year ended January
31, 2010, in our Video Intelligence segment, approximately 60% of our revenue was recognized when
delivery of our products or performance of our services occurred using the Residual Method and
approximately 40% was recognized using the Ratable Method.
Communications Intelligence Segment
During the quarterly period ended April 30, 2010, VSOE for professional services was established
for certain Communications Intelligence contracts, and VSOE had been
maintained through July 31, 2010, which allowed for the recognition of product
revenue prior to those services being performed. In the three-year period covered by our Annual
Report on Form 10-K for the year ended January 31, 2010, VSOE for professional services was not
adequately established, in circumstances similar to those described previously for the Workforce
Optimization segment. As a result, revenue for these contracts is deferred to subsequent periods.
In addition, several of our Communications Intelligence contracts require substantial
customization, and are therefore accounted for using the completed contract method (the Contract
Accounting Method). In addition, certain of these arrangements are bundled with PCS for which we
were unable to establish VSOE, and revenue was deferred accordingly.
During the three year period covered by our Annual Report on Form 10-K for the year ended January
31, 2010, based on the way we recognize revenue in our Communications Intelligence segment,
approximately 50% of our revenue was recognized using the Residual Method, approximately 20% was
recognized using the Ratable Method, and approximately 30% was recognized under the contract
accounting methods, primarily using the percentage of completion method, or alternately, the
Contract Accounting Method.
In addition, as part of deferring revenue for a particular arrangement, we have also deferred
certain cost of revenue associated with the arrangement. 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. 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.
50
Results of Operations for Annual Periods
Financial Overview
The following table sets forth a summary of certain key financial information for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenue |
|
$ |
703,633 |
|
|
$ |
669,544 |
|
|
$ |
534,543 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
65,679 |
|
|
$ |
(15,026 |
) |
|
$ |
(114,630 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
Verint Systems Inc. common shares |
|
$ |
2,026 |
|
|
$ |
(93,452 |
) |
|
$ |
(207,290 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
attributable to Verint Systems Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Our revenue increased
approximately 5%, or $34.1 million, to $703.6 million in the year ended January 31, 2010 from
$669.5 million in the year ended January 31, 2009. The increase was due to revenue increases in
our Workforce Optimization and Video Intelligence segments, partially offset by a revenue reduction
in our Communication Intelligence segment. In our Workforce Optimization segment, revenue
increased by $22.4 million, or 6%, primarily due to the completion of a multi-site installation for
a major customer for which revenue was recognized upon final customer acceptance, coupled with an
increase in maintenance renewal revenue recognized at full value as a result of the elimination of
the impact of purchase accounting adjustments to support obligations assumed which amounted to $5.2
million in the year ended January 31, 2009. We recorded an adjustment reducing support obligations
assumed in the Witness acquisition to their estimated fair value at the acquisition date. As a
result, as required by business combination accounting rules, revenue related to maintenance
contracts in the amount of $5.2 million that would have been otherwise recorded by Witness as an
independent entity, was not recognized in the year ended January 31, 2009. There was no remaining
deferred revenue balance associated with the acquisition as of January 31, 2009. Historically,
substantially all of our customers, including customers from acquired companies, renew their
maintenance contracts when such contracts are eligible for renewal. To the extent these underlying
maintenance contracts are renewed, we will recognize the revenue for the full value of these
contracts over the maintenance periods, the substantial majority of which are one year. In our
Video Intelligence segment, revenue increased $18.0 million, or 14%, almost entirely due to the
product delivery of an order from a major customer, partially offset by a decrease of approximately
$7 million in Ratable Method revenue. In our Communications Intelligence segment, revenue
decreased by $6.3 million, or 3%, primarily due to a decrease in Residual Method revenue associated
with customer installations partially offset by an increase in Contract Accounting Method revenue
due to work performed on certain large projects. For more details on our revenue by segment, see
Revenue by Operating Segment. Revenue in the Americas, Europe, Middle East and Africa (EMEA),
and Asia Pacific Regions (APAC), represented approximately 55%, 25%, and 20% of our total revenue,
respectively, in the year ended January 31, 2010 compared to approximately 52%, 32%, and 16%,
respectively, in the year ended January 31, 2009.
We had operating income of $65.7 million in the year ended January 31, 2010 compared to an
operating loss of $15.0 million in the year ended January 31, 2009. The increase in operating
income was primarily due to an increase in gross profit of $52.4 million to $463.7 million, or 66%,
from $411.3 million, or 61%, coupled with a decrease in operating expenses of $28.3 million. The
increase in gross profit was primarily due to higher revenue and higher gross margin in our
Workforce Optimization and Video Intelligence segments, partially offset by lower revenue and lower
gross margin in our Communications Intelligence segment. Product margins in our Video Intelligence
and Workforce Optimization segments increased mainly as a result of a more favorable product mix.
Service margins increased due to our cost-saving initiatives, as well as the fact, that in certain
cases, expenses
51
associated with service revenue recognized in the current year under the Ratable
Method were recorded in prior periods when the costs were incurred. As discussed under Impact
of Our VSOE/Revenue Recognition Policies on our Results of Operations, in accordance with U.S.
generally accepted accounting principles (GAAP), and our accounting policy, the cost of revenue
associated with services is generally expensed as incurred in the period in which the services are
performed, with the exception of certain transactions accounted for under Contract Accounting
Method revenue. The decrease in operating expenses was primarily due to the absence of impairment
of goodwill and other acquired intangible asset charges in the year ended January 31, 2010 compared
to $26.0 million of impairment of goodwill and other acquired intangible asset charges in the year
ended January 31, 2009, as well as a $4.5 million decrease in research and development expenses and
a $4.5 million decrease in integration, restructuring and other, partially offset by a $9.7 million
increase in selling, general and administrative expenses. The increase in selling, general and
administrative expenses is primarily due to an increase of approximately $26 million in
professional fees and related expenses associated with our restatement of previously filed
financial statements and our extended filing delay status partially offset by our cost-saving
initiatives.
We had net income attributable to Verint Systems Inc. common shares of $2.0 million and income per
share of $0.06 in the year ended January 31, 2010, compared to a net loss attributable to Verint
Systems Inc. common shares of $93.5 million and a loss per share of $2.88 in the year ended January
31, 2009. The increase in our net income attributable to Verint Systems Inc. common shares and
income per share in the year ended January 31, 2010 was due to our higher gross profit and lower
operating expenses as described above, and to a $2.4 million reduction in interest and other
expenses, net coupled with a reduction of $12.6 million in income tax expense.
The strengthening of the U.S. dollar relative to the major foreign currencies in which we transact
(primarily the British pound sterling, the euro, Israeli shekel, and Canadian dollar) in the year ended
January 31, 2010 compared to the year ended January 31, 2009 had an unfavorable impact on our
revenue and a favorable impact on our operating income. Had foreign exchange rates remained
constant in these periods, excluding the impact of foreign currency hedges, our total revenue would
have been approximately $12 million higher and our operating expenses and cost of goods sold would
have been approximately $15 million higher, or a net unfavorable constant U.S. dollar impact of
approximately $3 million on our operating income in the year ended January 31, 2010.
As of January 31, 2010, we employed approximately 2,500 employees, including part-time employees
and certain contractors, as compared to approximately 2,550 as of January 31, 2009.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Our revenue increased
approximately 25%, or $135.0 million, to $669.5 million in the year ended January 31, 2009 from
$534.5 million in the year ended January 31, 2008. The increase was due to revenue increases in
our Workforce Optimization and Communications Intelligence segments, partially offset by a
reduction in our Video Intelligence segment. In our Workforce Optimization segment, revenue
increased by $91.5 million, or 35%, primarily due to a full year of Witness being included in our
results for the year ended January 31, 2009 compared to only eight months in the year ended January
31, 2008, coupled with an increase in Witness maintenance renewal revenue recognized at full value
as a result of the reduced impact of purchase accounting adjustments to support obligations
assumed. We recorded an adjustment reducing support obligations assumed in the Witness acquisition
to their estimated fair value at the acquisition date. As a result, as required by business
combination accounting rules, revenue related to maintenance contracts in the amount of $5.2
million and $33.9 million that would have been otherwise recorded by Witness as an independent
entity, was not recognized in the years ended January 31, 2009 and 2008, respectively. In our
Communications Intelligence segment, revenue increased by $63.8 million, or 50%, primarily due to
increased business including several large project implementations that started during the year, as
well as the completion of certain installations and work performed for projects accounted for as
Contract Accounting Method revenue. In our Video Intelligence segment, revenue decreased $20.2
million, or 14%, due to timing of installations from a major customer, a decline in our
distribution business in APAC, and a decline in Residual Method revenue due to the global
economic downturn. For more details on our revenue by segment, see Revenue by Operating
Segment. Revenue in the Americas, EMEA, and APAC represented approximately 52%, 32%, and 16% of
our total revenue, respectively, in the year ended January 31, 2009 compared to approximately 52%,
33%, and 15%, respectively, in the year ended January 31, 2008.
We had an operating loss of $15.0 million in the year ended January 31, 2009 compared to an
operating loss of $114.6 million in the year ended January 31, 2008. The decrease in operating
loss was primarily due to an increase
52
in gross profit of $106.8 million to $411.3 million, or 61%,
from $304.5 million, or 57%, partially offset by an increase of $7.2 million in operating expenses.
The increase in gross profit was primarily due to higher revenue and higher gross margin in our
Workforce Optimization and Communications Intelligence segments, partially offset by lower revenue
and lower gross margin in our Video Intelligence segment. The increase in operating expenses was
due to a $23.0 million increase in selling, general and administrative expenses and a $5.6 million
increase in amortization of intangible assets, primarily due to a full year of Witness being
included in our results for the year ended January 31, 2009 compared to only eight months in the
year ended January 31, 2008, as well as a $3.0 million increase in impairment of goodwill and other
acquired intangible assets, partially offset by a $5.3 million reduction in integration and
restructuring costs, a $13.0 million decrease in legal fees associated with intellectual property
litigation assumed in the Witness acquisition, net of settlement recovery, as well as the absence
in the year ended January 31, 2009 of a $6.7 million in-process research and development charge
recorded in the year ended January 31, 2008. For additional information see Impairment of
Goodwill and Other Acquired Intangible Assets and Note 5, Intangible Assets and Goodwill to the
audited consolidated financial statements included elsewhere in this prospectus.
We had a net loss attributable to Verint Systems Inc. common shares of $93.5 million and a loss per
share of $2.88 in the year ended January 31, 2009, compared to a net loss attributable to Verint
Systems Inc. common shares of $207.3 million and a loss per share of $6.43 in the year ended
January 31, 2008. The decrease in our net loss attributable to Verint Systems Inc. common shares
and loss per share in the year ended January 31, 2009 was due to our higher gross profit and lower
integration costs and the Witness intellectual property legal fees as described above, and to lower
interest and other expenses, net of $43.9 million in the year ended January 31, 2009, compared to
interest and other expenses, net of $55.2 million in the year ended January 31, 2008. The decrease
in interest and other expenses was primarily a result of the repurchase by our broker of our
auction rate securities (ARS), at the value equal to the par value plus interest.
The U.S. dollar was mixed relative to the major foreign currencies in which we transact (weakened
versus the euro and Israeli shekel and strengthened versus the
British pound sterling and Canadian dollar)
in the year ended January 31, 2009 compared to the year ended January 31, 2008. The net impact was
unfavorable on our revenue primarily due to the weaker British pound sterling, and had a net unfavorable
impact on our operating loss primarily due to the stronger Israeli shekel (which caused our local
expenses to be higher). Had foreign exchange rates remained constant in these periods, our total
revenue would have been approximately $5 million higher and our operating expenses and cost of
revenue would have been approximately $2 million lower, or a net favorable constant dollar impact
of approximately $7 million on our operating loss in the year ended January 31, 2009.
As of January 31, 2009, we employed approximately 2,550 employees, including part-time employees
and certain contractors, as compared to approximately 2,600 as of January 31, 2008.
Revenue by Operating Segment
The following table sets forth revenue for each of our three operating segments for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Workforce Optimization |
|
$ |
374,778 |
|
|
$ |
352,367 |
|
|
$ |
260,938 |
|
|
|
6 |
% |
|
|
35 |
% |
Video Intelligence |
|
|
144,970 |
|
|
|
127,012 |
|
|
|
147,225 |
|
|
|
14 |
% |
|
|
(14 |
%) |
Communications Intelligence |
|
|
183,885 |
|
|
|
190,165 |
|
|
|
126,380 |
|
|
|
(3 |
%) |
|
|
50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
703,633 |
|
|
$ |
669,544 |
|
|
$ |
534,543 |
|
|
|
5 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
Workforce Optimization Segment
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Workforce Optimization
segment revenue increased approximately 6%, or $22.4 million, to $374.8 million in the year ended
January 31, 2010 from $352.4 million in the year ended January 31, 2009. The increase was
primarily due to the completion of a multi-site installation for a major customer for which revenue
was recognized upon final customer acceptance, as well as an increase in maintenance renewal
revenue recognized at full value as a result of the elimination of the impact of purchase
accounting adjustments to support obligations assumed. We recorded an adjustment reducing support
obligations assumed in the Witness acquisition to their estimated fair value at the acquisition
date. As a result, as required by business combination accounting rules, revenue related to
maintenance contracts in the amount of $5.2 million that would have been otherwise recorded by
Witness as an independent entity, was not recognized in the year ended January 31, 2009. There was
no remaining deferred revenue balance associated with the acquisition as of January 31, 2009.
Historically, substantially all of our customers, including customers from acquired companies,
renew their maintenance contracts when such contracts are eligible for renewal. To the extent
these underlying maintenance contracts are renewed, we will recognize the revenue for the full
value of these contracts over the maintenance periods, the substantial majority of which are one
year.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. In our Workforce Optimization
segment, revenue increased by $91.5 million, or 35%, primarily due to a full year of Witness being
included in our results for the year ended January 31, 2009 compared to only eight months in the
year ended January 31, 2008, coupled with an increase in Witness maintenance renewal revenue
recognized at full value as a result of the reduced impact of purchase accounting adjustments to
support obligations assumed. We recorded an adjustment reducing support obligations assumed in the
Witness acquisition to their estimated fair value at the acquisition date. As a result, as
required by business combination accounting rules, revenue related to maintenance contracts in the
amount of $5.2 million and $33.9 million that would have been otherwise recorded by Witness as an
independent entity, was not recognized in the years ended January 31, 2009 and 2008, respectively.
During the year ended January 31, 2009, we combined the operations of Verint and Witness as well as
integrated some of the products of both companies. As a result, we cannot accurately quantify the
increase in revenue attributable to the Witness acquisition.
Video Intelligence Segment
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. In our Video Intelligence
segment, revenue increased by $18.0 million, or 14%, almost entirely due to the product delivery of
an order from a major customer, partially offset by a decrease of approximately $7 million in
Ratable Method revenue due to reduced volume of arrangements for which VSOE was not established.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Video Intelligence segment
revenue decreased approximately 14%, or $20.2 million, to $127.0 million in the year ended January
31, 2009 from $147.2 million in the year ended January 31, 2008. Approximately 35% of the decrease
was due to lower revenue from a major customer due to the timing of installations, approximately
35% of the decrease was due to a decline in our distribution business in the APAC region, and
approximately 30% of the decrease was due to a decline in Residual Method revenue due to the global
economic downturn.
Communications Intelligence Segment
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Communications Intelligence
segment revenue decreased approximately 3%, or $6.3 million, to $183.9 million in the year ended
January 31, 2010 from $190.2 million in the year ended January 31, 2009. The decrease was
primarily due to a decrease of approximately $33 million in Residual Method revenue associated with
customer installations partially offset by an increase of approximately $27 million in Contract
Accounting Method revenue due to work performed on certain large projects.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Communications Intelligence
segment revenue increased approximately 50%, or $63.8 million, to $190.2 million in the year ended
January 31, 2009 from $126.4 million in the year ended January 31, 2008. The increase was due to
increased business including several
large project implementations that started during the year as well as the completion of certain
installations and work
54
performed for projects accounted for as Contract Accounting Method revenue.
Approximately 60% of the increase was due to an increase in Residual Method revenue related to the
completion of certain installations and approximately 30% of the increase was due to an increase in
Contract Accounting Method revenue.
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 arrangements revenue into product revenue and service and support
revenue. For additional information see Note 1, Summary of Significant Accounting Policies to
the audited consolidated financial statements included elsewhere in this prospectus.
The following table sets forth revenue for products and service and support for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Product revenue |
|
$ |
374,272 |
|
|
$ |
365,485 |
|
|
$ |
333,130 |
|
|
|
2 |
% |
|
|
10 |
% |
Service and support revenue |
|
|
329,361 |
|
|
|
304,059 |
|
|
|
201,413 |
|
|
|
8 |
% |
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
703,633 |
|
|
$ |
669,544 |
|
|
$ |
534,543 |
|
|
|
5 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Revenue
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Product revenue increased
approximately 2%, or $8.8 million, to $374.3 million in the year ended January 31, 2010 from $365.5
million in the year ended January 31, 2009. The increase was primarily a result of our Video
Intelligence segment which had a $16.9 million increase in product revenue, as well as our
Workforce Optimization segment which had an increase of $8.9 million in product revenue. These
increases were offset by a decrease of $17.0 million in product revenue in our Communication
Intelligence segment. For additional information see Revenue by Operating Segment.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Product revenue increased
approximately 10%, or $32.4 million, to $365.5 million in the year ended January 31, 2009 from
$333.1 million in the year ended January 31, 2008. The increase was primarily a result of our
Communication Intelligence segment which had a $47.4 million increase in product revenue, as well
as an increase of $6.6 million in our Workforce Optimization segment. These increases were offset
by a decrease of $21.6 million in product revenue in our Video Intelligence segment. For
additional information see Revenue by Operating Segment.
Service and Support Revenue
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Service and support revenue
increased approximately 8%, or $25.3 million, to $329.4 million for the year ended January 31, 2010
from $304.1 million in the year ended January 31, 2009. The increase was primarily in our
Workforce Optimization segment which represented $13.6 million of the total increase, as well as a
combined increase of $11.7 million in our Video Intelligence and Communications Intelligence
segments. The increase in our Workforce Optimization segment was
55
partially due to an increase in maintenance renewal revenue recognized at full value as a result of
the elimination of the impact of purchase accounting adjustments to support obligations assumed.
We recorded an adjustment reducing support obligations assumed in the Witness acquisition to their
estimated fair value at the acquisition date. As a result, as required by business combination
accounting rules, revenue related to maintenance contracts in the amount of $5.2 million that would
have been otherwise recorded by Witness as an independent entity, was not recognized in the year
ended January 31, 2009.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Service and support revenue
increased approximately 51%, or $102.7 million, to $304.1 million for the year ended January 31,
2009 from $201.4 million in the year ended January 31, 2008. The increase was primarily in our
Workforce Optimization segment which represented $84.9 million of the total increase, as well as a
combined increase of $17.8 million in our Video Intelligence and Communications Intelligence
segments. The increase in our Workforce Optimization segment was primarily due to a full year of
Witness being included in our results for the year ended January 31, 2009 compared to only eight
months in the year ended January 31, 2008, coupled with an increase in Witness maintenance renewal
revenue recognized at full value as a result of the reduced impact of purchase accounting
adjustments to support obligations assumed. We recorded an adjustment reducing support obligations
assumed in the Witness acquisition to their estimated fair value at the acquisition date. As a
result, as required by business combination accounting rules, revenue related to maintenance
contracts in the amount of $5.2 million and $33.9 million that would have been otherwise recorded
by Witness as an independent entity, was not recognized in the years ended January 31, 2009 and
2008, respectively.
Cost of Revenue
The following table sets forth cost of revenue by product and service and support, as well as
amortization and impairment of acquired technology for
the years ended January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Product cost of revenue |
|
$ |
131,523 |
|
|
$ |
131,638 |
|
|
$ |
121,627 |
|
|
|
0 |
% |
|
|
8 |
% |
Service and support cost of revenue |
|
|
100,391 |
|
|
|
117,588 |
|
|
|
100,397 |
|
|
|
(15 |
%) |
|
|
17 |
% |
Amortization and impairment of acquired
technology |
|
|
8,021 |
|
|
|
9,024 |
|
|
|
8,018 |
|
|
|
(11 |
%) |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
239,935 |
|
|
$ |
258,250 |
|
|
$ |
230,042 |
|
|
|
(7 |
%) |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Cost of Revenue
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 applications. As discussed under
Impact of Our VSOE/Revenue Recognition Policies on our Results of Operations, when revenue is
deferred, we also defer hardware material costs and third-party software royalties and amortize
those costs over the same period that the product revenue is recognized. Product cost of revenue
also includes amortization of capitalized software development costs, charges for impairments of
intangible assets, 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 relating to
resources dedicated to the delivery of customized projects for which certain contracts are
accounted for under the Contract Accounting Method.
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Product cost of revenue
decreased $0.1 million to $131.5 million in the year ended January 31, 2010 from $131.6 million in
the year ended January 31, 2009. Our overall product margins have increased to 65% in the year
56
ended January 31, 2010 from 64% in the year ended January 31, 2009 as a result of an increase in
revenue and change in product mix. Product margins in our Video Intelligence segment increased to
61% in the year ended January 31, 2010 from 52% in the year ended
January 31, 2009 and product margins in our Workforce Optimization segment increased to 86% in the
year ended January 31, 2010 from 84% in the year ended January 31, 2009, in each case, primarily
due to an increase in revenue coupled with a higher software component in the overall product mix.
These increases were partially offset by a decrease in product margins in our Communication
Intelligence segment to 52% in the year ended January 31, 2010 from 61% in the year ended January
31, 2009. This decrease is mainly due to increases in expenses attributable to a change in project
mix, as Residual Method revenue declined and Contract Accounting method revenue increased,
resulting in an increase in expenses relating to resources dedicated to the delivery of customized
projects and lower product margins.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Product cost of revenue
increased approximately 8% to $131.6 million in the year ended January 31, 2009 from $121.6 million
in the year ended January 31, 2008 primarily as a result of greater product revenue in our
Communication Intelligence segment. This increase in revenue resulted in an increase in hardware
material costs as well as expenses relating to resources dedicated to the delivery of customized
projects, and included an increase in employee compensation and related expenses of $6.0 million,
an increase in consulting and contracting costs of $3.2 million, and an increase in other product
cost of revenue expenses of $0.8 million. Product costs in our Workforce Optimization segment also
increased as a result of an increase in product revenue. Product costs in our Video Intelligence
segment decreased as a result of decrease in product revenue. Our overall product margins
increased slightly as a result of higher revenue and 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 include stock-based compensation
expenses, facility costs, and other overhead expenses. As discussed under Impact of Our
VSOE/Revenue Recognition Policies on our Results of Operations, 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 Contract Accounting Method.
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Service and support cost of
revenue decreased approximately 15% to $100.4 million in the year ended January 31, 2010 from
$117.6 million in the year ended January 31, 2009 primarily due to our cost-saving initiatives in
our Workforce Optimization segment. Of these expenses, employee compensation and related expenses
decreased $7.0 million, travel and lodging expenses decreased $3.4 million, stock-based
compensation expense, contractor costs, personnel, and communication expenses in the aggregate
decreased $1.7 million, and other expenses decreased $2.1 million all of which were a result of our
cost-saving initiatives. In addition in the year ended January 31, 2009 we completed certain
projects in our performance management business included in our Workforce Optimization segment,
accounted for under the Contract Accounting Method. As a result, we recognized deferred service
revenue and attributable costs of $3.0 million. Our overall service margins increased to 70% in
the year ended January 31, 2010 from 61% in the year ended January 31, 2009 due to increased
service revenue and the decrease in service expenses discussed above. Contributing to the increase
in gross margin was the fact that in certain cases expenses associated with service revenue
recognized in the current year under the Ratable Method were recorded in prior periods when the
costs were incurred. Going forward we expect a greater portion of our service revenue to be
recognized in the same period as service expenses are incurred and therefore we do not expect to
sustain this level of service margins. Service margins in our Workforce Optimization segment
increased to 73% in January 31, 2010 from 65% in the year ended January 31 2009. Service margins
in our Video Intelligence segment increased to 63% in the year ended January 31, 2010 from 54% in
the year ended January 31, 2009. Service margins in our Communications Intelligence segment
increased to 73% in the year ended January 31, 2010 from 68% in the year ended January 31, 2009.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Service and support cost of
revenue increased approximately 17% to $117.6 million in the year ended January 31, 2009 from
$100.4 million in the year ended January 31, 2008 primarily due to a full year of Witness being
included in our results for the year ended January 31, 2009 compared to only eight months in the
year ended January 31, 2008. Of these expenses, employee
57
compensation and related expenses
increased $8.3 million, service and support material costs increased $4.3 million,
contractor expenses increased $1.7 million, travel and lodging expenses increased $0.7 million,
stock-based compensation expense increased $0.6 million, and other expenses increased $1.6 million.
Amortization and Impairment of Acquired Technology
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Amortization and impairment
of acquired technology decreased approximately 11% to $8.0 million in the year ended
January 31, 2010 from $9.0 million in the year ended January 31, 2009 primarily due to the
weakening of the British pound sterling in which some of our intangible assets are denominated.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Amortization and impairment
of acquired technology increased approximately 13% to $9.0 million in the year ended
January 31, 2009 from $8.0 million in the year ended January 31, 2008, primarily due to a full year
of Witness in our results for the year ended January 31, 2009 as compared to only eight months in
the year ended January 31, 2008.
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 until related products are
available for general release to customers.
The following table sets forth research and development, net expense for the years ended January
31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Research and development, net |
|
$ |
83,797 |
|
|
$ |
88,309 |
|
|
$ |
87,668 |
|
|
|
(5 |
%) |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Research and
development, net expense decreased approximately 5% to $83.8 million in the year ended January 31,
2010 from $88.3 million in the year ended January 31, 2009 primarily due to our cost-saving
initiatives. Of these expenses, employee compensation and related expenses decreased $1.6 million
and contractor and consultant fees decreased $4.0 million. These decreases were partially offset
by an increase in stock-based compensation of $1.1 million.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Research and development, net
expense increased approximately 1% to $88.3 million in the year ended January 31, 2009 from $87.7
million in the year ended January 31, 2008. The increase reflects increases in stock-based
compensation of $2.0 million, contractors and consultants fees of $2.3 million, and other expenses
totaling $0.5 million, all of which were primarily due to a full year of Witness in our results for
the year ended January 31, 2009. These increases were offset by the absence of our special
retention program in the year ended January 31, 2009, which totaled $4.2 million in the year ended
January 31, 2008.
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.
58
The following table sets forth selling, general and administrative expense for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Selling, general and administrative |
|
$ |
291,813 |
|
|
$ |
282,147 |
|
|
$ |
259,183 |
|
|
|
3 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Selling, general and
administrative expenses increased approximately 3% to $291.8 million in the year ended January 31,
2010 from $282.1 million in the year ended January 31, 2009 primarily due to an increase in
professional fees associated with our restatement and extended filing status and partially offset
by a decrease in other selling, general and administrative expenses. Professional fees and related
expenses associated with our restatement of previously filed financial statements through January
31, 2005 and our extended filing delay status increased by approximately $26 million to $54 million
in the year ended January 31, 2010 from approximately $28 million in the year ended January 31,
2009. We expect professional fees and related expenses associated with our restatement of
previously filed financial statements through January 31, 2005 and our extended filing delay status
will decline in the year ending January 31, 2011. This increase was partially offset by a decrease
in employee compensation and related expenses of $5.2 million, a decrease in travel expenses of
$4.0 million, a decrease in communication expenses of $1.7 million, a decrease in personnel
expenses of $1.3 million, and a reduction in other expenses totaling $1.4 million all of which were
due to our cost-saving initiatives. Agent commissions decreased $2.7 million, due to decreased
revenue in our Communications Intelligence segment.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Selling, general and
administrative expenses increased approximately 9% to $282.1 million in the year ended January 31,
2009 from $259.2 million in the year ended January 31, 2008. Of these expenses, employee
compensation and related expenses increased $7.4 million partially due to a full year of Witness in
our results for the year ended January 31, 2009 offset by lower expenses in our Video Intelligence
segment due to a decrease in employee headcount as a result of cost-saving initiatives and the
absence of our special retention program. Other increases included an increase in stock-based
compensation expense of $2.1 million and an increase in rent and utilities expense of $2.0 million,
both of which were due to a full year of Witness in our results for the year ended January 31,
2009. Agent commissions increased $9.3 million, due to increased revenue in our Communications
Intelligence segment, and professional fees increased $4.0 million. Professional fees and related
expenses associated with our restatement of previously filed financial statements through January
31, 2005 and our extended filing delay status increased by approximately $2 million to $28 million
in the year ended January 31, 2009 from approximately $26 million in the year ended January 31,
2008. These increases were offset by a decline in sales commissions of $3.2 million in
approximately equal measures in our Workforce Optimization and Video Intelligence segments, due to
a decline in customer orders received during the year, as well as other expense reductions totaling
$0.7 million.
Amortization of Other Acquired Intangible Assets
The following table sets forth amortization of other acquired intangible assets for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Amortization of other acquired intangible
assets |
|
$ |
22,268 |
|
|
$ |
25,249 |
|
|
$ |
19,668 |
|
|
|
(12 |
%) |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Amortization of other
acquired intangible assets decreased approximately 12% to $22.3 million in the year ended January
31, 2010 from $25.2 million in the year ended January 31, 2009 primarily due to the weakening of
the British pound sterling in which some of our intangible assets are denominated. We report amortization
of acquired trade names, customer relationships, and non-compete agreements as operating expenses.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Amortization of other
acquired intangible assets increased approximately 28% to $25.2 million in the year ended January
31, 2009 from $19.7 million in the year ended January 31, 2008 primarily due to a full year of
Witness being included in our results for the year ended January 31, 2009 compared to only eight
months in the year ended January 31, 2008.
In-Process Research and Development
In the year ended January 31, 2008, we expensed the fair value of in-process research and
development upon the date of the associated acquisition, as it represents incomplete research and
development projects that had not yet reached technological feasibility and has no known
alternative future use as of the date of the acquisition. Technological feasibility is generally
established when an enterprise completes all planning, designing, coding, and testing activities
that are necessary to establish that a product can be produced to meet its design specifications,
including functions, features, and technical performance requirements.
The following table sets forth in-process research and development expense for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
In-process research and development |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,682 |
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2008. In-process research and development expenses in the year ended
January 31, 2008 primarily related to incomplete research and development projects attributable to
the Witness acquisition. No in-process research and development charges were recorded for the
years ended January 31, 2010 or 2009.
Impairments of Goodwill and Other Acquired Intangible Assets
The following table sets forth impairments of goodwill and other acquired intangible assets for the
years ended January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Intangible asset impairment |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,295 |
|
Goodwill impairment |
|
|
|
|
|
|
25,961 |
|
|
|
20,639 |
|
|
|
|
|
|
|
|
|
|
|
Impairments of goodwill and other
acquired intangible assets |
|
$ |
|
|
|
$ |
25,961 |
|
|
$ |
22,934 |
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2009. We recorded a goodwill impairment charge of $12.3 million in our
Video Intelligence segment, as we fully impaired the remaining goodwill balance in one reporting
unit in APAC, due to our decision in the fourth quarter to discontinue the development of a product
line as a result of continued decline in our distribution business in that region. We also
recorded a goodwill impairment charge of $13.7 million in our Workforce Optimization segment. The
impairment in our Workforce Optimization segment was related to our performance management
consulting business in the United States and was due primarily to overall lower than anticipated
demand for our consulting services, which resulted in a decline in projected future revenue and
cash
60
flow. See Note 5, Intangible Assets and Goodwill to the audited consolidated financial
statements included elsewhere in this prospectus.
Year Ended January 31, 2008. We recorded a $2.3 million impairment charge to customer
relationships and a goodwill impairment charge of $6.6 million in our Video Intelligence segment.
The goodwill impairment charge was recorded due to a change in business strategy, which resulted in
a decline in our distribution business in the
APAC region. We reviewed our intangible assets for impairment in conjunction with our goodwill
impairment review and determined that the customer relationships related to this business were also
impaired. We also recorded a goodwill impairment charge of $14.0 million in our Workforce
Optimization segment. The impairment in our Workforce Optimization segment was related to our
performance management consulting businesses in the United States and Europe and was due primarily
to overall lower than anticipated demand for our consulting services, which resulted in a decline
in projected future revenue and cash flow. See Note 5, Intangible Assets and Goodwill to the
audited consolidated financial statements included elsewhere in this prospectus.
Integration, Restructuring and Other, Net
The following table sets forth integration, restructuring and other, net for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Integration costs |
|
$ |
|
|
|
$ |
3,261 |
|
|
$ |
10,980 |
|
Restructuring costs |
|
|
141 |
|
|
|
5,685 |
|
|
|
3,308 |
|
Other legal costs (recoveries) |
|
|
|
|
|
|
(4,292 |
) |
|
|
8,708 |
|
|
|
|
|
|
|
|
|
|
|
Integration, restructuring and other, net |
|
$ |
141 |
|
|
$ |
4,654 |
|
|
$ |
22,996 |
|
|
|
|
|
|
|
|
|
|
|
Integration and Restructuring Costs
Year Ended January 31, 2010. We incurred additional restructuring costs of $0.1 million,
consisting primarily of severance and personnel-related costs resulting from headcount reductions
and retentions made in the year ended January 31, 2009.
Year Ended January 31, 2009. We continually review our business to manage costs and align our
resources with market demand. In connection with such reviews, and also in conjunction with the
acquisition of Witness, we continued to take several actions in the year ended January 31, 2009 to
reduce fixed costs, eliminate redundancies, strengthen areas needing operational focus, and better
position us to respond to market pressures or unfavorable economic conditions. We incurred
restructuring costs of $5.7 million, consisting primarily of severance and personnel-related costs
resulting from headcount reductions and retention, due to the acquisition of Witness and the
restructuring of our Video Intelligence segment. As a result of the subsequent integration of the
Witness and Verint businesses, and our Oracle enterprise resource planning re-engineering project,
we incurred integration costs of $3.3 million, the majority of which were professional fees.
Year Ended January 31, 2008. We continually review our business to manage costs and align our
resources with market demand. In connection with such reviews, and also in conjunction with the
acquisition of Witness, we took several actions in the year ended January 31, 2008 to reduce fixed
costs, eliminate redundancies, strengthen areas needing operational focus, and better position us
to respond to market pressures or unfavorable economic conditions. As a result of these actions,
we incurred restructuring costs of $3.3 million, in approximately equal measure as a result of
acquiring Witness and from restructuring charges pertaining to the Video Intelligence segment.
Also, resulting from the Witness acquisition and the subsequent integration of the Witness and
Verint businesses, we incurred integration costs of $11.0 million during the year ended January 31,
2008. The majority of these integration and restructuring costs consisted of severance and
personnel-related costs resulting from headcount reductions and retention, professional fees, and
costs associated with travel and lodging.
61
Other Legal Costs
Year Ended January 31, 2009. On August 1, 2008, we reached a settlement agreement related to an
ongoing patent infringement litigation matter, and recorded $9.7 million in settlement gains in the
three months ended October 31, 2008. This gain was partially offset by $5.4 million of legal fees incurred during the year ended
January 31, 2009 resulting in a net recovery of $4.3 million.
Year Ended January 31, 2008. We incurred $8.7 million of legal fees related to an ongoing patent
infringement litigation matter. This litigation was subsequently settled during the year ended
January 31, 2009.
Other Income (Expense), Net
The following table sets forth total other income (expense), net for the years ended January 31,
2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest income |
|
$ |
616 |
|
|
$ |
1,872 |
|
|
$ |
5,443 |
|
|
|
(67 |
%) |
|
|
(66 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(24,964 |
) |
|
|
(37,211 |
) |
|
|
(36,862 |
) |
|
|
(33 |
%) |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on investments |
|
|
|
|
|
|
4,713 |
|
|
|
(4,713 |
) |
|
|
(100 |
%) |
|
|
(200 |
%) |
Foreign currency gains (losses), net |
|
|
(1,898 |
) |
|
|
1,645 |
|
|
|
1,431 |
|
|
|
(215 |
%) |
|
|
15 |
% |
Losses on derivatives, net |
|
|
(14,709 |
) |
|
|
(14,591 |
) |
|
|
(22,267 |
) |
|
|
1 |
% |
|
|
(34 |
%) |
Other, net |
|
|
(516 |
) |
|
|
(308 |
) |
|
|
1,782 |
|
|
|
68 |
% |
|
|
(117 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(17,123 |
) |
|
|
(8,541 |
) |
|
|
(23,767 |
) |
|
|
100 |
% |
|
|
(64 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net |
|
$ |
(41,471 |
) |
|
$ |
(43,880 |
) |
|
$ |
(55,186 |
) |
|
|
(5 |
%) |
|
|
(20 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Total other income
(expense), net, decreased $2.4 million to an expense of $41.5 million in the year ended January 31,
2010, compared to an expense of $43.9 million in the year ended January 31, 2009. Interest income
decreased to $0.6 million in the year ended January 31, 2010 from $1.9 million in the year ended
January 31, 2009 primarily due to lower interest rates. Interest expense decreased to $25.0
million in the year ended January 31, 2010 from $37.2 million in the year ended January 31, 2009
due to lower interest rates during the year ended January 31, 2010. Foreign currency losses in the
year ended January 31, 2010 resulted from the strengthening U.S. dollar against the British pound sterling,
euro and Israeli shekel as compared to the foreign currency gains in the year ended January 31,
2009 resulting from the weakening U.S. dollar against the British pound sterling, euro and Israeli shekel.
In the year ended January 31, 2010, we recorded a net loss on derivatives of $14.7 million. This
loss was primarily attributable to a $13.6 million loss in connection with a $450.0 million
interest rate swap contract entered into concurrently with our credit agreement. This interest
rate swap 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. This loss was also partially due to a $1.1 million loss on foreign currency
derivatives, which represented the realized and unrealized portions of certain foreign currency
hedges.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Total other income (expense),
net, decreased $11.3 million to an expense of $43.9 million in the year ended January 31, 2009,
compared to an expense of $55.2 million in the year ended January 31, 2008. Interest income
decreased to $1.9 million in the year ended January 31, 2009 from $5.4 million in the year ended
January 31, 2008 primarily due to lower interest rates. Interest expense increased to $37.2
million in the year ended January 31, 2009 from $36.9 million in the year ended January
62
31, 2008
due to an increase in our average debt balance year over year, offset by lower interest rates
during the year ended January 31, 2009. In the year ended January 31, 2009, our investment in ARS
with a carrying value of $2.3 million, was repurchased by our broker at par value of $7.0 million,
resulting in a gain of $4.7 million. Foreign currency gains (losses) were the result of the effect
of currency rate movements, primarily between the U.S. dollar and the euro, British pound sterling,
Israeli shekel, and Canadian dollar.
In the year ended January 31, 2009, we recorded a net loss on derivatives of $14.6 million. This
loss was primarily attributable to an $11.5 million loss in connection with a $450.0 million
interest rate swap contract entered into concurrently with our credit agreement. This interest
rate swap 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. This loss was also partially due to a $3.1 million loss on foreign currency
derivatives, which represented the realized and unrealized portions of our foreign currency hedges.
As of January 31, 2009, some of our foreign-currency forward contracts were not designated as
hedging instruments. Accordingly, the fair value of the contracts is reported as other current
assets or other current liabilities on our consolidated balance sheet, and gains and losses from
changes in fair value are reported in other income (expense), net.
Income Tax Provision
The following table sets forth our income tax provision for the years ended January 31, 2010, 2009,
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Provision for income taxes |
|
$ |
7,108 |
|
|
$ |
19,671 |
|
|
$ |
27,729 |
|
|
|
(64 |
%) |
|
|
(29 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Our effective tax rate
was 29.4% for the year ended January 31, 2010, as compared to (33.4)% for the year ended January
31, 2009. For the year ended January 31, 2010, our overall effective tax rate was lower than the
U.S. statutory rate because we recorded valuation allowances against our U.S. pre-tax losses,
thereby reducing the benefits we could otherwise record on such losses, while reporting an income
tax provision on income in certain foreign jurisdictions with rates lower than the U.S. statutory
rate. The rate was further impacted by non-deductible expenses and tax credits, primarily in
foreign jurisdictions. For the year ended January 31, 2009, we recorded tax expense on a
consolidated pre-tax loss resulting in a negative effective tax rate. In addition, during the year
ended January 31, 2009, we recorded valuation allowances against our U.S. pre-tax losses resulting
in no tax benefit being recorded and we incurred certain pre-tax expenses which were not deductible
for tax purposes, including the impairment of goodwill. Excluding the impact of valuation
allowances, our effective tax rate for the year ended January 31, 2010 would have been (2.6)%. A
negative effective tax rate would result because the tax benefit of U.S. pre-tax losses, taxed at
the U.S. statutory rate, exceeds the tax expense related to pre-tax income in various foreign
jurisdictions being taxed at lower rates.
The manner in which we evaluate the need for valuation allowances is described in Critical
Accounting Policies and in Note 1, Summary of Significant Accounting Policies to the audited
consolidated financial statements included elsewhere in this prospectus.
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Our effective tax rate was
(33.4)% for the year ended January 31, 2009, as compared to (16.3)% for the year ended January 31,
2008. The effective tax rate was negative in both years due to the fact that we reported tax
expense on a consolidated pre-tax loss, primarily because we recorded a valuation allowance against
certain pre-tax losses while, at the same time, recording an income tax provision in profitable
jurisdictions. Lower pre-tax losses reported in the current year, as compared to the prior year,
coupled with the relative mix of income and losses by taxing jurisdictions with rates different
than the U.S. statutory rate and the impact of permanent book to tax differences, resulted in a
larger negative effective tax rate for the year ended January 31, 2009. The most significant
permanent difference in each year related to non-deductible goodwill impairment charges. For the
year ended January 31, 2008 we recorded valuation allowances against our U.S. deferred tax assets
resulting in the recording of tax expense. For the year ended January 31, 2009
63
we continued to
record valuation allowances against our U.S. deferred tax assets resulting in no tax benefit being
recorded in that year. These charges reduced the benefits we could record on our pre-tax
losses. Excluding the impact of valuation allowances, our effective tax rate for the year ended
January 31, 2009 would have been 17.9%, which was lower than the U.S. statutory tax rate primarily
due to income in certain foreign jurisdictions being taxed at lower rates.
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.
Results
of Operations for Three and Six Months Ended July 31, 2010 and 2009
Financial Overview
The following table sets forth summary financial information for the three and six months ended
July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue |
|
$ |
180,676 |
|
|
$ |
169,269 |
|
|
$ |
353,289 |
|
|
$ |
344,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
23,799 |
|
|
$ |
13,709 |
|
|
$ |
19,817 |
|
|
$ |
49,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to Verint
Systems Inc.
common
shares |
|
$ |
7,921 |
|
|
$ |
(1,808 |
) |
|
$ |
(11,690 |
) |
|
$ |
14,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share attributable to Verint Systems Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.23 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Our revenue
increased approximately 7%, or $11.4 million, to $180.7 million in the three months ended July 31,
2010 from $169.3 million in the three months ended July 31, 2009. The increase was due to an
increase in our Communications Intelligence and Workforce Optimization segments, partially offset
by a decrease in our Video Intelligence segment. In our Communications Intelligence segment,
revenue increased $8.7 million, or 22%, primarily due to an increase in Residual Method revenue
primarily as a result of a higher volume of projects completed during the three months ended July
31, 2010 partially offset by a decrease in both Contract Accounting Method revenue associated with
work performed on customized projects and Ratable Method revenue. In our Workforce Optimization
segment, revenue increased $6.5 million, or 7%, primarily due to the improving economic
environment. In our Video Intelligence segment, revenue decreased by $3.8 million, or 9%, due to
the product delivery of an order from a major customer in the three months ended July 31, 2009
partially offset by an 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 54%, 25%, and 21%
of our total revenue, respectively, in the three months ended July 31, 2010 compared to
approximately 55%, 24%, and 21%, respectively, in the three months ended July 31, 2009.
We had operating income of $23.8 million in the three months ended July 31, 2010 compared to
operating income of $13.7 million in the three months ended July 31, 2009. The increase in
operating income was due to an increase in gross profit of $10.1 million to $120.3 million from
$110.2 million which was due to an increase in revenue of $11.4 million as discussed above coupled
with an expansion in our gross margin due to a change in project mix in our Communications
Intelligence segment. The increase in gross profit was primarily due to higher
revenue and gross margin in our Communications Intelligence segment. Total operating expenses
remained constant in the three months ended July 31, 2010 as compared to the three months ended
July 31, 2009. However, employee compensation increased
$7.7 million due to an increase in headcount and salary increases. This increase was partially offset by a decrease in stock-based
compensation expense of $4.8 million primarily driven by a decrease in our stock price during the
period and its impact on certain stock-based compensation arrangements accounted for as liability
awards, and a change in the vesting date for certain performance based awards, that was estimated
in prior periods but became known during the quarter. Professional fees decreased $2.7 million
primarily due to fees associated with our restatement of previously filed financial statements and
our extended filing delay status totaling approximately $6.0 million in the three months ended July
31, 2010 compared to approximately $10.0 million in the three months ended July 31, 2009, as a
result of the completion of our audit and filing of our annual report on Form 10-K for the year
ended January 31, 2010, and our quarterly reports on Form 10-Q for the quarters ended April 30,
July 31, and October 31, 2009 and April 30, 2010 during the three months ended July 31, 2010.
64
We had net income attributable to Verint Systems Inc. common shares of $7.9 million and diluted
income per share of $0.23 in the three months ended July 31, 2010, compared to a net loss
attributable to Verint Systems Inc. common shares of $1.8 million and a net loss per share of $0.06
in the three months ended July 31, 2009. The increase in our net income attributable to Verint
Systems Inc. common shares and income per share in the three months ended July 31, 2010 was due to
our higher revenue and higher gross profit as described above, as well as lower interest and other
expenses, net of $1.1 million partially offset by an increase in provisions for income taxes of
$0.3 million.
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 transact, during the three months ended July 31,
2010 compared to the three months ended July 31, 2009, resulting in an unfavorable impact on our
revenue and operating income. Had foreign exchange rates remained constant in these periods, our
total revenue would have been approximately $2.0 million higher and our total cost of revenue and
operating expenses would have been approximately $1.0 million lower, resulting in approximately
$3.0 million of higher operating income.
As of July 31, 2010, we employed approximately 2,600 personnel, including employees, part-time
employees and certain contractors, as compared to approximately 2,500 as of July 31, 2009.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Our revenue increased
approximately 3%, or $8.9 million, to $353.3 million in the six months ended July 31, 2010 from
$344.4 million in the six months ended July 31, 2009. The increase was due to an increase in our
Workforce Optimization and Communications Intelligence segments, partially offset by a decrease in
our Video Intelligence segment. In our Workforce Optimization segment, revenue increased by $18.1
million, or 10%, primarily due to the improving economic environment. In our Communications
Intelligence segment, revenue increased $4.7 million, or 5%, primarily due to an increase in
Residual Method revenue primarily as a result of a higher volume of projects completed during the
six months ended July 31, 2010 partially offset by a decrease in both Contract Accounting Method
revenue primarily as a result of substantially completing our deliverables for certain large
projects during the prior fiscal year and Ratable
Method revenue. In our Video Intelligence segment, revenue decreased $14.0 million, or 17%, due
to the product delivery of an order from a major customer in the six months ended July 31, 2009
partially offset by an 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 54%, 25%, and 21% of our total revenue, respectively, in the six months
ended July 31, 2010 compared to approximately 55%, 24%, and 21%, respectively, in the six months
ended July 31, 2009.
We had operating income of $19.8 million in the six months ended July 31, 2010 compared to
operating income of $49.7 million in the six months ended July 31, 2009. The decrease in operating
income was primarily due to an increase in operating expense of $36.7 million to $215.3 million
from $178.6 million, partially offset by an increase in gross profit of $6.8 million to $235.1
million from $228.3 million which was almost entirely due to an increase in revenue of $8.9 million
as discussed above. The increase in gross profit was primarily due to higher revenue in our
Workforce Optimization and Communications Intelligence operating segments. Product margins
increased in our Communications Intelligence segment as a result of higher Residual Method revenue
associated with product delivery and installation to customers. The increase in operating expenses
was primarily due to higher professional fees and related expenses associated with our restatement
of previously filed financial statements and our extended filing delay status which totaled
approximately $26.0 million in the six months ended July 31, 2010 compared to approximately $17.0
million in the six months ended July 31, 2009. During the six months ended July 31, 2010 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 and April 30,
2010. Other increases to operating expenses included an increase in stock-based compensation
expense of $5.1 million primarily due to the impact of the increase in our stock price on certain
stock-based compensation arrangements accounted for as liability awards, as well as the issuance of
restricted stock awards, restricted stock units and stock-based compensation arrangements granted
at a higher market price during the six months ended July 31, 2010, and an increase in employee
compensation of $15.6 million primarily as a result of an increase in employee headcount and salary
increases as well as the foreign currency impact as described below.
We had a net loss attributable to Verint Systems Inc. common shares of $11.7 million and a loss per
share of $0.35 in the six months ended July 31, 2010, compared to net income attributable to Verint
Systems Inc. common shares of $14.6 million and diluted income per share of $0.45 in the six months
ended July 31, 2009. The decrease in our net income attributable to Verint Systems Inc. common
shares and income per share in the six months ended July 31, 2010 was due to our lower operating
income as described above, partially offset by lower interest and other expenses, net of $2.7
million and lower provision for income taxes of $1.9 million.
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 transact, during the six months ended July 31,
2010 compared to the six months ended July 31, 2009 resulting in a favorable impact on our revenues
and an unfavorable impact on our cost of revenue and our operating expenses. Had foreign exchange
rates remained constant in these periods, our total revenues would have been
approximately $3.0 million lower and our operating expenses and cost of revenue would have been
approximately $6.0 million lower, resulting in approximately $3.0 million of higher operating
income.
65
Revenue by Operating Segment
The following table sets forth revenue for each of our three operating segments for the three and
six months ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Workforce
Optimization |
|
$ |
94,795 |
|
|
$ |
88,289 |
|
|
|
7 |
% |
|
$ |
191,675 |
|
|
$ |
173,603 |
|
|
|
10 |
% |
Video Intelligence |
|
|
37,060 |
|
|
|
40,885 |
|
|
|
(9 |
%) |
|
|
68,605 |
|
|
|
82,563 |
|
|
|
(17 |
%) |
Communications
Intelligence |
|
|
48,821 |
|
|
|
40,095 |
|
|
|
22 |
% |
|
|
93,009 |
|
|
|
88,251 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
180,676 |
|
|
$ |
169,269 |
|
|
|
7 |
% |
|
$ |
353,289 |
|
|
$ |
344,417 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Optimization Segment
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Workforce
Optimization revenue increased approximately 7%, or $6.5 million, to $94.8 million in the three
months ended July 31, 2010 from $88.3 million in the three months ended July 31, 2009. The
increase was primarily due to the improving economic environment as well as an increase in our
customer base which resulted in higher service and support revenue.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Workforce Optimization
revenue increased approximately 10%, or $18.1 million, to $191.7 million in the six months ended
July 31, 2010 from $173.6 million in the six months ended July 31, 2009. The increase was
primarily due to the improving economic environment as well as an increase in our customer base
which resulted in higher service and support revenue.
Video Intelligence Segment
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Video Intelligence
revenue decreased approximately 9%, or $3.8 million, to $37.1 million in the three months ended
July 31, 2010 from $40.9 million in the three months ended July 31, 2009. The decrease was due to
the product delivery of an order from a major customer in the three months ended July 31, 2009
partially offset by an increase in revenue from other customers.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Video Intelligence
revenue decreased approximately 17%, or $14.0 million, to $68.6 million in the six months ended
July 31, 2010 from $82.6 million in the six months ended July 31, 2009. The decrease was due to
the product delivery of an order from a major customer in the six months ended July 31, 2009
partially offset by an increase in revenue from other customers.
Communications Intelligence Segment
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Communications
Intelligence revenue increased approximately 22%, or $8.7 million, to $48.8 million in the three
months ended July 31, 2010 from $40.1 million in the three months ended July 31, 2009. This
increase was primarily due to an increase of approximately $12.0 million in Residual Method revenue
primarily as a result of a higher volume of projects completed during the three months ended July
31, 2010. In addition, we have established professional services VSOE in the three months ended
April 30, 2010 and maintained VSOE thereafter, thereby allowing revenue recognition upon product
delivery. This increase in revenue was partially offset by a decrease of approximately $1.0
million in Contract Accounting Method revenue associated with work performed on customized projects
and a decrease of approximately $2.0 million in Ratable Method revenue.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Communications
Intelligence revenue increased approximately 5%, or $4.7 million, to $93.0 million in the six
months ended July 31, 2010 from $88.3 million in the six months ended July 31, 2009. This increase
was primarily due to an increase of approximately $19.0 million in Residual Method revenue
primarily as a result of a higher volume of projects completed during the six months ended July 31,
2010. In addition, we have established professional services VSOE in the six months ended July 31,
2010, thereby allowing revenue recognition upon product delivery. This increase in revenue was
partially offset by a decrease of approximately $13.0 million in Contract Accounting Method revenue
primarily as a result of substantially completing our deliverables for certain large projects
during the prior fiscal year and a decrease of approximately $1.0 million in Ratable Method
revenue.
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.
66
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 delivered elements, we use various available indicators of fair value and apply our best
judgment to reasonably classify the arrangements delivered revenue into product revenue and
services and support revenue.
The following table sets forth revenue for products and services and support for the three and six
months ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Product revenue |
|
$ |
93,103 |
|
|
$ |
88,107 |
|
|
|
6 |
% |
|
$ |
185,173 |
|
|
$ |
185,178 |
|
|
|
(0 |
%) |
Service and support
revenue |
|
|
87,573 |
|
|
|
81,162 |
|
|
|
8 |
% |
|
|
168,116 |
|
|
|
159,239 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
180,676 |
|
|
$ |
169,269 |
|
|
|
7 |
% |
|
$ |
353,289 |
|
|
$ |
344,417 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Revenue
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Product revenue
increased approximately 6%, or $5.0 million, to $93.1 million in the three months ended July 31,
2010 from $88.1 million in the three months ended July 31, 2009. The increase was in our
Communications Intelligence segment, partially offset by a decrease in our Video Intelligence
segment. For additional information see Revenue by Operating Segment.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Product revenue
remained constant at $185.2 million in the six months ended July 31, 2010 and in the six months
ended July 31, 2009. Product revenue increases in our Workforce Optimization and Communications
Intelligence segments were offset by a decrease in our Video Intelligence segment. For additional
information see Revenue by Operating Segment.
Service and Support Revenue
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Service and support
revenue increased approximately 8%, or $6.4 million, to $87.6 million for the three months ended
July 31, 2010 from $81.2 million in the three months ended July 31, 2009. The increase was in our
Workforce Optimization segment due to higher support revenue as well as higher professional
services revenue associated with installation and training, partially offset by decreases in our
Video Intelligence and Communications Intelligence segments. For additional information see
Revenue by Operating Segment.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Service and support
revenue increased approximately 6%, or $8.9 million, to $168.1 million for the six months ended
July 31, 2010 from $159.2 million in the six months ended July 31, 2009. The increase was in our
Workforce Optimization segment due to higher support revenue as well as higher professional
services revenue associated with installation 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 products and services and support as well as
amortization and impairment of acquired technology for the three and six months ended July 31, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Product cost of revenue |
|
$ |
31,909 |
|
|
$ |
30,900 |
|
|
|
3 |
% |
|
$ |
60,255 |
|
|
$ |
62,957 |
|
|
|
(4 |
%) |
Service and support
cost of revenue |
|
|
26,217 |
|
|
|
26,190 |
|
|
|
0 |
% |
|
|
53,445 |
|
|
|
49,103 |
|
|
|
9 |
% |
Amortization of
acquired technology |
|
|
2,220 |
|
|
|
1,977 |
|
|
|
12 |
% |
|
|
4,453 |
|
|
|
4,076 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
60,346 |
|
|
$ |
59,067 |
|
|
|
2 |
% |
|
$ |
118,153 |
|
|
$ |
116,136 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product Cost of Revenue
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 applications. 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 relating to resources dedicated to the delivery of customized projects for
which certain contracts are accounted for under the Contract Accounting Method.
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Product cost of
revenue increased approximately 3% to $31.9 million in the three months ended July 31, 2010 from
$30.9 million in the three months ended July 31, 2009. Our overall product margins have increased
to 66% in the three months ended July 31, 2010 from 65% in the three months ended July 31, 2009
primarily due to an increase in product revenue in our Communication Intelligence segment which
resulted in higher absorption of overhead costs. Product margins in our Communications
Intelligence segment increased to 64% in the three months ended July 31, 2010 from 46% in the three
months ended July 31, 2009 primarily due to a change in project mix, as Residual Method revenue
increased and Contract Accounting Method revenue decreased, which resulted in a decrease in product
costs attributable to work performed on customized projects accounted for under the Contract
Accounting Method. Product margins in our Workforce Optimization segment decreased to 83% in the
three months ended July 31, 2010 from 86% in the three months ended July 31, 2009. Product margins
in our Video Intelligence segment decreased to 58% in the three months ended July 31, 2010 from 64%
in the three months ended July 31, 2009 primarily due to a decrease in revenue, resulting in less
absorption of overhead costs, as well as a change in product mix.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Product cost of revenue
decreased approximately 4% to $60.3 million in the six months ended July 31, 2010 from $63.0
million in the six months ended July 31, 2009 primarily in our Communications Intelligence segment.
Employee compensation and related expenses decreased $1.4 million and contractor expenses decreased
$4.5 million primarily as a result of less work performed on customized projects accounted for
under the Contract Accounting Method revenue in our Communications Intelligence segment. For
additional information see Revenue by Operating Segment. These decreases were partially
offset by an increase in material costs of $3.1 million primarily in our Communications
Intelligence segment as a result of higher product revenues. Our overall product margins have
increased to 68% in the six months ended July 31, 2010 from 66% in the six months ended July 31,
2009 as a result of an increase in product revenue in our Communications Intelligence segment which
resulted in higher absorption of overhead costs. Product margins in our Communications
Intelligence segment increased to 66% in the six months ended July 31, 2010 from 54% in the six
months ended July 31, 2009 primarily due to a change in project mix, as Residual Method revenue
increased and Contract Accounting Method revenue decreased, which resulted in a decrease in product
costs attributable to work performed on customized projects accounted for under the Contract
Accounting Method. Product margins in our Workforce Optimization segment remained constant at 85%
in both the six months ended July 31, 2010 and the six months ended July 31, 2009. Product margins
in our Video Intelligence segment decreased to 58% in the six months ended July 31, 2010 from 65%
in the six months ended July 31, 2009 primarily due to a decrease in revenue, resulting in less
absorption of overhead costs, as well as a change in product mix.
67
Service and Support Cost of Revenue
Service and support cost of revenue primarily consist 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 include stock-based compensation
expenses, facility costs, and other overhead expenses.
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Service and support
cost of revenue remained constant at $26.2 million in the three months ended July 31, 2010 and the
three months ended July 31, 2009. Our overall service and support margins increased to 70% in the
three months ended July 31, 2010 from 68% in the three months ended July 31, 2009. Service and
support margins increased in our Workforce Optimization and Communications Intelligence operating
segments.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Service and support
cost of revenue increased approximately 9% to $53.4 million in the six months ended July 31, 2010
from $49.1 million in the six months ended July 31, 2009. Employee compensation and related
expenses increased $3.6 million primarily in our Workforce Optimization segment due to an increase
in employee headcount required in order to provide increased professional services, including
installation and training to customers, as well as salary increases. Our overall service and
support margins decreased to 68% in the six months ended July 31, 2010 from 69% in the six months
ended July 31, 2009 due to the increase in service and support expenses discussed above.
Amortization of Acquired Technology
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Amortization and
impairment of acquired technology increased approximately 12% to $2.2 million in the three months
ended July 31, 2010 from $2.0 million in the three months ended July 31, 2009 primarily due to an
increase in amortization expense of acquired technology associated with the Iontas acquisition.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Amortization and
impairment of acquired technology increased approximately 9% to $4.5 million in the six months
ended July 31, 2010 from $4.1 million in the six months ended July 31, 2009 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 reimbursement under government programs. Software development costs are
capitalized upon the establishment of technological feasibility and until related products are
available for general release to customers.
The following table sets forth research and development, net for the three and six months ended
July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Research and
development, net |
|
$ |
22,049 |
|
|
$ |
20,638 |
|
|
|
7 |
% |
|
$ |
48,481 |
|
|
$ |
39,539 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Research and
development, net increased approximately 7% to $22.0 million in the three months ended July 31,
2010 from $20.6 million in the three months ended July 31, 2009. Employee compensation and related
expenses increased $4.3 million primarily due to an increase in employee headcount and partially
due to salary increases which took effect during the three months ended July 31, 2010 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 a decrease in stock-based compensation of $1.3 million primarily
driven by a decrease in our stock price during the period and its impact on certain stock-based
compensation arrangements accounted for as liability awards, and a change in the vesting date for
certain performance based awards, that was estimated in prior periods but became known during the
quarter. In addition, research and development reimbursements recorded in the period from
government programs increased $1.3 million primarily due to new programs approved by the OCS received during the quarter.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Research and
development, net increased approximately 23% to $48.5 million in the six months ended July 31, 2010
from $39.5 million in the six months ended July 31, 2009. Employee compensation and related
expenses increased $9.5 million due to an increase in employee headcount, salary increases which
took effect in the six months ended July 31, 2009, higher expenses in our Communication
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 recorded in the period from government programs of $1.2 million
primarily due to new programs approved by the OCS received during the six months ended July 31,
2010.
68
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 expense for the three and six
months ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Selling, general
and administrative |
|
$ |
69,144 |
|
|
$ |
70,258 |
|
|
|
(2 |
%) |
|
$ |
156,161 |
|
|
$ |
127,484 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Selling,
general and administrative expenses decreased approximately 2% to $69.1 million in the three months
ended July 31, 2010 from $70.3 million in the three months ended July 31, 2009. Stock-based
compensation decreased $3.5 million primarily driven by a decrease in our stock price during the
period and its impact on certain stock-based compensation arrangements accounted for as liability
awards, and a change in the vesting date for certain performance based awards, that was estimated
in prior periods but became known during the quarter. Professional fees decreased $2.7 million
primarily due to fees associated with our restatement of previously filed financial statements and
our extended filing delay status totaling approximately $6.0 million in the three months ended July
31, 2010 compared to approximately $10.0 million in the three months ended July 31, 2009, as a
result of the completion of our audit and filing of our annual report on Form 10-K for the year
ended January 31, 2010, and our quarterly reports on Form 10-Q for the quarters ended April 30,
July 31, and October 31, 2009 and April 30, 2010 during the three months ended July 31, 2010.
These decreases were partially offset by an increase in employee compensation and related expenses
of $3.4 million, due to an increase in headcount
and salary increases which took effect during the three months ended July 31, 2010. Marketing
expenses increased $0.6 million due to our global brand awareness marketing campaign. Other
expense increases include increases in travel and entertainment expenses of $0.5 million, and
recruitment and other personnel related expenses totaling $0.6 million.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Selling, general and
administrative expenses increased approximately 22% to $156.2 million in the six months ended July
31, 2010 from $127.5 million in the six months ended July 31, 2009. Professional fees increased
$13.2 million primarily due to fees associated with our restatement of previously filed financial
statements and our extended filing delay status totaling approximately $26.0 million in the six
months ended July 31, 2010 compared to approximately $17.0 million in the six months ended July 31,
2009, as a result of the completion our audit and filing of our financial statements for the prior
years. During the six months ended July 31, 2010 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 and April 30, 2010. Employee compensation and
related expenses increased $6.0 million, due to an increase in headcount, as well as salary
increases which took effect during the three months ended July 31, 2010. Sales commissions
increased $1.1 million due to an increase in customer orders received during the six months ended
July 31, 2010. Stock-based compensation increased $4.0 million primarily due to the impact of the
increase in our stock price on certain stock-based compensation arrangements accounted for as
liability awards, as well as the issuance of restricted stock awards, restricted stock units and
stock-based compensation arrangements granted at a higher market price during the six months ended
July 31, 2010. Marketing expenses increased $1.5 million due to our global brand awareness
marketing campaign. Other expense increases include increases in travel and entertainment expenses
of $1.4 million and recruitment and other personnel expenses totaling $0.9 million.
Amortization of Other Acquired Intangible Assets
The following table sets forth amortization of acquisition related intangibles for the three and
six months ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Amortization of
other acquired
intangible
assets |
|
$ |
5,338 |
|
|
$ |
5,586 |
|
|
|
(4 |
%) |
|
$ |
10,677 |
|
|
$ |
11,516 |
|
|
|
(7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Amortization of
other acquired intangible assets decreased approximately 4% to $5.3 million in the three months
ended July 31, 2010 from $5.6 million in the three months ended July 31, 2009 primarily as a result
of certain intangible assets becoming fully amortized during the year ended January 31, 2010.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Amortization of other
acquired intangible assets decreased approximately 7% to $10.7 million in the six months
ended July 31, 2010 from $11.5 million in the six months ended July 31, 2009 primarily as a result
of certain intangible assets becoming fully amortized during the year ended January 31, 2010.
69
Other Income (Expense), Net
The following table sets forth total other (expense), net for the three and six months ended July
31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Interest income |
|
$ |
117 |
|
|
$ |
98 |
|
|
|
19 |
% |
|
$ |
200 |
|
|
$ |
245 |
|
|
|
(18 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(5,936 |
) |
|
|
(6,369 |
) |
|
|
(7 |
%) |
|
|
(11,884 |
) |
|
|
(12,722 |
) |
|
|
(7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
gains (losses), net |
|
|
(935 |
) |
|
|
599 |
|
|
|
(256 |
%) |
|
|
(2,669 |
) |
|
|
(339 |
) |
|
|
687 |
% |
Gains (losses) on
derivatives, net |
|
|
(1,643 |
) |
|
|
(3,496 |
) |
|
|
(53 |
%) |
|
|
(3,346 |
) |
|
|
(7,035 |
) |
|
|
(52 |
%) |
Other, net |
|
|
130 |
|
|
|
(209 |
) |
|
|
(162 |
%) |
|
|
(131 |
) |
|
|
(695 |
) |
|
|
(81 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) |
|
|
(2,448 |
) |
|
|
(3,106 |
) |
|
|
(21 |
%) |
|
|
(6,146 |
) |
|
|
(8,069 |
) |
|
|
(24 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
$ |
(8,267 |
) |
|
$ |
(9,377 |
) |
|
|
(12 |
%) |
|
$ |
(17,830 |
) |
|
$ |
(20,546 |
) |
|
|
(13 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009. Total other
(expense), net, decreased $1.1 million to an expense of $8.3 million in the three months ended July
31, 2010, compared to an expense of $9.4 million in the three months ended July 31, 2009. Interest
expense decreased $0.5 million to $5.9 million in the three months ended July 31, 2010 from $6.4
million in the three months ended July 31, 2009 due to a decrease in our average variable interest
debt balance period to period, coupled with lower interest rates during the three months ended July
31, 2010. We recorded a $0.9 million loss on foreign currency in the three months ended July 31,
2010 compared to a $0.6 million gain in the prior year quarter. The loss in foreign currency in
the three months ended July 31, 2010 primarily resulted from the decline in the U.S. dollar against
the British pound sterling (we had a net British pound sterling) and the stronger U.S. dollar
versus the Euro (we had a net U.S. dollar payable) during the three months ended July 31, 2010.
In the three months ended July 31, 2010, we recorded a net loss on derivatives of $1.6 million.
This loss was almost entirely attributable to a loss in connection with a $450.0 million interest
rate swap contract entered into concurrently with our credit agreement. This interest rate swap
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. On
July 30, 2010 we entered into an agreement to terminate our interest rate swap by making a $21.7
million one-time payment on August 3, 2010. In the three months ended July 31, 2009, we recorded a
net loss on derivatives of $3.5 million primarily attributable to fair value adjustments on our
interest rate swap.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009. Total other (expense),
net, decreased $2.7 million to an expense of $17.8 million in the six months ended July 31, 2010,
compared to an expense of $20.5 million in the six months ended July 31, 2009. Interest expense
decreased to $11.9 million in the six months ended July 31, 2010 from $12.7 million in the six
months ended July 31, 2009 due to a decrease in our average variable interest debt balance period
to period, coupled with lower interest rates during the six months ended July 31, 2010. We
recorded a $2.7 million loss on foreign currency in the six months ended July 31, 2010 compared to
a $0.3 million loss in the prior year quarter. The increase in foreign currency losses in the six
months ended July 31, 2010 primarily resulted from the strengthening of the U.S. dollar against the
Euro during the six months ended July 31, 2010.
In the six months ended July 31, 2010, we recorded a net loss on derivatives of $3.3 million. This
loss was almost entirely attributable to a loss in connection with a $450.0 million interest rate
swap contract entered into concurrently with our credit agreement. This interest rate swap is 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. The loss on
derivatives includes a $1.5 million loss on the interest rate swap. In the six months ended July
31, 2009, we recorded a net loss on derivatives of $7.0 million primarily attributable to fair
value adjustments on our interest rate swap.
Income Tax Provision
The following table sets forth our income tax provision for the three and six months ended July 31,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
% Change |
|
|
Six Months Ended July 31, |
|
|
% Change |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 - 2009 |
|
Provision for
income taxes |
|
$ |
3,141 |
|
|
$ |
2,850 |
|
|
|
10 |
% |
|
$ |
5,212 |
|
|
$ |
7,118 |
|
|
|
(27 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2010 compared to Three Months Ended July 31, 2009.
Our effective tax rate was 20.2% for the three months ended July 31, 2010, as compared to 65.8% for
the three months ended July 31, 2009. For the three months ended July 31, 2010, 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. We recorded an income tax provision on income from our
foreign subsidiaries taxed at rates lower than the U.S. federal statutory rate, but did not
recognize a tax benefit on losses incurred by certain domestic and foreign operations where we
maintain valuation allowances. Our effective tax rate for the three months ended July 31, 2009 was
higher than the U.S. federal statutory rate because we recorded an income tax provision on income
from certain profitable foreign subsidiaries while we did not record an income tax benefit on
losses incurred by certain domestic and foreign operations where we maintain valuation allowances.
The comparison of our effective tax rate between periods is significantly impacted by the level and
mix of earnings and losses by taxing jurisdiction, foreign income tax rate differentials, relative
impact of permanent book to tax differences, the effects of the valuation allowances on certain
loss jurisdictions, and discrete items that occur within the period.
Six Months Ended July 31, 2010 compared to Six Months Ended July 31, 2009.
Our effective tax rate was 262.3% for the six months ended July 31, 2010, as compared to 24.4% for
the six months ended July 31, 2009. For the six months ended July 31, 2010, our overall effective
tax rate was higher 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 six months
ended July 31, 2009 was lower than the U.S. federal statutory rate of 35% primarily due to the mix
of earnings and losses by jurisdiction. We recorded an income tax provision on income from
certain profitable foreign subsidiaries at rates lower than the U.S. statutory rate while we did
not record an income tax benefit on losses incurred by certain domestic and foreign operations
where we maintain valuation allowances. The comparison of our effective tax rate between periods
is impacted by the level and mix of earnings and losses by taxing jurisdiction, which is
particularly evident for the six months ended July 31, 2010 as we recorded an income tax provision
of $5.2 million on pre-tax income of $2.0 million. Other factors, including foreign income tax
rate differentials, relative impacts of permanent book to tax differences, and the effects of
valuation allowances on certain loss jurisdictions, also impact the comparability of the income tax
provision between periods.
70
Liquidity and Capital Resources
Overview
Prior to the year ended January 31, 2008, our primary source of liquidity was cash from operations,
consisting of collections of our accounts receivable for services and products as well as cash
advances from our customers. However, in the year ended January 31, 2008, in connection with the
Witness acquisition in May 2007, we entered into a credit agreement pursuant to which we borrowed
$650.0 million under a term loan facility (approximately $66.8 million of which was repaid through July
31, 2010) and under which we currently have a $75.0 million revolving line of credit ($15.0 million of
which was outstanding as of July 31, 2010). See Liquidity and Capital
Resources Requirements below for additional information regarding our credit agreement. We also
issued 293,000 shares of preferred stock at an aggregate purchase price of $293.0 million in
connection with the Witness acquisition.
Our primary uses of cash have been and are expected to continue to be for acquisitions of
businesses, selling and marketing activities, research and development, professional fees, and
capital expenditures. Beginning in the year ended January 31, 2008, uses of cash have also
included interest payments and debt repayments.
We have recently reported negative working capital (current liabilities in excess of current
assets), due largely to the impact of the change in balance of our deferred revenue. 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, 2010 and 2009, cash and cash
equivalents, and other funded sources:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Cash and cash equivalents |
|
$ |
184,335 |
|
|
$ |
115,928 |
|
|
|
|
|
|
|
|
Preferred stock (at carrying value) |
|
$ |
285,542 |
|
|
$ |
285,542 |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
598,234 |
|
|
$ |
620,912 |
|
|
|
|
|
|
|
|
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. At January 31, 2010, our
cash and cash equivalents totaled $184.3 million, an increase of $68.4 million as compared to our
January 31, 2009 balance. Our total short and long-term debt decreased during this same period by
$4.1 million as a result of a debt repayment made in May 2009. This net increase in cash is due to
our improved operating performance primarily as a result of our cost-saving initiatives.
The
following table sets forth, as of July 31, 2010 and January 31, 2010, cash and cash
equivalents, preferred stock and long-term debt:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2010 |
|
Cash and cash equivalents |
|
$ |
128,199 |
|
|
$ |
184,335 |
|
|
|
|
|
|
|
|
Preferred stock (at carrying value) |
|
$ |
285,542 |
|
|
$ |
285,542 |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
598,234 |
|
|
$ |
598,234 |
|
|
|
|
|
|
|
|
At
July 31, 2010, our cash and cash equivalents were
$128.2 million, a decrease of $56.1
million from January 31, 2010. A significant portion of this
decrease resulted from $22.7 million of principal payments on our
debt, $15.3 million paid for the acquisition of Iontas, and $15.8
million of payments made upon vesting of cash-settled equity awards
($13.5 million higher than in the prior-year period) during this
six-month period. This decrease also includes $9.7 million of higher
restricted cash and bank time deposits, which is reported as an
investing use of cash. Partially offsetting these uses of cash was
$11.7 million of proceeds from exercises of stock options. Further
discussion of these items appears below.
71
Statements of Cash Flows
The following table summarizes selected items from our statements of cash flows for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net cash provided by (used in) operating activities |
|
$ |
100,837 |
|
|
$ |
53,635 |
|
|
$ |
(299 |
) |
Net cash used in investing activities |
|
|
(24,599 |
) |
|
|
(26,247 |
) |
|
|
(851,733 |
) |
Net cash provided by (used in) financing activities |
|
|
(10,491 |
) |
|
|
11,888 |
|
|
|
885,017 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
2,660 |
|
|
|
(6,581 |
) |
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
68,407 |
|
|
$ |
32,695 |
|
|
$ |
33,908 |
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes selected items from our condensed consolidated statements of
cash flows for the six months ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Net cash provided by operating activities |
|
$ |
5,512 |
|
|
$ |
52,180 |
|
Net cash used in investing activities |
|
|
(41,417 |
) |
|
|
(11,411 |
) |
Net cash used in financing activities |
|
|
(18,863 |
) |
|
|
(8,332 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(1,368 |
) |
|
|
5,349 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
(56,136 |
) |
|
$ |
37,786 |
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
Prior to the year ended January 31, 2008, we historically had positive cash provided by operating
activities as our cash collections from operations exceeded our costs. In the year ended January
31, 2008, we made payments as a result of the Witness acquisition including interest expense,
integration expense, and special employee compensation. In addition, we made professional fee and
related expense payments associated with our restatement of previously filed financial statements
and our extended filing delay status. These incremental payments resulted in a $0.3 million use of
cash in our operating activities in the year ended January 31, 2008. In the year ended January 31,
2009, due to our improved operating performance reflecting higher revenue and operating margins
versus the prior year, our operating activities returned to a positive cash flow position of $53.6
million. This improvement occurred despite increasing expenses related to restatements and our
extended filing delay status during the year ended January 31, 2009. In the year ended January 31,
2010, our operating performance further improved to $100.8 million, primarily due to our
cost-saving initiatives.
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.
During the year ended January 31, 2009, we generated $53.6 million of operating cash flow, an
increase of $53.9 million compared to a $0.3 million deficit in the prior year. The increase in
the year ended January 31, 2009, compared to the prior year, resulted primarily from higher
revenues and operating margins, which reduced our operating loss. These improvements drove
higher collections from customers, which outpaced more modest increases in payments for
expenses.
72
Operating activities generated $5.5 million of cash during the six months ended July 31, 2010,
compared to $52.2 million in the same period of the prior year. Our operating cash flow in the
current six-month period was adversely impacted by several factors. Payments of professional
fees and related costs associated with the completion and filing of our financial statements for
the prior years were approximately $32 million higher in this period compared to the prior-year
period. During the six months ended July 31, 2010 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 and April 30, 2010. 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 $13.5 million higher in the current six-month period compared to the prior years six-month period, resulting primarily from from an
increase in our stock price. Payments for compensation and benefits were also higher in the
current six-month period, compared to the prior year period, reflecting the combination of an
increase in headcount, salary increases, and higher benefit costs per employee.
Net Cash Used by Investing Activities
During the year ended January 31, 2010, our investing activities used $24.6 million primarily due
to settlements of derivative financial instruments not designated as hedges of $19.4 million and
capital expenditures of $5.0 million.
During the year ended January 31, 2009, our investing activities used $26.2 million in cash,
primarily resulting from $10.0 million of payments to settle derivative financial instruments not
designated as hedges, and capital expenditures of $11.1 million.
During the year ended January 31, 2008, $851.7 million in cash was used in investing activities,
principally due to the acquisition of Witness and ViewLinks Euclipse Ltd. with net assets acquired,
net of cash, of $953.2 million, and capital expenditures of $14.2 million, partially offset by cash
receipts from sales and maturities of investments, net of purchases, of $120.5 million.
During the six months ended July 31, 2010, we used $41.4 million of cash in investing activities,
including $15.3 million of net cash utilized to acquire Iontas, and $12.0 million for settlements of
derivative financial instruments not designated as hedges. We also increased our restricted cash
and bank time deposit balances by $9.7 million during this period, primarily reflecting short-term
deposits to secure bank guarantees in connection with sales contracts. In addition, we made $4.4
million of payments for property, equipment, and capitalized software development costs during
this six-month period.
Investing activities utilized $11.4 million of cash during the six months ended July 31, 2009,
including $8.3 million of settlements of derivative financial instruments not designated as hedges,
and $3.3 million of payments for property, equipment, and capitalized software development
costs.
Currently, we have no significant commitments for capital expenditures.
73
Net Cash Provided by (Used in) Financing Activities
During the year ended January 31, 2010, we used $10.5 million in cash from financing activities,
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.
During the year ended January 31, 2009, we generated $11.9 million in cash from financing
activities, primarily reflecting $15.0 million of proceeds from borrowings under our revolving
credit facility.
During the year ended January 31, 2008, we generated $885.0 million in cash from financing
activities, reflecting $650.0 million of proceeds from borrowings under our new term loan and
$293.0 million of proceeds from issuance of convertible preferred stock to Comverse, partially
offset by $42.5 million of repayments of long-term debt and payment of $13.6 million of debt
issuance costs.
During the six months ended July 31, 2010, we used $18.9 million of cash in financing activities.
Financing activities during this period included $22.7 million in repayments of financing
arrangements, the largest portion of which was a $22.1 million excess cash flow payment on
our term loan in May 2010. We also acquired $4.1 million of treasury stock from directors and
officers during this period, for purposes of providing funds for the recipients obligation to pay
associated income taxes upon vesting of stock awards. In addition, we paid $3.7 million of fees
and expenses related to our credit agreement during this period, $3.5 million of which was
consideration for amendments to the agreement. Partially offsetting these uses of cash was $11.7
million of proceeds from exercises of stock options. Following the completion of certain
delayed SEC filings, stock option holders were permitted to exercise vested stock options. Stock
option exercises had been suspended during our extended filing delay period.
Liquidity and Capital Resources Requirements
Based on past performance and current expectations, we believe that our cash and cash equivalents,
and cash generated from operations will be sufficient to meet anticipated operating costs, required
payments of principal and interest, working capital needs, 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 general global
economic downturn. We have incurred significant professional fees and related expenses in
connection with our restatement of previously filed financial statements and our extended filing
delay status, and we continued to incur significant professional fees and costs through the first
half of 2010 and expect to incur some related expenses in the second half of the year.
Our liquidity could be negatively impacted by these additional fees and costs. In the event 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. There can be no
assurance that we would be able to raise additional equity or debt in the private or public markets
on terms favorable to us, or at all.
On May 25, 2007, we entered into a credit agreement providing a $650.0 million term loan and a
$25.0 million revolving credit facility with a group of banks to fund a portion of the acquisition
of Witness. The $25.0 million revolving credit facility was effectively reduced to $15.0 million in September
2008 (in connection with the bankruptcy of Lehman Brothers and the related subsequent
termination of its revolving commitment under the credit agreement in June 2009), and then later
increased to $75.0 million in July 2010.
Also in July 2010, we amended the credit agreement to, among other things, (i) change the
method of calculation of the applicable interest rate margin to be based on our consolidated
leverage ratio from time to time, (ii) add a 1.50% LIBOR floor, (iii) increase the aggregate amount
of incremental revolving commitment and term loan increases permitted under the credit agreement
from $50.0 million to $200.0 million, and (iv) make certain changes to the negative covenants,
including providing covenant relief with respect to the permitted consolidated leverage ratio.
Unless the context otherwise requires, references herein to our credit agreement are to the credit
agreement as amended through the date of this prospectus; the description of the credit agreement
in this prospectus is qualified in its entirety by reference to the credit agreement and the
amendments thereto, copies of which are filed as exhibits to the registration statement of which
this prospectus is a part.
As of
July 31, 2010 our outstanding term loan balance under the credit
agreement was approximately $583.2 million. We borrowed
$15.0 million under the revolving
74
credit
facility in November 2008, which loan remained outstanding at
January 31, 2010 and July 31,
2010, and accordingly we had $60.0 million remaining availability thereunder at July 31, 2010. Our
ability to borrow under the revolving credit facility is dependent upon certain conditions,
including the absence of any material adverse effect or change on our business as defined in the
credit agreement. The term loan matures on May 25, 2014, and the revolving credit facility matures
on May 25, 2013.
The credit agreement requires mandatory prepayment of the term loan with the net cash proceeds
of certain asset sales (to the extent such net cash proceeds are not otherwise reinvested in assets
useful in our business) and, on an annual basis, a percentage of excess cash flow that ranges from
0% to 50% depending on our consolidated leverage ratio (as defined in the credit agreement). It
also requires periodic amortization payments of the term loan. We made an excess cash flow
payment of $22.1 million in May 2010 (in respect of our fiscal year ended January 31, 2010) and
an amortization payment of $0.6 million in February 2010. Our next amortization payment (of
$1.5 million) is due May 1, 2012. We expect our cash liquidity to be sufficient to fund all term
loan payments required during the next 12 months.
The credit agreement contains one financial covenant that requires us to meet each quarter a
certain consolidated leverage ratio, defined as our consolidated net total debt divided by
consolidated EBITDA for the trailing four quarters. EBITDA is defined in our credit agreement as
net income/(loss) plus income tax expense, interest expense, depreciation and amortization,
amortization of intangibles, losses related to hedge agreements, any extraordinary, unusual, or
non-recurring expenses or losses, any other non-cash charges, and expenses incurred or taken prior
to April 30, 2008 in connection with our acquisition of Witness, minus interest income, any
extraordinary, unusual, or non-recurring income or gains, gains related to hedge agreements, and
any other non-cash income. Under the credit agreement, for the quarterly periods ended January 31,
April 30, July 31, and October 31, 2009, the consolidated leverage ratio could not exceed 4.50:1
and for the quarterly periods ended January 31, April 30 and
July 31, 2010, the consolidated leverage ratio
could not exceed 3.50:1, and we were in compliance with such
requirements as of such dates. At July 31, 2010, our consolidated
leverage ratio was 2.6:1 versus a permitted consolidated leverage
ratio of 3.50:1, which implies that our EBITDA for the period then
ended exceeded the requirement of the covenant by at least $52.0
million.
For the quarterly periods ending October 31, 2010, January 31, April 30, July
31, and October 31, 2011, the consolidated leverage ratio cannot exceed 3.50:1. For the quarterly
periods ending January 31, 2012 and thereafter, the consolidated leverage ratio cannot exceed
3.00:1.
In addition, we are subject to a number of other restrictive covenants under the credit agreement,
including limitations on our ability to incur indebtedness, create liens, make fundamental business
changes, dispose of property, make restricted payments (including dividends), make significant
investments, enter into sales and leasebacks, enter new lines of business, provide negative
pledges, enter into transactions with related parties, and enter into speculative hedges, although
there are limited exceptions to many of these covenants. The credit agreement also contains a
number of affirmative covenants, including a requirement that we submit consolidated financial
statements to the lenders within certain periods after each fiscal year and quarter. In April
2010, we entered into an amendment to the credit agreement to extend the due date for delivery of
audited consolidated financial statements and related documentation for the year ended January 31,
2010. In consideration for this amendment, we paid approximately $0.9 million. In the future, if
we are unable to comply with any of the requirements in the credit agreement and are unable to
obtain an amendment or waiver of those requirements, an event of default could occur which could
cause or permit holders of the debt thereunder to declare all amounts outstanding to be immediately
due and payable. In that event, we may be forced to sell assets, raise additional capital through
a securities offering, or seek to refinance or restructure our debt. In such a case, we may not be
able to consummate such a sale, securities offering, or refinancing or restructuring on reasonable
terms, or at all. See Risk FactorsRisks Related to Our Capital Structure and FinancesWe
incurred significant indebtedness in connection with our acquisition of Witness, which makes us
highly leveraged, subjects us to restrictive covenants, and could adversely affect our operations
for a description of certain risks arising because of our debt under the credit agreement.
Prior to amendment of our credit agreement in July 2010, the applicable interest rate margin on our
loans was determined by reference to our corporate ratings and twice increased (each time by 25
basis points) due to our failure to deliver certain audited financial statements and lack of
corporate ratings (both resulting from the restatement process). The applicable margin accordingly
was reduced by 50 basis points in June 2010 when we delivered the required financial statements and
obtained corporate ratings. Since entering into an amendment of the credit agreement in July 2010,
the applicable margin has been determined by reference to our consolidated leverage ratio. See
Quantitative and Qualitative Disclosures about Market RiskCredit Agreement for more information
about the determination of the applicable margin.
75
Contractual Obligations
At January 31, 2010, our contractual obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
(in thousands) |
|
Total |
|
|
< 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
> 5 years |
|
Long-term debt obligations, including interest |
|
$ |
741,632 |
|
|
$ |
65,884 |
|
|
$ |
98,137 |
|
|
$ |
577,611 |
|
|
$ |
|
|
Operating lease obligations |
|
|
46,173 |
|
|
|
12,536 |
|
|
|
20,988 |
|
|
|
9,994 |
|
|
|
2,655 |
|
Purchase obligations |
|
|
33,827 |
|
|
|
32,756 |
|
|
|
1,071 |
|
|
|
|
|
|
|
|
|
Other long-term obligations |
|
|
1,700 |
|
|
|
600 |
|
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
823,332 |
|
|
$ |
111,776 |
|
|
$ |
121,296 |
|
|
$ |
587,605 |
|
|
$ |
2,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The long-term debt obligations reflected above include projected interest payments over the term of
the debt, assuming an interest rate of 3.49%, which was the interest rate in effect for both our
term loan and revolving credit agreement borrowings as of January 31, 2010. The terms of our
long-term debt obligations are further discussed in Note 6, Long-Term Debt to the audited
consolidated financial statements included elsewhere in this prospectus. The long-term debt
obligations also include the projected quarterly settlements of our interest rate swap, through its
expiration in May 2011, using the same future interest rate assumptions that underlie the estimated
fair value of the swap at January 31, 2010. As described above under Liquidity and Capital
Resources Requirements, in July 2010, our credit agreement was modified with respect to, among
other things, the calculation of interest expense on borrowings under the agreement. Also in July
2010, we entered into an agreement to terminate our interest rate swap, by making a $21.7 million
one-time payment on August 3, 2010. The impact of these transactions increased our long-term debt
obligations, including interest, as presented in the table above, by less than 10%.
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. The table above also
includes agreements to purchase goods or services that have cancellation provisions requiring
little or no payment. The amounts under such contracts are included in the table above because we
believe that cancellation of these contracts is unlikely and we expect to make future cash payments
according to the contract terms or in similar amounts for similar materials.
Our consolidated balance sheet at January 31, 2010 includes $25.7 million of non-current tax
reserves, net of related benefits (including interest and penalties of $7.1 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
twelve months.
As described elsewhere in this Liquidity and Capital Resources
section, there were material changes to certain of our contractual obligations and commercial
commitments subsequent to January 31, 2010, including two amendments to our credit agreement.
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, 2010, we had approximately $7.4 million of outstanding letters of credit and surety
bonds relating to these performance guarantees. As of July 31, 2010 and January 31, 2010, we
believe we were in compliance with our performance obligations under all contracts for which there
is a financial
76
performance guarantee, and the ultimate liability, if any, incurred in connection with these
guarantees will not have a material adverse affect 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
July 31, 2010, 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, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources that are material to investors. There were no material changes in our
off-balance sheet arrangements since January 31, 2010.
Recent Accounting Pronouncements
Standards Implemented:
In December 2007, the Financial Accounting Standard Board (FASB), revised their guidance on
business combinations. This new guidance requires an acquiring entity to measure and recognize
identifiable assets acquired and liabilities assumed, and contingent consideration at their fair
value at the acquisition date with subsequent changes recognized in earnings. In addition,
acquisition related costs and restructuring costs are recognized separately from the business
combination and expensed as incurred. The new guidance also requires acquired in-process research
and development costs to be capitalized as an indefinite-lived intangible asset and requires that
changes in accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period be recognized as a component of the provision for income
taxes. In April 2009, the FASB issued a new standard which clarified the accounting for
pre-acquisition contingencies. This guidance was effective for us beginning on February 1, 2009.
For further discussion see Note 4, Business Combinations to the audited consolidated financial
statements included elsewhere in this prospectus.
In December 2007, the FASB issued a new accounting standard which establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and the noncontrolling interest,
changes in a parents ownership interest and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. The new standard also establishes disclosure
requirements that clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. On February 1, 2009, we adopted this standard, and the
presentation and disclosure requirements of this standard were applied retrospectively to all
periods presented, as required by the standard. The adoption of this standard did not have a
material impact on our consolidated financial statements, other than the following changes in
presentation of the noncontrolling interest:
|
|
|
Net income (loss) now includes net income (loss) attributable to both Verint Systems
Inc. and the noncontrolling interest in the consolidated statements of operations. The
presentation of net income (loss) in prior periods excluded the noncontrolling interest in
the net income of our joint venture. Net income (loss) excluding the noncontrolling
interest in the net income of our joint venture is now presented after net income (loss),
with the caption net income (loss) attributable to Verint Systems Inc. |
77
|
|
|
The noncontrolling interest, which was previously reflected in other liabilities, is now
presented in stockholders equity (deficit), separate from Verint Systems Inc.s
stockholders equity (deficit), in the consolidated balance sheets. |
|
|
|
|
The consolidated statements of cash flows now begin with net income (loss), including
the noncontrolling interest, instead of net income (loss) attributable to Verint Systems
Inc. |
In March 2008, the FASB amended the disclosure requirements for derivative instruments and hedging
activities. This new guidance requires enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items are accounted for,
and (c) how derivative instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. This guidance was effective for us beginning on February 1,
2009. For further discussion, see Note 13, Fair Value Measurements and Derivative Financial
Instruments to the audited consolidated financial statements included elsewhere in this
prospectus.
In April 2009, the FASB issued staff positions that require enhanced fair value disclosures,
including interim disclosures, on financial instruments; determination of fair value in turbulent
markets; and recognition and presentation of other than temporary impairments. These staff
positions were effective beginning with our quarter ended July 31, 2009. These staff positions
will enhance our interim disclosures but will not have a material effect on our consolidated
financial statements.
In May 2009, the FASB issued a standard that establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued. In February 2010, the FASB issued an amendment to this guidance that removed the
requirement for an SEC filer to disclose a date through which subsequent events have been evaluated
in both issued and revised financial statements. The adoption of this standard, as amended, did
not have a material impact on our consolidated financial statements.
During the third quarter of the year ended January 31, 2010, we adopted the new Accounting
Standards Codification (ASC), as issued by the FASB. The ASC has become the source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The ASC
is not intended to change or alter existing GAAP. The adoption of the ASC had no impact on our
consolidated financial statements.
In June 2009, the FASB issued a new accounting standard related to the consolidation of variable
interest entities, requiring a company to perform an analysis to determine whether its variable
interests give it a controlling financial interest in a variable interest entity. This analysis
requires a company to assess whether it has the power to direct the activities of the variable
interest entity and if it has the obligation to absorb losses or the right to receive benefits that
could potentially be significant to the variable interest entity. This standard requires an
ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity,
eliminates the quantitative approach previously required for determining the primary beneficiary of
a variable interest entity, and significantly enhances disclosures. The standard may be applied
retrospectively to previously issued financial statements with a cumulative-effect adjustment to
retained earnings as of the beginning of the first year restated. This standard was effective for
us for the fiscal year beginning on February 1, 2010. The adoption of this standard did not have a
material impact on our condensed consolidated financial statements.
In January 2010, the FASB issued amended standards that require additional fair value disclosures.
These disclosure requirements are effective in two phases. The initial phase, 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 adoption of this
standard did not have a material impact on our condensed consolidated financial statements. The
second phase, effective for us as of February 1, 2011, is further discussed below.
New Standards to be Implemented:
In October 2009, the FASB issued guidance that applies to multiple-deliverable revenue
arrangements. This guidance also provides principles and application guidance on whether a revenue
arrangement contains multiple
78
deliverables, how the arrangement should be separated, and how the arrangement consideration should
be allocated. The guidance requires an entity to allocate revenue in a multiple-deliverable
arrangement using estimated selling prices of the deliverables if a vendor does not have VSOE or
third-party evidence of selling price. It eliminates the use of the residual method and, instead,
requires an entity to allocate revenue using the relative selling price method. It also expands
disclosure requirements with respect to multiple-deliverable revenue arrangements.
Also in October 2009, the FASB issued guidance related to multiple-deliverable revenue arrangements
that contain both software and hardware elements, focusing on determining which revenue
arrangements are within the scope of existing software revenue guidance. This additional guidance
removes tangible products from the scope of the software revenue guidance and provides guidance on
determining whether software deliverables in an arrangement that includes a tangible product are
within the scope of the software revenue guidance. This
revenue recognition guidance, and the guidance discussed in the
preceding paragraph, should be applied on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June
15, 2010. It will be effective for us in our fiscal year beginning February 1, 2011, although
early adoption is permitted. Alternatively, an entity can elect to adopt the provisions of these
issues on a retrospective basis. We are assessing the impact that the application of this new
guidance, and the guidance discussed in the previous paragraph, may have on our consolidated financial statements.
In January 2010, the FASB issued amended standards that require additional fair value disclosures.
These disclosure requirements are effective in two phases. The initial phase, as previously
discussed, was effective for us in our fiscal year beginning February 1, 2010. The second phase,
effective for us as of February 1, 2011, will require presentation of disaggregated activity within
the reconciliation for fair value measurements using significant unobservable inputs (Level 3). We
are assessing the impact that the application of this new guidance may have on our consolidated
financial statements.
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 trading purposes.
Credit Agreement
Borrowings under our term loan and revolving credit facilities bear interest at a rate of either,
at our election, (a) the highest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, and
(iii) one-month LIBOR (subject to a 1.50% floor) plus 1.00%, or (b) LIBOR (subject to a 1.50%
floor), plus, in either case, an applicable interest rate margin. In the case of base rate
borrowings, the interest rate adjusts in unison with the underlying index. In the case of LIBOR
borrowings, the interest rate adjusts at the end of the relevant LIBOR period. As described in
more detail above under Liquidity and Capital Resources Requirements, prior to its amendment in
July 2010, the applicable margin under the credit agreement was determined by reference to our
corporate ratings and twice increased due to failure to deliver certain audited financial
statements and lack of corporate rating and subsequently decreased when we delivered the required
financial statements and obtained corporate ratings. Since July 2010, the applicable margin has
been determined by reference to our consolidated leverage ratio as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rate |
|
Eurodollar |
|
|
Consolidated Leverage Ratio |
|
Loans |
|
Loans |
Category 1 |
|
Greater than 3:00:1:00 |
|
|
3.25 |
% |
|
|
4.25 |
% |
Category 2 |
|
Greater than 2:75:1:00 but less
than or equal to 3:00:1:00 |
|
|
3.00 |
% |
|
|
4.00 |
% |
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rate |
|
Eurodollar |
|
|
Consolidated Leverage Ratio |
|
Loans |
|
Loans |
Category 3 |
|
Greater than 2:50:1:00 but less
than or equal to 2:75:1:00 |
|
|
2.75 |
% |
|
|
3.75 |
% |
Category 4 |
|
Less than or equal to 2:50:1:00 |
|
|
2.50 |
% |
|
|
3.50 |
% |
Interest Rate Risk on Our Debt
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. To partially mitigate this risk, and in part because we were required to do so by the
lenders, when we entered into our credit facilities in May 2007, we executed a pay-fixed,
receive-variable interest rate swap with a multinational financial institution under which we paid
fixed interest at 5.18% and received variable interest of three-month LIBOR on a notional amount of
$450.0 million. In July 2010, we terminated this swap prior to its May 2011 maturity and paid
approximately $21.7 million to the counterparty on August 3,
2010, representing the approximate present value of the
expected remaining quarterly settlement payments that otherwise were to have been due from us
thereafter.
This interest rate swap was not designated as a hedging instrument under applicable accounting
guidance and has been accounted for as a derivative, whereby the fair value of the instrument is
reported on our consolidated balance sheets and gains and losses from changes in its fair value,
whether realized or unrealized, are reported in other income
(expense), net. For the three and six months ended
July 31, 2010 and the year ended January 31, 2010, we recorded losses on this instrument of
approximately $1.5 million, $3.1 million and $13.6 million, respectively, in other income (expense), net on the
consolidated statements of operations. These losses reflect the decline in market interest rates
during these periods.
Giving
effect to the termination of the swap and based on $598.2 million of borrowings outstanding
under the credit agreement at July 31, 2010, but not giving effect to the floor on interest rates
arising because of the LIBOR floor and interest rate margin applicable to borrowings under our
credit agreement, if the interest rate changed by 1.00%, the annual interest expense on the
borrowings would change by approximately $6.0 million.
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. 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
July 31, 2010, January 31, 2010, and January 31, 2009, we had cash and cash equivalents
totaling approximately $128.2 million, $184.3 million, and $115.9 million, respectively, consisting
of demand deposits and bank time deposits having maturities of three months or less. At such dates
we also held $14.9 million, $5.2 million, and $7.7 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.
Interest Rate Risk on Our Investments
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,
2011, average short-term interest rates increase or decrease by 50 basis points relative to average
rates realized during the year ended January 31, 2010. Such a change would cause our projected
interest income from cash, cash equivalents, and bank time deposits to increase or decrease by
80
approximately $0.9 million, assuming a similar level of investments in the year ended January 31,
2011 as in the year ended January 31, 2010.
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 the audited consolidated financial statements
included elsewhere in this prospectus for more information regarding our short-term investments.
Foreign Currency Exchange Risk
The functional currency for each of our foreign subsidiaries is the respective local currency with
the exception of 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 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.
In addition, we have certain assets and liabilities that are denominated in currencies other than
the respective entitys functional currency. Changes in the functional currency value of these
assets and liabilities create fluctuations that result in gains or losses. We recorded foreign
currency transaction gains and losses, realized and unrealized, in other income (expense), net on
the consolidated statements of operations, of approximately $0.9
million and $2.7 million of net losses in the three and six months
ended July 31, 2010, respectively, $1.9 million of net losses in the year ended January 31, 2010, $1.6
million of net gains in the year ended January 31, 2009, and $1.4 million of net gains in the year
ended January 31, 2008.
Additionally, 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 limited to
durations of approximately six 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 denominated accounts payable payments. These contracts
are limited to durations of approximately one year or less. We have not entered into any foreign
currency forward contracts for trading or speculative purposes.
During the
three and six months ended July 31, 2010, we recorded no realized gains or losses on
settlements of foreign currency forward contracts not designated as hedges. For the years ended
January 31, 2010, 2009, and 2008, we realized net losses of $2.6 million, net gains of $2.1 million
and net gains of $1.8 million, respectively, on settlements of foreign currency forward contracts
not designated as hedges. Net unrealized gains on outstanding foreign
currency forward contracts were not significant as of July 31,
2010, with notional amounts totaling $57.5 million. We
had $0.5 million of net unrealized losses on outstanding foreign currency forward contracts as of
January 31, 2010, with notional amounts totaling $50.4 million. We had $1.9 million of net
unrealized losses on outstanding foreign currency forward contracts as of January 31, 2009, with
notional amounts totaling $35.9 million.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of January 31,
2010. 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.
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 $4.7 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 $5.7 million.
81
The counterparties to these foreign currency forward contracts are multinational commercial banks.
While we believe the risk of counterparty nonperformance is not material, the recent disruption in
the global financial markets 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.
82
BUSINESS
Our Company
Verint Systems Inc. is a global leader in Actionable Intelligence solutions and
value-added services. Our solutions enable organizations of all sizes to make 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 80% 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 market, our Workforce Optimization solutions help organizations enhance customer
service operations in contact centers, branches, and back-office environments to increase customer
satisfaction, reduce operating costs, identify revenue opportunities, and improve profitability.
In the security intelligence market, our Video Intelligence, public safety, and Communications
Intelligence solutions are vital to 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 workforce optimization and security
intelligence markets by leveraging our core competency in developing highly scalable,
enterprise-class applications with advanced, integrated analytics for both unstructured and
structured information. Our innovative solutions are developed by approximately 800 employees in
research and development, representing approximately one-third of our total employees, and are
evidenced by more than 480 patents and patent applications worldwide. We offer a range of customer
services, from initial implementation 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 Workforce Optimization and Security Intelligence
We deliver our Actionable Intelligence solutions to the enterprise workforce optimization 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, 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.
In the enterprise workforce optimization 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 workforce optimization and security
intelligence markets by leveraging our core competency in developing highly scalable,
enterprise-class applications with advanced, integrated analytics for both unstructured and
structured information.
83
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 through a combination of our business
with Loronix® Information Systems, Inc., which had been previously acquired by Comverse.
In
May 2002, we completed our initial public offering (IPO), and,
as of September 15, 2010, Comverse held
approximately a 63.5% beneficial ownership position in us assuming conversion of all of our
preferred stock into common stock. Since our IPO, we have acquired a number of companies that have
strengthened our position in both the enterprise workforce optimization and security intelligence
markets. Our largest acquisition was of Witness in May 2007, which strengthened our leadership
position in the enterprise workforce optimization market. The aggregate merger consideration paid
to consummate the transaction, including the fair value of Witness stock options exchanged for
Verint options, was approximately $944.3 million, net of cash acquired, $650.0 million of which was
financed by proceeds of a term loan and a new credit agreement entered into by us in connection
with the transaction, and $293.0 million of which was financed with proceeds from the issuance of
our preferred stock to Comverse and from available cash balances. On February 4, 2010, our
wholly-owned subsidiary, Verint Americas Inc., acquired all of the outstanding shares of Iontas,
a privately held provider of desktop analytics solutions. We acquired Iontas for
approximately $15.2 million in cash (net of cash acquired) and potential additional earn-out
payments of up to $3.8 million, tied to certain targets being achieved over the next two years.
Our Strengths
Workforce Optimization
We believe that the following competitive strengths will enable us to sustain our market leadership
in the workforce optimization market:
|
|
|
Comprehensive, unified suite of workforce optimization applications. A core part of our
product strategy has been to tightly integrate our workforce optimization applications. Our
comprehensive unified suite of workforce optimization applications 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 workforce optimization market. |
|
|
|
|
Advanced customer interaction analytics. We were an early innovator of speech analytics
for call centers and today we offer the market an advanced suite of customer interaction
analytics, which includes speech, data, and customer feedback solutions. We believe that
these solutions are attractive to a broad set of customers, enabling them to better
understand workforce performance, the customer experience, and the factors underlying
important business trends. |
|
|
|
|
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 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 Workforce Optimization solutions
and our focus on customer service has been a major factor in our success. |
84
|
|
|
Strong OEM partner relationships. We have increased our focus on our OEM and other
distribution partners, 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. |
Video Intelligence
We believe that the following competitive strengths will enable us to sustain our market leadership
in the video intelligence business:
|
|
|
Broad IP video portfolio. Our Video Intelligence Solutions portfolio includes IP video
management software and services, edge devices for capturing, digitizing, and transmitting
video over different types of wired and wireless networks, video analytics, and networked
DVRs. Our broad portfolio enables organizations to deploy an end-to-end IP video solution
with analytics or evolve to IP video solutions over time, enabling organizations to
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 Nextiva solutions help our
customers to cost-effectively migrate to networked IP video without discarding their
existing analog CCTV investments. |
Communications 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 Intelligence portfolio enables solutions for
communications interception, service provider compliance, mobile location tracking, fusion
and data management, Web intelligence, and tactical communications intelligence. Our broad
Communications Intelligence 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), can quickly make sense of complex scenarios, and generates
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 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. |
|
|
|
|
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 workforce
optimization 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 |
85
|
|
|
intelligence from unstructured data. We intend to continue to drive the adoption of
Actionable Intelligence solutions by delivering solutions to the workforce optimization and
security intelligence markets designed to provide a high return on investment. |
|
|
|
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 Workforce Optimization Solutions Segment
We are a leading provider of enterprise workforce optimization 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 enhancing compliance. Marketed under the Impact 360 brand to contact centers, back offices,
branch and remote offices, and public safety centers, these solutions comprise a unified suite of
enterprise workforce optimization applications and services that include IP and TDM voice
recording, quality monitoring, speech and data analytics, workforce management, customer feedback,
eLearning and coaching, performance management, and desktop process analytics. These applications
can be deployed stand-alone or in an integrated fashion.
The Workforce Optimization 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 centers. Consistent with this trend, we believe that organizations seek workforce
optimization solutions that enable them to strike a 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. However, customer service solutions have traditionally been deployed in
the contact center as stand-alone applications, which prevented information from being shared and
analyzed across multiple/related applications. These solutions also lacked functionality for
analyzing unstructured information, such as the content of phone calls and email. 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 unified, innovative workforce
optimization solutions delivered by a single vendor to better manage customer service operations
across the enterprise. We believe that the key business and technology trends driving demand for
workforce optimization solutions include:
Integration of Workforce Optimization Applications
We believe that organizations increasingly seek a unified workforce optimization suite that
includes call recording and quality monitoring, speech and data analytics, workforce management,
customer feedback, performance
86
management, eLearning, and coaching, as well as pre-defined business integrations. Such a unified
workforce optimization 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:
|
|
|
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; |
|
|
|
|
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; and |
|
|
|
|
using integrated speech analytics with quality monitoring, our solutions can categorize
calls, allowing organizations to review the interactions that are most significant to the
business and identify the underlying causes of customer service issues. |
Additionally, by deploying an integrated workforce optimization 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 workforce optimization suite also enables enterprises to interact with a single
vendor for sales and service and helps ensure seamless integration and update of all applications.
Greater Insight through Customer Interaction Analytics
We believe that enterprises are increasingly interested in deploying sophisticated customer
interaction analytics, particularly speech, data, and customer feedback analytics, for gaining a
better understanding of workforce performance, the customer experience, and the factors underlying
business trends in order to improve the performance of their customer service operations. Although
enterprises have recorded customer interactions for many years, most were able to extract
intelligence only by manually listening to calls, which generally could be done for only a small
percentage of all calls. Today, customer interaction analytics applications, such as speech and
data analytics, have evolved to automatically analyze and categorize customer interactions in order
to detect patterns and trends that significantly impact the business. Customer surveys included in
a unified analytics suite help enterprises understand the effectiveness of their employees,
products, and processes directly from the customers perspective. Together, these applications
provide a new level of insight into such important areas as customer satisfaction, customer
behavior, 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 applications, 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.
Migration to VoIP Technologies
Many enterprises are replacing their contact centers legacy voice (TDM) infrastructures with VoIP
telephony infrastructure. These upgrades typically require new deployments of workforce
optimization solutions that are designed to support IP or hybrid TDM/IP environments.
87
Our Enterprise Workforce Optimization Solutions Portfolio
We are a leader in the workforce optimization market with Impact 360, a comprehensive, unified
portfolio of Workforce Optimization solutions. Our Workforce Optimization 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 the back office, remote offices, and branches,
as well as by public safety centers. 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 Workforce Optimization solutions.
|
|
|
Solution |
|
Description |
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. |
|
|
|
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
|
|
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. |
|
|
|
Customer Interaction Analytics
(Speech, Data, and Customer
Feedback)
|
|
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 data analytics apply our data
mining technology to call-related
and call-content information
(metadata) and call content, as well
as to productivity, quality, and
customer experience metrics, to help
enterprises identify hidden service
and quality issues, determine the
causes, and correct them. |
|
|
|
|
|
Our customer feedback analytics help
enterprises efficiently survey
customers via Interactive Voice
Response (IVR), Web, or email in
order to gather customer feedback on
products, processes, agent
performance, and customer
satisfaction and loyalty. |
|
|
|
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. |
|
|
|
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 for
Small-to-Medium Sized Businesses (SMB)
|
|
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. |
|
|
|
Public Safety
|
|
Includes quality monitoring, speech
analytics, and full-time and
compliance recording solutions under
the brand Impact 360 for Public
Safety Powered by |
88
|
|
|
Solution |
|
Description |
|
|
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. |
The Video Intelligence Solutions Segment
We are a leading provider of networked IP video solutions designed to optimize security and enhance
operations. Our Video Intelligence Solutions portfolio includes IP video management software and
services, edge devices for capturing, digitizing, and transmitting video over different types of
wired and wireless networks, video analytics, and DVRs. Marketed under the Nextiva brand, this
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.
The Networked IP Video Market and Trends
We believe that terrorism, crime, and other security threats around the world are generating demand
for advanced video security 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 solutions and more proactive use of existing video 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 that this transition from passive analog systems to network-based digital systems greatly
improves the ability of organizations to quickly and efficiently detect security breaches and
deliver video and data across the enterprise and to outside agencies in order to address security
threats, improve operational efficiency, and comply with cost containment mandates.
While the security market is evolving to networked IP video solutions, many organizations have
already made significant investments in analog technology. Our Nextiva 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.
Our Video Intelligence Solutions Portfolio
We are a leader in the networked video market with Nextiva, a comprehensive, end-to-end, networked
IP video solution portfolio. The following table summarizes our portfolio of Video Intelligence
solutions.
|
|
|
Solution |
|
Description |
IP Video Management Software
|
|
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. |
|
|
|
Edge Devices
|
|
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. |
89
|
|
|
Solution |
|
Description |
Video Analytics
|
|
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. |
|
|
|
Networked DVRs
|
|
Performs networked digital video
recording utilizing secure, embedded
operating systems and
market-specific data integrations
for applications that require local
storage, as well as remote
networking. |
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 application includes global positioning system (GPS), integrations, our retail
application includes point of sale integrations and retail traffic analytics, our banking
application includes automated teller machine (ATM), integrations, and our critical infrastructure
application includes video analytics for detecting suspicious events and command and control
integrations.
The Communications Intelligence Solutions Segment
We are a leading provider of Communications Intelligence solutions that help law enforcement,
national security, intelligence, and civilian government agencies effectively detect, investigate,
and neutralize criminal and terrorist threats. 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, fusion and data
management, Web 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 Intelligence Solutions Market and Trends
We believe that terrorism, criminal activities, including financial fraud and drug trafficking, 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 to 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.
90
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 CALEA. In Europe, similar requirements have been adopted by the 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 crime. We
believe that these laws and regulations are creating demand for our Communications Intelligence
solutions.
Our Communications Intelligence Solutions Portfolio
We are a leader in the market for communications intelligence solutions, which are marketed under
the RELIANT, VANTAGE®, STAR-GATE, X-TRACT®, and ENGAGE brand names. The
following table summarizes our portfolio of Communications Intelligence solutions.
|
|
|
Solution |
|
Description |
Communications Interception
|
|
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. |
|
|
|
Communications Service Provider
Compliance
|
|
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. |
|
|
|
Mobile Location Tracking
|
|
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. |
|
|
|
Fusion and Investigation Management
|
|
Fuses data gathered from multiple
database sources, with link
analysis, adaptable investigative
workflow, and analytics to improve
investigation efficiency and
productivity. Supports a wide range
of complex investigations, including
financial crimes, that require
expertise across various domains,
involve multiple government
agencies, and require significant
resources and time. |
|
|
|
Web Intelligence
|
|
Increases the productivity and
efficiency of investigations in
which the Internet is the prime
source of information. Features
advanced data collection, text
analysis, data enrichment, advanced
analytics, and a clearly defined
investigative workflow on a scalable
platform. |
|
|
|
Tactical Communications Intelligence
|
|
Provides portable communications
interception and location tracking
capabilities for local use or
integration with centralized
monitoring systems, to support
tactical field operations. |
We also offer integrated video monitoring which enables the scalable collection, storage, and
analysis of video captured by surveillance systems and its integration with other sources of
information, such as intercepted communications or location tracking data.
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.
91
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 applications 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, 7 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 Workforce
Optimization 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 3 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 Workforce Optimization 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.
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.
Customers
Our solutions are used by more than 10,000 organizations in over 150 countries. In the three months
ended July 31, 2010, we derived approximately 52%, 21%, and 27% of our revenue from the sales of
our Workforce Optimization solutions, Video Intelligence solutions, and Communications Intelligence
solutions, respectively. In the six months ended July 31, 2010, we
derived approximately 54%, 20%, and 26% of our revenue from the sales
of our Workforce Optimization 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 sales of our Workforce Optimization solutions, Video Intelligence
solutions, and Communications Intelligence solutions, respectively. In the year ended January 31,
2009, we derived approximately 53%, 19%, and 28% of our revenue from the sales of our Workforce
Optimization solutions, Video Intelligence solutions, and Communications Intelligence solutions,
respectively. In the year ended January 31, 2008, we
derived approximately 49%, 28%, and 23% of
our revenue from the sales of our Workforce Optimization solutions, Video Intelligence solutions,
and Communications Intelligence solutions, respectively.
In the
three months ended July 31, 2010, we derived approximately 54%, 25%, and 21% of our revenue
from sales to end users in the Americas, EMEA, and APAC,
respectively. In the six months ended July 31, 2010, we derived
approximately 54%, 25%, 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. In the year ended January 31, 2009, we
derived approximately 52%, 32%, and 16% of our revenue from sales to end users in the Americas, EMEA, and
APAC, respectively. In the year ended January 31, 2008, we
92
derived approximately 52%, 33%, and 15% 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 three and six months ended July 31, 2010 or the years ended January 31, 2010, 2009, and 2008.
For the year ended January 31, 2010 and the three and six months ended July 31, 2010,
approximately one quarter of our business was generated from contracts with various governments
around the world, including federal, state, and local government agencies.
In some years, we have entered into one or more contracts with customers in our Video Intelligence segment
or our Communications Intelligence segment the loss of which could have a material adverse effect
on the segment. See Note 17, Segment, Geographic, and Significant Customer Information to the
audited consolidated financial statements included elsewhere in this prospectus. 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
BusinessRegulatory and Government ContractingWe 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 FactorsRisks Related to Our
BusinessRegulatory and Government ContractingU.S. and foreign governments could refuse to buy our
Communications Intelligence solutions or could deactivate our security clearances in their
countries thereby restricting or eliminating our ability to sell these solutions in those countries
and perhaps other countries influenced by such a decision.
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 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 Workforce
Optimization segment; primarily in the United States, Canada, and Israel for our Video Intelligence
segment; and primarily in Israel, with separate and independent research and development activities
in Germany, 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 our customers changing needs; |
|
|
|
|
enhance our existing products by adding features and functionality to meet 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 three and six months ended July 31, 2010 and the years ended January 31, 2010, 2009, and 2008, we
spent approximately $22.0 million, $48.5 million, $83.8 million, $88.3 million, and $87.7 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.
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 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
93
limits our ability to manufacture products, or transfer technologies, developed using these grants
outside of Israel without permission from the OCS. See Risk FactorsRisks Related to Our Capital
Structure and Finances Research and development and tax benefits we receive in Israel may be
reduced or eliminated in the future and our receipt of these benefits subjects us to certain
restrictions and Risk FactorsRisks Related to Our BusinessCompetition and MarketsBecause we
have significant foreign operations, we are subject to geopolitical and other risks that could
materially adversely affect our business for a discussion of these and other risks associated with
our foreign operations.
Manufacturing and Suppliers
Our manufacturing and assembly operations are performed in our U.S. and Israeli facilities for our
Workforce Optimization solutions; in our U.S., Israeli, and Canadian facilities for our Video
Intelligence solutions; and 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 FactorsRisks Related to Our BusinessCompetition and MarketsFor
certain products and components, we rely on a limited number of suppliers and manufacturers and if
these relationships are interrupted, we may not be able to obtain substitute suppliers or
manufacturers on favorable terms or at all for a discussion of risks associated with our
manufacturing operations and suppliers.
Employees
As of
July 31, 2010, we employed approximately 2,600 people, including part-time employees and
certain contractors. Approximately 45%, 38%, 11%, and 6% of our employees are located in or report
into the Americas, Israel, Europe, and APAC, respectively. As noted in the previous sentence,
these percentages include personnel who are physically located outside of the specified region but
who report into that region, which reflects the way management operates the business.
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 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 Labor in Israel) and the Coordinating Bureau of Economic
Organizations (including the Manufacturers Association of Israel) are applicable to our Israeli
employees by virtue of an expansion order 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.
94
Patents
As of
July 31, 2010, we had more than 480 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.
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.
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
FactorsRisks Related to Our BusinessIntellectual
PropertyOur intellectual property may not be adequately protected 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 Workforce Optimization segment, our competitors are Aspect Software, Inc.,
Autonomy Corp., Genesys Telecommunications, NICE Systems Ltd (NICE), and many smaller companies,
which can vary across regions. In our Video Intelligence segment, our competitors include
Dedicated Microcomputer Limited, Genetec Inc., March Networks Corporation, 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 are Aqsacom Inc., ETI, JSI Telecom,
NICE, Pen-Link, Ltd., RCS S.R.L., 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 that believe 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; |
95
|
|
|
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. In recent years, there has also been significant consolidation among our
competitors, which has improved the competitive position of several of these companies and enabled
new competitors to emerge in all of our markets. See Risk FactorsRisks Related to Our
BusinessCompetition and Markets Intense competition in our markets and competitors with greater
resources than us may limit our market share, profitability, and growth 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, including the United States and Israel. 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 Workforce
Optimization solutions. Certain countries, including the United States and Israel, have also
imposed controls on products that contain encryption functionality, which covers many of our
products. 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.
Properties
The following describes our leased and owned properties as of the date of this prospectus.
Leased Properties
We lease a total of approximately 260,900 square feet of office space in the United States. Our
corporate headquarters is located in a leased facility in Melville, New York, and consists of
approximately 45,800 square feet under a lease that expires in May 2013. The facility is used
primarily by our administrative, sales, marketing, customer support, and services groups. We lease
approximately 91,600 square feet at a facility in Roswell, Georgia under a lease that expires in
November 2012. The Roswell, Georgia facility is used primarily by the administrative, marketing,
product development, support, and sales groups for our Workforce Optimization operations.
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 Chantilly, Virginia used primarily
for supporting our Communications Intelligence operations; and offices in Santa Clara, California;
Lyndhurst, New Jersey; San Diego, California; and Norwell, Massachusetts which are primarily used
for product development, sales, training, and support for our Workforce Optimization 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, Israel 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, Quebec, which is used primarily for our manufacturing, product
development, support, and sales for our Video Intelligence operations. The lease in Laval, Quebec
expires in June 2011. We occupy approximately 21,000 square feet at a facility in Leatherhead, the
United Kingdom under a lease which expires in March 2014. The Leatherhead facility is used
primarily for administrative,
96
marketing, product development, support, and sales groups for our Workforce Optimization and Video
Intelligence operations.
Additionally, we occupy leased facilities outside of the United States in Weybridge, the United
Kingdom; Sao Paulo, Brazil; Mexico City, Mexico; Hong Kong, China; Tokyo, Japan; Sydney, Australia;
Taguig, 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
Workforce Optimization, Communications Intelligence, and Video Intelligence operations.
In addition to the leases noted above, we also lease executive 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 the audited consolidated financial
statements included elsewhere in this prospectus.
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. We owned
an additional 12.7 acres of adjacent land which we sold on October 10, 2006 to a third party.
Additionally, on October 10, 2006, we entered into a 10-year lease with the same third party for
6.5 acres of the 12.3 acres we own, all of which was undeveloped and not being used by us. The
remaining 5.8 acres, including the office space, are subject to a mortgage under the term loan and
credit agreement entered into by us in connection with the acquisition of Witness.
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, though 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.
Legal Proceedings
Comverse Investigation-Related Matters
As
previously disclosed by Comverse, Comverse and certain of its former
directors and officers and a current
director were named in the following litigation relating to the matters involved in the Comverse
special committee investigation: (a) a consolidated shareholder class action before the U.S.
District Court for the Eastern District of New York, In re Comverse Technology, Inc. Securities
Litigation, No. 06-CV-1825; (b) a consolidated shareholder derivative action before the U.S.
District Court for the Eastern District of New York, In re Comverse Technology, Inc. Derivative
Litigation. No. 06-CV-1849; and (c) a consolidated shareholder derivative action before the Supreme
Court of the State of New York, In re Comverse Technology, Inc. Derivative Litigation, No.
601272/2006.
Verint was not named as a defendant in any of these suits. Igal Nissim, our former Chief Financial
Officer, was named as a defendant in the federal and state shareholder derivative actions in his
capacity as the former Chief Financial Officer of Comverse, and Dan Bodner, our Chief Executive
Officer, was named as a defendant in the federal and state shareholder derivative actions in his
capacity as the Chief Executive Officer of Verint (i.e., as the president of a significant
subsidiary of Comverse). Mr. Nissim and Mr. Bodner were not named in the shareholder class action
suit.
The consolidated complaints in both the state and federal shareholder derivative actions alleged
that the defendants breached certain duties to Comverse and that certain of its former
directors and officers and a current
director were unjustly enriched (and, in the federal action, violated the
federal securities laws) by, among other things: (a) allowing and participating in a scheme to
backdate the grant dates of employee stock options to improperly benefit Comverses executives and
certain directors; (b) allowing insiders, including certain of the defendants, to personally profit
by trading Comverses stock while in possession of material inside information; (c) failing to
properly oversee or implement procedures to detect and prevent such improper practices; (d) causing
Comverse to issue materially
97
false and misleading proxy statements, as well as causing Comverse to file other false and
misleading documents with the SEC; and (e) exposing Comverse to civil liability. The complaints
sought unspecified damages and various forms of equitable relief.
On December 16, 2009, Comverse entered into agreements, which were subsequently amended, to settle
the consolidated shareholder class action and the consolidated shareholder derivative actions.
Neither we nor Mr. Nissim or Mr. Bodner is responsible for making any payments or relinquishing any
equity holdings under the terms of the settlement.
On June 23, 2010, the U.S. District Court for the Eastern District of New York issued orders in the
shareholder class action and federal shareholder derivative action granting final approval of the
settlement agreements in the respective actions. The Court later amended its order in the federal
derivative action on July 1, 2010 to incorporate ministerial changes. The respective orders
dismissed both actions with prejudice. The parties to the state shareholder derivative action
entered a stipulation of discontinuance in July 2010, referencing the dismissal of the federal
shareholder class action and derivative actions. The Supreme Court of
the State of New York then entered the stipulation as an order,
electronically docketed on September 23, 2010, thereby
discontinuing the state shareholder derivative action with prejudice.
Comverse was also the subject of an SEC investigation and resulting civil action regarding the
improper backdating of stock options and other accounting practices, including the improper
establishment, maintenance, and release of reserves, the reclassification of certain expenses, and
the intentional inaccurate presentation of backlog. On June 18, 2009, Comverse announced that it
had reached a settlement with the SEC on these matters without admitting or denying the
allegations of the SEC complaint. A final judgment and court order entered into in connection with
such settlement required Comverse to become current in its periodic reporting obligations under the
federal securities laws by February 8, 2010. Comverse intended to file certain annual and
quarterly reports by February 8, 2010 to comply with such final judgment and court order.
As a result of Comverses failure to file certain annual and quarterly reports with the SEC, on
March 23, 2010, the SEC issued an Order Instituting Administrative Proceedings pursuant to Section
12(j) of the Exchange Act to suspend or revoke the registration of Comverses common stock. On July
22, 2010, the Administrative Law Judge in the Section 12(j) administrative proceeding issued an
initial decision to revoke the registration of Comverses common stock. The initial decision does
not become effective until the SEC issues a final order, which would indicate the date on which
sanctions, if any, would take effect. On August 17, 2010, the SEC issued an order granting a
petition by Comverse for review of the Administrative Law Judges initial decision to revoke the
registration of Comverses common stock and setting forth a briefing schedule under which Comverse
is required to file a brief in support of its petition for review by September 16, 2010. A brief
in opposition is required to be filed by October 18, 2010 and any reply brief is required to be
filed by November 1, 2010. Although Comverse has been granted review of the initial decision by
the SEC, it cannot at this time predict the outcome of such review or any appeal therefrom.
Verint Investigation-Related Matters
On July 20, 2006, we announced that, in connection with the SEC investigation into Comverses past
stock option grants that was in process at that time, we had received a letter requesting that we
voluntarily provide to the SEC certain documents and information related to our own stock option
grants and practices. We voluntarily responded to this request. On April 9, 2008, as we
previously reported, we received a Wells Notice from the staff of the SEC arising from the
staffs investigation of our past stock option grant practices and certain unrelated accounting
matters. These accounting matters were also the subject of our internal investigation. On March
3, 2010, the SEC filed a settled enforcement action against us in the United States District Court
for the Eastern District of New York relating to certain of our accounting reserve practices.
Without admitting or denying the allegations in the SECs Complaint, we consented to the issuance
of a Final Judgment permanently enjoining us from violating Section 17(a) of the Securities Act,
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 13a-1 and 13a-13
thereunder. The settled SEC action did not require us to pay any monetary penalty and sought no
relief beyond the entry of a permanent injunction. The SECs related press release noted that, in
accepting the settlement offer, the SEC considered our remediation and cooperation in the SECs
investigation. The settlement was approved by the United States District Court for the Eastern
District of New York on March 9, 2010.
We previously reported that on March 3, 2010, the SEC issued an Order Instituting Proceedings
pursuant to Section 12(j) of the Exchange Act suspend or revoke the registration of our common
stock because of our previous failure to file certain annual and quarterly reports. On May 28,
2010, we entered into an agreement in principle with the SECs Division of Enforcement regarding
the terms of a settlement of the Section 12(j) proceeding, which
98
agreement was subject to approval by the SEC. On June 18, 2010, we satisfied the requirements of
such agreement and subsequently submitted an Offer of Settlement to the SEC. On July 28, 2010, the
SEC issued an Order accepting our Offer of Settlement and dismissing the Section 12(j) proceeding.
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. The
Labor Motion and the Labor Class Action both claim that we are responsible for the alleged damages
due to our status as employer and that the blocking of Verint options from being exercised
constitutes default of the employment agreements between the members of the class and VSL. 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. A preliminary session was held on July 12, 2009. Ms. Deutsch filed her response to our
response on November 10, 2009. On February 8, 2010, the Tel Aviv Labor Court dismissed the case
for lack of material jurisdiction and ruled that it will be transferred to the District Court in
Tel Aviv.
Witness Investigation-Related Matters
At the time of our May 25, 2007 acquisition of Witness, Witness was subject to a number of
proceedings relating to a stock options backdating internal investigation undertaken and publicly
disclosed by Witness prior to the acquisition. The following is a summary of those proceedings and
developments since the date of the acquisition.
On August 29, 2006, A. Edward Miller filed a shareholder derivative lawsuit in the U.S. District
Court for the Northern District of Georgia, Atlanta Division, naming Witness as a nominal defendant
and naming all of Witness directors and a number of its officers as defendants (Miller v. Gould,
et al., Civil Action No. 1:06-CV-2039 (N.D. Ga.)). The complaint alleged purported violations of
federal and state law, and violations of certain anti-fraud provisions of the federal securities
laws (including Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5 and 14a-9 thereunder)
in connection with certain stock option grants made by Witness. The complaint sought monetary
damages in unspecified amounts, disgorgement of profits, an accounting, rescission of stock option
grants, imposition of a constructive trust over the defendants stock options and proceeds derived
therefrom, punitive damages, reimbursement of attorneys fees and other costs and expenses, an
order directing Witness to adopt or put to a stockholder vote various proposals relating to
corporate governance, and other relief as determined by the court. On March 11, 2009, the Court
granted defendants motion to dismiss the complaint in its entirety, with prejudice. Plaintiff did
not file an appeal and the time to do so under the federal rules has elapsed.
On October 27, 2006, Witness received notice from the SEC of an informal non-public inquiry
relating to the stock option grant practices of Witness from February 1, 2000 through the date of
the notice. On July 12, 2007, we received a copy of the Formal Order of Investigation from the SEC
relating to substantially the same matter as the informal inquiry. We and Witness have fully
cooperated, and intend to continue to fully cooperate, if called upon to do so, with the SEC
regarding this matter. In addition, the U.S. Attorneys Office for the Northern District of
Georgia was also given access to the documents and information provided by Witness to the SEC. Our
last communication with the SEC with respect to the matter was in June 2008.
Verint General Litigation Matters
On October 18, 2005, the Administrative Court of Appeals of Athens entered a final, non-appealable
verdict against our wholly owned subsidiary, Verint Systems UK Ltd. (formerly Comverse Infosys UK
Limited) (Verint UK), in a dispute between Verint UK and its former customer, the Greek Civil
Aviation Authority, which began in June 1999. The Greek Civil Aviation Authority had claimed that
the equipment provided to it by Verint UK did not operate properly. The verdict did not contain a
calculation of the monetary judgment, however, we estimated the amount at approximately $2.6
million based on an earlier decision in the case, exclusive of any interest which may be assessed
99
on the judgment based on the passage of time. The Greek government must seek enforcement of this
judgment in the United Kingdom. To date this judgment has not been enforced and we have made no
payments.
From time to time we or our subsidiaries may be involved in other legal proceedings and/or
litigation arising in the ordinary course of our business that might impact our financial position,
our results of operations, or our cash flows.
100
MANAGEMENT
Current Executive Officers and Directors
The following lists our current executive officers and directors as of the date of this prospectus.
Vacancies on the board of directors that have arisen due to the departures noted below have been
filled by the vote of the board of directors, in accordance with our Amended and Restated By-laws
and Amended and Restated Certificate of Incorporation. As of the date of this prospectus, two
vacancies remain on the board of directors.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Dan Bodner
|
|
|
52 |
|
|
President, Chief Executive Officer, Corporate
Officer, and Director |
|
|
|
|
|
|
|
Peter D. Fante
|
|
|
42 |
|
|
Chief Legal Officer, Chief Compliance
Officer, Secretary, and Corporate Officer |
|
|
|
|
|
|
|
Elan Moriah
|
|
|
48 |
|
|
President, Verint Witness Actionable
Solutions and Verint Video Intelligence
Solutions and Corporate Officer |
|
|
|
|
|
|
|
David Parcell
|
|
|
57 |
|
|
Managing Director, EMEA and Corporate Officer |
|
|
|
|
|
|
|
Douglas E. Robinson
|
|
|
54 |
|
|
Chief Financial Officer and Corporate Officer |
|
|
|
|
|
|
|
Meir Sperling
|
|
|
61 |
|
|
President, Verint Communications Intelligence
and Investigative Solutions and Corporate
Officer |
|
|
|
|
|
|
|
Paul D. Baker
|
|
|
52 |
|
|
Director |
|
|
|
|
|
|
|
John Bunyan
|
|
|
58 |
|
|
Director |
|
|
|
|
|
|
|
Andre Dahan
|
|
|
61 |
|
|
Chairman of the Board of Directors, Director |
|
|
|
|
|
|
|
Victor A. DeMarines
|
|
|
73 |
|
|
Director |
|
|
|
|
|
|
|
Kenneth A. Minihan
|
|
|
66 |
|
|
Director |
|
|
|
|
|
|
|
Larry Myers
|
|
|
72 |
|
|
Director |
|
|
|
|
|
|
|
Howard Safir
|
|
|
68 |
|
|
Director |
|
|
|
|
|
|
|
Shefali Shah
|
|
|
39 |
|
|
Director |
|
|
|
|
|
|
|
Stephen Swad
|
|
|
49 |
|
|
Director |
|
|
|
|
|
|
|
Lauren Wright
|
|
|
57 |
|
|
Director |
Background of Current Directors
Dan Bodner serves as our President, Chief Executive Officer, a director, and Corporate Officer.
Mr. Bodner has served as our President and/or Chief Executive Officer and as a director since
February 1994. From 1991 to 1998, Mr. Bodner also served as President and Chief Executive Officer
of Comverse Government Systems Corp., a former affiliate of ours when we were a subsidiary of
Comverse. Prior to such positions, from 1987 to 1991, Mr. Bodner held various management positions
at Comverse. The board of directors has concluded that Mr. Bodners position
101
as our Chief Executive Officer, intimate knowledge of our operations, assets, customers, growth
strategies, competitors, and industry make-up, vast expertise in software development,
intelligence, and security, and management experience give him the skills and qualifications to
serve as a director.
Paul D. Baker has served as one of our directors since May 2002. Mr. Baker also serves as Vice
President, Corporate Marketing and Corporate Communications of Comverse, a position he has held
since joining Comverse in April 1991. Mr. Baker is also a member of the board of directors of
Ulticom, Inc., a Comverse majority-owned publicly-traded company and a provider of network
signaling and information delivery solutions. Mr. Baker was nominated by Comverse to serve as a
member of our board of directors. The board of directors has concluded that Mr. Bakers management
and business experience within the technology and software industries and experience in serving as
a director of another public company qualify him to serve as a director.
John Bunyan has served as one of our directors since March 2008. Mr. Bunyan also serves as Chief
Marketing Officer of Comverse, a position he has held since October 2007. Prior to joining
Comverse, Mr. Bunyan was President of Intelliventure LLC, a marketing and strategy firm, of which
he remains a member, although the company is currently inactive. He also served as Senior Vice
President of Mobile Multimedia Services at AT&T Wireless from November 2001 to April 2005 and was
responsible for the consumer wireless data business. Before then, Mr. Bunyan served as Senior Vice
President of Marketing at Dun & Bradstreet, and prior to that, as Executive Vice President of
Marketing at Reuters Americas. Mr. Bunyan is also a member of the board of directors of Ulticom,
Inc., a Comverse majority-owned publicly-traded company and a provider of network signaling and
information delivery solutions, and one other wholly owned subsidiary of Comverse. Mr. Bunyan was
nominated by Comverse to serve as a member of our board of directors. The board of directors has
concluded that Mr. Bunyans extensive management and business experience, in particular his
expertise in marketing in the technology and software industries, and experience in serving as a
director of another public company, qualify him to serve as a director.
Andre Dahan has served as one of our directors since July 2007 and Chairman of the board of
directors since March 2008. Mr. Dahan has also served as Chief Executive Officer and President and
a director of Comverse since April 2007. Prior to joining Comverse, Mr. Dahan was President and
Chief Executive Officer of Mobile Multimedia Services at AT&T Wireless from July 2001 to December
2004. Previously, he served as President of North America and Global Accounts and in several other
global executive positions for Dun & Bradstreet, a global business information and business tools
provider. Before then, Mr. Dahan served in a variety of senior executive positions with Teradata
Corp., Sequent Computer Systems, and S.E. Qual, an information technology consulting firm. Mr.
Dahan also served on the board of directors of (i) NeuStar, Inc., a public company that provides
clearinghouse services to the communications and Internet industries, from 2006 until 2007 and (ii)
Palmsource, Inc., a public company that provides advanced software technologies to the mobile and
beyond-PC markets from 2005 until 2006. He currently serves as a member of the board of directors
of Ulticom, Inc., a Comverse majority-owned publicly-traded company and a provider of network
signaling and information delivery solutions, Starhome, B.V., also a Comverse majority-owned
company and a provider of mobile roaming technology and services, as well as numerous other
directly and indirectly wholly owned subsidiaries of Comverse. Mr. Dahan was nominated by Comverse
to serve as a member of our board of directors. The board of directors has concluded that
Mr. Dahans business expertise, industry experience, leadership skills, and experience in serving
as a director of other public companies qualify him to serve as Chairman of the Board.
Victor A. DeMarines has served as one of our directors since May 2002. In May, 2000, Mr. DeMarines
retired from his position as President and Chief Executive Officer of MITRE Corporation, a
nonprofit organization, which provides security solutions for the computer systems of the
Department of Defense, the Federal Aviation Administration, the Department of Homeland Security,
the Internal Revenue Service, and several organizations in the U.S. intelligence community. Mr.
DeMarines served in this capacity with MITRE Corporation beginning in 1995, and since retiring
serves as a director. Mr. DeMarines currently also serves as a director of NetScout Systems, Inc.,
a provider of network performance solutions. He serves as a member of the Strategic Command
Advisory Group. Mr. DeMarines served as a Presidential Executive with the Department of
Transportation and is a Lieutenant of the U.S. Air Force. The board of directors has concluded
that Mr. DeMarines financial and business expertise, including a diversified background of
managing a security-based company and serving as a director of a public technology company, give
him the qualifications and skills to serve as a director.
102
Kenneth A. Minihan has served as one of our directors since May 2002. Lieutenant General Minihan
was a career U.S. Air Force officer who attained the rank of Lieutenant General and retired from
the Air Force on June 1, 1999. Since February 2002, he has served as a Managing Director of
Paladin Capital Group, a private equity firm. Lieutenant General Minihan also served as the 14th
Director of the National Security Agency/Central Security Services and was the senior uniformed
intelligence officer in the Department of Defense. Prior to this, Lieutenant General Minihan
served as the Director of the Defense Intelligence Agency. Lieutenant General Minihan served on
the board of directors of MTC Technologies, Inc., a telecommunications company from 2003 until
2008. Lieutenant General Minihan currently sits on the board of directors of (a) BAE Systems Inc.,
a defense systems company, (b) Lucent Government Solutions, an information technology company, (c)
Lexis Nexis Special Services, Inc., a leading provider of information and technology solutions to
government, (d) ManTech International Corporation, a business software and services company, and
(e) American Government Solutions, a space services company. Lieutenant General Minihan was
awarded the National Security Medal, the Defense Distinguished Service Medal, the Bronze Star, and
the National Intelligence Distinguished Service Medal, among other awards and decorations. The
board of directors has concluded that Lieutenant General Minihans extensive service in the U.S.
military as well as within the U.S. intelligence community provides him with enhanced understanding
and guidance with respect to our security business. In addition to his extensive and decorated
military and intelligence service, the board of directors has further determined that Lieutenant
General Minihans leadership skills, financial and business expertise, and networks, including a
diversified background of serving as a director of public technology, software, defense, and
security-based companies, give him the qualifications and skills to serve as a director.
Larry Myers has served as one of our directors since August 2003. Since November 1999, Mr. Myers
has been retired from his position of Senior Vice President, Chief Financial Officer, and Treasurer
of MITRE Corporation, a nonprofit organization that provides security solutions for the computer
systems of the Department of Defense, the Federal Aviation Administration, the Department of
Homeland Security, the Internal Revenue Service, and several organizations in the U.S. intelligence
community. Mr. Myers served in this capacity with MITRE Corporation beginning in 1991. Prior to
that, Mr. Myers served as Controller for Fairchild Industries, Inc. Mr. Myers received his MBA
from Ohio State University. The board of directors has concluded that Mr. Myers financial and
business expertise, including a strong background of managing a software and security-based company
and his experience serving as a Chief Financial Officer give him the qualifications and skills to
serve as a director.
Howard Safir has served as one of our directors since May 2002. Since December 2001, Mr. Safir has
been the Chairman and Chief Executive Officer of SafirRosetti, a provider of security and
investigation services and a wholly owned subsidiary of Global Options Group Inc. Mr. Safir has
served as the Vice Chairman of Global Options Group Inc. since its May 2005 acquisition of
SafirRosetti. He has served as Chief Executive Officer of Bode Technology, also a wholly owned
subsidiary of Global Options Group Inc., since February 2007. Mr. Safir also currently serves as a
director of (a) Implant Sciences Corporation, an explosives device detection company and (b)
LexisNexis Special Services, Inc., a leading provider of information and technology solutions to
government. During his career, Mr. Safir served as the 39th Police Commissioner of the City of New
York, as Associate Director for Operations, U.S. Marshals Service, and as Assistant Director of the
Drug Enforcement Administration. Mr. Safir was awarded the Ellis Island Medal of Honor among other
citations and awards. The board of directors has concluded that Mr. Safirs experience serving as
the Police Commissioner of the City of New York and other U.S. law enforcement agencies is a key
asset in terms of providing valuable guidance with respect to our security business. In addition
to his law enforcement service, the board of directors has determined that Mr. Safirs financial
and business expertise and networks, including a diversified background of managing and serving as
a director of public technology and security-based companies, strengthen the board of directors
collective qualifications and give him the qualifications and skills to serve as a director.
Shefali Shah has served as one of our directors since September 2007. Since March 2010, Ms. Shah
has served as Senior Vice President, General Counsel and Corporate Secretary of Comverse. From
March 2009 to March 2010, Ms. Shah served as the Acting General Counsel and Corporate Secretary of
Comverse and from June 2006 through March 2009, Ms. Shah served as Associate General Counsel and
Assistant Secretary of Comverse. Prior to joining Comverse, Ms. Shah was an attorney in the
corporate practice group of Weil, Gotshal & Manges LLP from September 2002 to June 2006. Ms. Shah
also serves as a member of the board of directors of Ulticom, Inc., a Comverse majority-owned
publicly-traded company and a provider of network signaling and information delivery solutions, and
Starhome, B.V., a Comverse majority-owned subsidiary and a provider of mobile roaming technology
and services as well as numerous other wholly owned subsidiaries of Comverse. Ms. Shah was
nominated by
103
Comverse to serve as a member of our board of directors. The board of directors has concluded that
Ms. Shahs legal expertise, including her experience representing technology companies while in
private practice, qualify her to serve as a director.
Stephen Swad has served as one of our directors since June 2009. Mr. Swad has served as Executive
Vice President and Chief Financial Officer of Comverse since May 2009. Prior to joining Comverse,
Mr. Swad served as Chief Financial Officer at Federal National Mortgage Association (Fannie Mae)
from May 2007 to August 2008 and, prior to that, at AOL, LLC (formerly, America Online, Inc.) from
February 2003 to February 2007. He also served as Executive Vice President of Finance and
Administration at Turner Entertainment Group, and Vice President, Financial Planning and Analysis
at Time Warner. Mr. Swad, a Certified Public Accountant and former partner of KPMG LLP, also
served as Deputy Chief Accountant at the SEC. Mr. Swad was nominated by Comverse to serve as a
member of our board of directors. The board of directors has concluded that Mr. Swads expertise as
a Certified Public Accountant, experience serving as a Chief Financial Officer of another public
company, management background, and particular knowledge and experience in accounting, finance, and
capital structure and board practices of other corporations strengthen the board of directors
collective qualifications, skills, and experience and qualify him to serve as a director.
Lauren Wright has served as one of our directors since September 2007. After serving as Special
Advisor to the board of directors at Comverse from January 2007 to May 2007, Ms. Wright formally
joined Comverse in May 2007 and has served since then as Senior Vice President Global Business
Operations of Comverse. Prior to joining Comverse, Ms. Wright acted as a consultant and held a
variety of executive positions including President and CEO of Pryor Resources, Inc., a
venture-backed international seminar company, which she managed through bankruptcy reorganization,
and President of Sprint International, a global telecommunications provider where she worked from
1988 to 2000. Ms. Wright was nominated by Comverse to serve as a member of our board of directors.
The board of directors has concluded that Ms. Wrights broad business background and management
experience qualify her to serve as a director.
Background of Current Executive Officers (Not Also a Director)
Peter D. Fante serves as our Chief Legal Officer, Chief Compliance Officer, Secretary, and
Corporate Officer. Mr. Fante was appointed as General Counsel in September 2002, Chief Compliance
Officer in September 2008, and Secretary in September 2005. Prior to joining us, Mr. Fante was an
associate at various global law firms including Shearman &
Sterling LLP, Morrison & Foerster LLP, and
Cadwalader, Wickersham & Taft LLP.
Elan Moriah serves as President, Verint Witness Actionable Solutions and Verint Video Intelligence
Solutions global business lines and Corporate Officer. Mr. Moriah has served in such capacity
since 2008, having previously served as our President, Americas from 2004 to 2008 and as President
of our Contact Center division from 2000 to 2004. Prior to joining us, Mr. Moriah held various
management positions with Motorola Inc., where he served as Business Development Manager for
Europe, Middle East, and Africa, Worldwide Network Services Division and as Vice President of
Marketing and Sales of a paging subsidiary. Before then, Mr. Moriah worked for Comet Software
Inc., as Vice President of Marketing and Sales and as Operations Manager.
David Parcell serves as our Managing Director, EMEA and as Corporate Officer. He has served in
such capacity since May 2001. Prior to joining us, Mr. Parcell served as Managing Director of EMEA
and Corporate Officer for Aspect Software, Inc. from 1997 to 2001. Before then, Mr. Parcell held
key management positions at Co-Cam and Datapoint, along with senior sales positions with Unisys and
Olivetti.
Douglas E. Robinson has served as our Chief Financial Officer and Corporate Officer since December
2006 (following completion of a transition from the previous Chief Financial Officer which began in
August 2006). Prior to joining us, Mr. Robinson spent 17 years at CA, Inc. (formerly Computer
Associates), one of the worlds largest information technology management software companies, where
he held the positions of Senior Vice President, Finance, Americas Division, Corporate Controller,
Interim Chief Financial Officer, CFO of CAs iCan SP subsidiary, and Senior Vice President Investor
Relations, among other positions.
Meir Sperling serves as our President, Verint Communications Intelligence and Investigative
Solutions and Corporate Officer. Mr. Sperling has served in such capacity since 2000. He also
served as President, APAC from
104
2006 to 2007. Before joining us, Mr. Sperling served as Corporate Vice President of ECI Telecom
Ltd. (ECI), as General Manager of its Business Systems Division, and Director of several ECI
subsidiaries. Before then, Mr. Sperling held various management positions with Tadiran
Telecommunications Communications Ltd. as well as with Tadiran Ltd and TEI, a U.S. subsidiary.
Former Directors
John Spirtos, a former employee of Comverse, served on our board of directors from November 2008
until tendering his resignation in June 2009.
The Board of Directors and Board Committees
The Board of Directors; Director Independence; Controlled Company Exemption
The board of directors has determined that Messrs. DeMarines, Minihan, Myers, and Safir are
independent for purposes of NASDAQs governance listing standards (specifically, NASDAQ
Listing Rule 5605(a)(2)), and the requirements of both the SEC and NASDAQ that all members of the
audit committee satisfy a special independence definition. The full board of directors has
determined that Messrs. DeMarines, Minihan, Myers, and Safir not only are independent under the
objective definitional criteria established by the SEC and NASDAQ, but also qualify as
independent under the separate, subjective determination required by NASDAQ that, as to each of
these directors, no relationships exist which, in the opinion of the board of directors, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a
director. Both our audit committee and our stock option committee are composed solely of these
four independent directors. The board of directors also has determined that Mr. Myers is an audit
committee financial expert, as that term is defined by the SEC in Item 407(d) of Regulation S-K.
Stockholders should understand that this designation is an SEC disclosure requirement relating to
Mr. Myers experience and understanding of certain accounting and auditing matters, which the SEC
has stated does not impose on the director so designated any additional duty, obligation, or
liability than otherwise is imposed generally by virtue of serving on the audit committee and/or
the board of directors.
The remaining seven members of the board of directors do not satisfy these independence
definitions because they are either executive officers of ours or have been chosen by and/or are
affiliated with our controlling stockholder, Comverse. Because we are eligible to be a controlled
company (within the meaning of relevant NASDAQ Listing Rule 5615(c)), we are exempt from certain
NASDAQ Listing Rules that would otherwise require us to have a majority independent board or fully
independent standing nominating and compensation committees. We determined that we are such a
controlled company because Comverse holds more than 50% of the voting power for the election of
our directors. If Comverses ownership were to fall below 50%, however, we would cease to be
permitted to rely on the controlled company exception and would be required, after any applicable
grace periods, to have a majority independent board and fully independent standing nominating and
compensation committees. The board of directors has determined that a board consisting of between
seven and thirteen members is appropriate at the current time and the number is currently set at
thirteen members, and will evaluate such determination from time to time. As of the date of this
prospectus, the board of directors consists of eleven directors (with two vacancies) and has four
standing committees: the corporate governance and nominating committee, the audit committee, the
compensation committee, and the stock option committee.
Board Leadership Structure
The board of directors believes that a person who holds the position of our Chief Executive Officer
should also serve as one of our directors. We currently separate the roles of Chief Executive
Officer and Chairman of the Board which reflects our belief at this time that our stockholders
interests are best served by the day-to-day management direction of the Company under Mr. Bodner,
as President and Chief Executive Officer, and the leadership and energy brought to the Board of
Directors by our Chairman of the Board, Mr. Dahan. Our Chief Executive Officer is most familiar
with our business and industry, and most capable of effectively identifying strategic priorities
and leading the discussion and execution of strategy, while our Chairman of the Board provides
guidance to the Chief Executive Officer, presides over meetings of the full board of directors, and
brings a depth of varied business and management experience to our organization.
105
The Corporate Governance and Nominating Committee
Members: Messrs. Dahan, DeMarines, and Safir, and Ms. Wright
The corporate governance and nominating committee of the board of directors makes recommendations
on director nominees to the board of directors and will consider director candidates suggested by
existing directors, senior management, and stockholders if properly submitted in accordance with
the applicable procedures set forth in our by-laws. These procedures have not changed since the
filing of our last annual proxy statement in 2005. Pursuant to our Corporate Governance Guidelines
contained within our Corporate Governance and Nominating Committee Charter, the corporate
governance and nominating committee of the board of directors will seek members from diverse
professional and personal backgrounds who combine a broad spectrum of experience and expertise with
the highest ethical character and share the values of Verint. The assessment of candidates for the
board includes an individuals independence, as well as consideration of diversity, age, high
personal and professional ethical standards, sound business judgment, personal and professional
accomplishment, background and skills in the context of the needs of the board of directors. The
corporate governance and nominating committee and the board of directors are also heavily
influenced in selecting director candidates and nominees by our majority stockholder, Comverse.
Comverse has the right to designate all members for nomination to the board of directors, other
than those required by applicable law and regulation, including NASDAQs governance listing
standards and the requirements of the SEC, to be independent, and may fill any vacancy resulting
from a Comverse designee ceasing to serve as a director. As the sole holder of our preferred
stock, Comverse also has the right to designate up to two directors to the board of directors if we
fail to redeem the preferred stock when otherwise required to do so upon the happening of certain
corporate events. See Description of Capital Stock for further discussion of rights associated
with our preferred stock. Comverse designees currently serving on our board of directors are
Messrs. Baker, Bunyan, Dahan and Swad, and Mses. Shah and Wright. In connection with the nomination
of directors for election at the annual meeting of stockholders, the corporate governance and
nominating committee will assess the effectiveness of its selection criteria set forth in our
Corporate Governance Guidelines annually. While the composition of the current board of directors
reflects a majority of Comverse designees, it also reflects diversity in business and professional
experience, skills, age and gender.
The corporate governance and nominating committees responsibilities are set forth in its charter
and include, among other things (a) responsibility for establishing our corporate governance
guidelines, (b) overseeing the board of directors operations and effectiveness, and (c)
identifying, screening, and recommending qualified candidates to serve on the board of directors.
This committee was formed on September 11, 2007. Prior to this
time, the nominating and corporate governance functions were
performed by the full board of directors.
The Audit Committee
Members: Messrs. DeMarines, Minihan, Myers, and Safir
We have a separately designated standing audit committee established as contemplated by Section 10A
of the Exchange Act. The board of directors has determined that each member of the audit committee
is independent and financially literate as required by the additional independence requirements
for members of the audit committee pursuant to Rule 10A-3 under
the Exchange Act and by NASDAQ Listing Rule 5605(c)(2). The audit
committees responsibilities are set forth in its charter and include, among other things, (a)
assisting the board of directors in its oversight of our compliance with all applicable laws and
regulations, which includes oversight of the quality and integrity of our financial reporting,
internal controls, and audit functions as well as general risk oversight, and (b) direct and sole
responsibility for the appointment, retention, compensation, and monitoring of the performance of
our independent registered public accounting firm.
The Compensation Committee
Members: Messrs. Dahan, DeMarines, and Minihan and Ms. Shah
The compensation committees responsibilities are set forth in its charter and include, among other
things, (a) approving compensation arrangements for our executive officers and (b) making
recommendations to the stock option committee and the board of directors regarding awards under our
equity compensation plans.
106
The Stock Option Committee
Members: Messrs. DeMarines, Minihan, Myers, and Safir
The stock option committee is responsible for administering our stock incentive compensation plans
and approving all grants of stock options and other forms of equity awards, except that equity
grants to non-employee directors are approved or ratified by the full board of directors.
Risk Oversight
The board of directors, as a whole, and the audit committee of the board of directors, in
particular, have an active role in overseeing the management of our risks. The board of directors
believes an effective risk management system will (1) timely identify the material risks that we
face, (2) communicate necessary information with respect to material risks to senior executives
and, as appropriate, to the board of directors or relevant committee, (3) implement appropriate and
responsive risk management strategies consistent with our risk profile, and (4) integrate risk
management into our decision-making. The board of directors and audit committee of the board of
directors regularly receive information regarding our credit, liquidity and operations from senior
management. During its review of such information, the board of directors discusses, reviews and
analyzes risks associated with each area, as well as risks associated with potential new business
ventures. The compensation committee of the board of directors discusses, reviews and analyzes
risks associated with our executive compensation plans and arrangements. See Compensation
Programs and Risk under Executive and Director Compensation for more information. The audit
committee of the board of directors oversees management of financial and compliance risks and
potential conflicts of interest, and the entire board of directors is regularly informed through
audit committee reports about such risks.
107
EXECUTIVE AND DIRECTOR COMPENSATION
Non-Employee Director Compensation for the Year Ended January 31, 2010
The following table summarizes the cash and equity compensation earned by each member of the board
of directors during the year ended January 31, 2010 for service as a director.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
Stock |
|
Option |
|
|
|
|
|
|
|
|
Paid in Cash |
|
Awards |
|
Awards |
|
Total |
Name |
|
|
|
|
|
($)(1) |
|
($)(2) |
|
($)(2) |
|
($) |
|
Baker, Paul |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bodner, Dan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bunyan, John |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dahan, Andre |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DeMarines, Victor |
|
|
|
|
|
|
144,750 |
|
|
|
16,950 |
(3) |
|
|
|
|
|
|
161,700 |
|
Minihan, Kenneth |
|
|
|
|
|
|
132,750 |
|
|
|
16,950 |
(3) |
|
|
|
|
|
|
149,700 |
|
Myers, Larry |
|
|
|
|
|
|
196,500 |
|
|
|
16,950 |
(3) |
|
|
|
|
|
|
213,450 |
|
Safir, Howard |
|
|
|
|
|
|
147,000 |
|
|
|
16,950 |
(3) |
|
|
|
|
|
|
163,950 |
|
Shah, Shefali |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spirtos, John |
|
|
(4 |
),(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swad, Stephen |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wright, Lauren |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amount earned for board of directors service during the year indicated
regardless of the year of payment. |
|
(2) |
|
Reflects the aggregate grant date fair value computed in accordance with applicable
accounting standards. |
|
(3) |
|
On March 19, 2009, each of Messrs. DeMarines, Minihan, Myers, and Safir received an
award of 5,000 shares of restricted stock in respect of board of directors service for the
year ended January 31, 2010, vesting May 16, 2010. These were the only equity awards made
to our directors (for service as directors) in the year ended January 31, 2010. The fair
value on the date of board of directors approval of each of these awards was $16,950 based
on a closing price of our common stock of $3.39 on March 19, 2009. |
|
(4) |
|
Comverse-designated director. |
|
(5) |
|
Resigned from the board of directors June 12, 2009. |
108
The following table summarizes the aggregate number of unvested stock options and unvested shares
of restricted stock held by each member of our board of directors (granted for service as a
director) as of the end of the year ended January 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Unvested Options |
|
Unvested Stock Awards |
Name |
|
(#) |
|
(#) |
|
Baker, Paul |
|
|
|
|
|
|
|
|
Bodner, Dan |
|
|
|
|
|
|
|
|
Bunyan, John |
|
|
|
|
|
|
|
|
Dahan, Andre |
|
|
|
|
|
|
|
|
DeMarines, Victor |
|
|
|
|
|
|
5,000 |
|
Minihan, Kenneth |
|
|
|
|
|
|
5,000 |
|
Myers, Larry |
|
|
|
|
|
|
5,000 |
|
Safir, Howard |
|
|
|
|
|
|
5,000 |
|
Shah, Shefali |
|
|
|
|
|
|
|
|
Spirtos, John |
|
|
|
|
|
|
|
|
Swad, Stephen |
|
|
|
|
|
|
|
|
Wright, Lauren |
|
|
|
|
|
|
|
|
Non-Independent Directors
Our non-independent directors, including Comverse designees and employee directors, do not
currently receive any cash compensation for serving on the board of directors or any committee of
the board of directors. These directors may receive grants of stock options or restricted stock
for their service on the board of directors, in the discretion of the board of directors. None of
the Comverse designated directors received an equity grant in the year ended January 31, 2010. Mr.
Bodner has not been separately compensated for his service on the board of directors.
On September 7, 2010, our board of directors adopted stock ownership guidelines for our
executive officers and non-employee directors who are compensated by us for their
services. See Compensation Discussion and Analysis Stock Ownership
Guidelines.
Our insider trading policy
prohibits all personnel (including directors) from short selling in our securities, from short-term
trades in our securities (open market purchase and sale within three months), and from trading
options in our securities.
All directors (whether or not independent) are eligible to be reimbursed for their out-of-pocket
expenses in attending meetings of the board of directors or board of directors committees.
Independent Directors
The board of directors is responsible for establishing independent director compensation
arrangements based on recommendations from the compensation committee. These compensation
arrangements are designed to provide competitive compensation necessary to attract and retain high
quality independent directors. The compensation committee annually reviews the independent
director compensation arrangements based on market studies or trends and from time to time engages
an independent compensation consultant to prepare a customized peer group analysis. In recent
years, the compensation committee and the board of directors have also placed special focus on the
work load associated with the completion of our internal investigation, restatement, audits, and
outstanding SEC filings in establishing independent director compensation arrangements.
Our independent directors currently receive both an annual cash retainer (paid quarterly) as well
as per-meeting fees for attendance of meetings of the board of directors and board of directors
committees. Independent directors also receive an annual equity grant. As a result of the
increased work load and time commitment associated with serving as a director during our extended
filing delay period, during this period, we also introduced an annual fee for an independent
directors service as the board of directors or a committee chair, a special quarterly cash
retainer (for
109
the duration of our extended filing delay period which period ended in the quarter ended July 31,
2010), and a per diem fee for work done outside of board of directors and committee meetings.
The following table summarizes the compensation package for our independent directors for the year
ended January 31, 2010.
Component of Compensation
|
|
|
|
|
|
|
|
|
|
|
Annual retainer (per annum) |
|
|
|
$ |
50,000 |
|
|
|
|
|
Board meeting fee |
|
|
|
$ |
1,500 |
|
|
|
|
|
Committee meeting fee |
|
|
|
$ |
750 |
|
|
|
|
|
Annual equity grant |
|
5,000 shares of restricted stock (vesting annually for 12 months of service)
|
Special quarterly retainer (per quarter) |
|
|
|
$ |
10,000 |
|
|
|
|
|
Chairmanship fee (per annum) |
|
Board |
|
|
|
|
|
$ |
25,000 |
|
|
|
Audit |
|
|
|
|
|
$ |
20,000 |
|
|
|
Compensation |
|
|
|
|
|
$ |
10,000 |
|
|
|
Stock Option |
|
|
|
|
|
$ |
5,000 |
|
|
|
Governance |
|
|
|
|
|
$ |
7,500 |
|
Per diem fee (for work outside meetings) |
|
|
|
$ |
2,500 |
|
|
|
|
|
Because the chairmanship of our board of directors, our compensation committee, and our
corporate governance & nominating committee are presently held by Comverse-designated directors who
do not, as noted above, receive any cash compensation for their service on our board of directors,
these chairmanship fees are not currently being paid.
On March 19, 2009, the special quarterly retainer for Mr. Myers, chairman of the audit committee,
was increased to $20,000 per quarter for the duration of our extended filing delay period (which
period ended in the quarter ended July 31, 2010) in recognition of his special role and added
responsibilities in overseeing the completion of our restatement and audits.
Executive Compensation
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes our executive officer compensation program and
addresses how we made compensation decisions for the executive officers named below (the named
executive officers) for the year ended January 31, 2010:
|
|
|
Dan Bodner, President and Chief Executive Officer and Corporate Officer |
|
|
|
|
Douglas Robinson, Chief Financial Officer and Corporate Officer |
|
|
|
|
Elan Moriah, President, Verint Witness Actionable Solutions and Verint Video
Intelligence Solutions and Corporate Officer |
|
|
|
|
Meir Sperling, President, Verint Communications Intelligence and Investigative Solutions
and Corporate Officer |
|
|
|
|
David Parcell, Managing Director, EMEA and Corporate Officer |
|
|
|
|
Peter Fante, Chief Legal Officer, Chief Compliance Officer, Secretary, and Corporate
Officer |
We have included certain information in this Compensation Discussion and Analysis and this
section generally for periods subsequent to January 31, 2010 that we believe may be useful for a
more complete understanding of our
110
compensation arrangements. While the focus of this discussion is on our compensation arrangements
with our named executive officers (who are also referred to as executive officers or just
officers below), in some cases we also provide information about compensation arrangements with
our other executives or our employees generally where we believe it may be useful for providing
context for our officer compensation arrangements.
Compensation Philosophy and Process
Philosophy and Objectives of Compensation Program
The primary objectives of our executive officer compensation programs are to:
|
|
|
attract and retain highly qualified and effective officers by providing a total
compensation package that is competitive in the market in which we compete for talent; |
|
|
|
|
incentivize our executive officers to execute on our operational and strategic goals and
reward the successful achievement of such goals; and |
|
|
|
|
align the interests of our officers with those of our stockholders. |
Our executive officer compensation packages have historically been, and continue to be, comprised
of a mix of base salary, annual cash bonus, and annual equity or equity-linked grant, plus limited
perquisites. We believe this relatively simple mix of compensation elements allows us to
successfully achieve the compensation objectives outlined above, however, the compensation
committee periodically re-evaluates the companys compensation philosophy, objectives, and tools.
In recent years, due to our extended filing delay period, we have also made use of supplementary
incentives in addition to our regular officer compensation packages.
We believe it is important that a significant portion of an officers compensation be at-risk by
being tied to the performance of our business or our stock price. We believe this is addressed
through the use of performance-based bonuses and performance-vested equity, wherein payment or
vesting is directly dependent on performance, as well as through the use of equity-based
compensation generally, such as stock options, restricted stock, or restricted stock units (RSUs),
whose value depends on our stock price. We believe that equity-based compensation that is subject
to vesting based on continued employment is also an effective tool for retaining our officers,
aligning their interests with those of our stockholders, and for building long-term commitment to
the company.
Roles and Responsibilities
The compensation committee of the board of directors (the compensation committee) determines the
base salaries and bonus structure for our executive officers. The compensation committee also
establishes the performance goals that are used to determine how much of an officers annual target
bonus is ultimately earned and evaluates the companys and the officers performance against these
goals in awarding actual bonus payments after the conclusion of the applicable performance period.
The compensation committee is also responsible for overseeing our employee compensation programs
generally, including our long-term incentive programs and any special compensation initiatives.
The stock option committee of the board of directors (the stock option committee), which is
comprised solely of independent directors, is responsible for administering our equity compensation
programs, including final approval of all equity grants, based on recommendations on size, scope,
and structure from the compensation committee. The stock option committee has approved all equity
grants to all personnel since our May 2002 IPO, except that equity grants to non-employee directors
are approved by the full board of directors. Based on recommendations from the compensation
committee, the stock option committee also establishes the performance goals that are used to
determine how much of an officers performance-based equity award ultimately vests and evaluates
the companys and the officers performance against these goals in determining actual vesting
levels after the conclusion of the applicable performance period.
111
Process Overview and Guidelines
In establishing the compensation package for our executive officers each year, the compensation
committee reviews the various components and amounts of compensation being considered for each
officer through the use of tally sheets or similar compensation summaries.
The compensation committee and the stock option committee work closely with each other in
determining executive officer compensation. During the year there are also joint committee
meetings to discuss executive compensation. The compensation committee is solely responsible
for making final decisions on cash compensation for executive officers and the stock option
committee is solely responsible for making final decisions on equity compensation for
executive officers. Although the stock option committee makes all final decisions on
equity compensation, it is influenced by the recommendations of the compensation committee
with respect to size, scope, and structure of equity compensation.
The compensation
committee, from time to time, engages a nationally recognized independent compensation consultant
to prepare a peer group compensation benchmarking analysis for our officer compensation packages
and to assist the compensation committee in structuring and evaluating proposed officer
compensation packages or other executive compensation arrangements. The independent compensation
consultant does not provide any other services to the company except advising the compensation
committee on compensation for our officers, directors, or other personnel.
For the year ended January 31, 2010, the compensation committee engaged Pearl
Meyer & Partners as its independent compensation consultant.
Any advice provided
with respect to non-officer or director personnel has been ancillary to officer compensation and
has not exceeded $120,000 in fees and/or has been with respect to broad-based plans that do not
discriminate in scope, terms, or operation in favor of our officers or directors and are available
generally to all employees. The company pays the cost for the consultants services. With the
compensation committees permission or at the compensation committees request, selected members of
senior management generally work cooperatively with the compensation consultant in preparing
proposals for officer compensation packages or other executive compensation arrangements for
consideration by the compensation committee. The compensation consultant at all times remains
independent of management, however, and forms its own views with respect to the recommendations it
makes to the compensation committee. With the exception of his own package, the chief executive
officer also provides input to the compensation committee and the stock option committee, as applicable, on each proposed executive officer
compensation package.
The chief executive officers input to the compensation committee and the stock option
committee on the executive officer compensation packages is based, among other things,
on his views of each officers performance, skills and responsibilities, competitive
factors, and internal pay equity considerations. Notwithstanding the chief executive
officers input, the compensation committee, and in the case of equity compensation,
the stock option committee, at all times exercise independent judgment on executive
compensation and are solely responsible for all final decisions on such matters.
The compensation committee also meets in executive session (outside the
presence of management) both with and without its independent compensation consultant and other
advisors from time to time.
The composition of the peer group used for benchmarking analyses prepared by the compensation
consultant is developed following discussions between the compensation committee, the compensation
consultant, and members of senior management, and is reevaluated from year to year. The companies
to be included in the peer group are selected from a sampling of publicly traded software and
technology companies with annual revenues, market capitalizations, and/or enterprise values within
a range above and below ours. In general, certain of our closest competitors do not fit within
these parameters, either because they are much larger or much smaller than us, are privately held,
or are foreign issuers who do not publicly file detailed compensation data.
For compensation for the year ended January 31, 2010, our compensation peer group consisted of:
|
|
|
McAfee Inc., |
|
|
|
|
Compuware Corporation, |
|
|
|
|
THQ Inc., |
|
|
|
|
Sybase, Inc., |
|
|
|
|
Take-Two Interactive Software, Inc., |
|
|
|
|
Novell, Inc., |
|
|
|
|
FLIR Systems, Inc., |
|
|
|
|
Lawson Software, Inc., |
|
|
|
|
Salesforce.com, Inc., |
|
|
|
|
Quest Software, Inc., and |
112
|
|
|
Nuance Communications, Inc. |
Elements of compensation are considered by the compensation committee individually and in the
aggregate. Based on the benchmarking analysis, the compensation committee initially uses a
guideline of targeting cash compensation (salary and target bonus) at the median of our peer group
for target performance and of targeting equity compensation at the 75th percentile of
our peer group (based on dollar value) for target performance. We believe that targeting cash
compensation at the median and equity compensation at the 75th percentile of our peer
group ensures that we are well positioned to attract and retain the highest caliber of executive
officer talent and properly incentivize our officers consistent with our compensation philosophy
and objectives described above. The actual cash and equity target award levels for a given
executive officer in a given year are not, however, determined solely based on these guidelines.
In establishing these actual cash and equity target award levels and the mix between cash
compensation and equity compensation, the other factors considered by the compensation committee
include:
|
|
|
the officers compensation for the previous year; |
|
|
|
|
the officers performance in the previous year; |
|
|
|
|
our performance in the previous year; |
|
|
|
|
our growth from the previous year; |
|
|
|
|
our outlook, budget, and cash forecast for the upcoming year; |
|
|
|
|
the proposed packages for the other executive officers (internal pay equity); |
|
|
|
|
the proposed merit increases, if any, being offered to our employees generally; |
|
|
|
|
equity dilution and burn rates; |
|
|
|
|
the value of previously awarded equity grants; |
|
|
|
|
executive officer recruiting and retention considerations; and |
|
|
|
|
compensation trends and competitive factors in the market for talent in which we
compete. |
We do not target a specific ratio of equity to cash.
Subject to the parameters of our compensation philosophy, the compensation committee believes that
it is appropriate for our Chief Executive Officer to be compensated more highly from both a cash
and an equity perspective than our other executive officers, and this approach has been supported
by our peer group analyses. In establishing the relative compensation of the other executive
officers, in addition to the factors above and peer group analyses, the compensation committee is
especially mindful of internal pay equity and takes into account differences in the scope of each
officers responsibilities.
For the reasons discussed below, in recent years, due to our extended filing delay period, we have
placed increased emphasis on executive retention, particularly in sizing equity awards and in
considering supplementary incentives in addition to our regular executive officer compensation
packages. See Compensation and Awards During Our Extended Filing Delay Period below.
113
Elements of Compensation
Base Salary
Base salaries for our executive officers are generally negotiated by us with the officer upon
hiring based on prior compensation history, salary levels of our other executive officers,
geographic location, and benchmarking data. Base salaries for our executive officers are subject
to adjustment annually by the compensation committee as part of its regular compensation review
process based on the benchmarking process and the other factors described above, as well as based
on special achievements, promotions, and other facts and circumstances specific to the individual
officer. For the year ended January 31, 2010, we did not increase base salaries for our executive
officers due to the economic environment.
Annual Bonus
Each of our executive officers is eligible to receive an annual cash bonus. As with base salaries,
target bonuses are established annually by the compensation committee as part of its regular
compensation review process. In establishing target bonuses, in addition to the factors considered
as part of the compensation review process generally, the compensation committee also considers the
target bonus set forth in the executive officers employment agreement (if applicable), as well as
special achievements, promotions, and other facts and circumstances specific to the individual
officer.
Although an officers employment agreement may provide for a specified target bonus (a target bonus
below which an officer may have good reason to resign under his employment agreement) and
although the compensation committee establishes a bonus target for each officer annually, the
actual bonus payment an officer receives is not guaranteed. Actual bonuses are paid based on
company and officer performance, generally by reference to pre-defined performance goals
established by the compensation committee as part of the regular compensation review process.
Performance goals are based on revenue, a measure of profitability, and a measure of cash
generation. For the year ended January 31, 2010, the measure of profitability was operating income
and the measure of cash generation was days sales outstanding (DSO). A portion of the bonus is
also tied to the achievement of non-financial management business objectives (MBOs).
The MBOs consist of qualitative/subjective performance goals (e.g., leadership achievements,
strategic goals, project goals) and are not based on any quantitative performance goals.
The MBOs are specific to each officers function within the company and are approved by
the compensation committee in connection with the establishment of annual bonus plans.
The compensation committee uses the same budget prepared by management
and approved by our board of directors for operating our business in establishing corresponding
quantitative financial goals for executive officer bonuses. This operating budget is prepared
annually through a highly detailed, bottom-up process involving dozens of employees around the
world from each of our three operating segments and represents a consensus view from the
organization on the performance we can drive from our business. In building the budget, we also
analyze our transaction pipeline, speak with customers and partners, and consider projected
industry growth rates from analysts and other third-party sources. We believe that using the same
budget for operating the business and for establishing annual compensation performance goals helps
to maximize the alignment between the interests of our executive officers and our stockholders.
For executive officers with responsibility for a specific operating unit, unit revenue and unit
profitability goals (contribution margin) are also incorporated into the officers performance
goals. For the year ended January 31, 2010, the compensation committee set the performance goal
levels for revenue and profitability above the corresponding budget levels in order to drive
performance in excess of budget in a challenging economic environment.
Because our operating budget is an internal tool primarily designed to assist management and the
board of directors in understanding and managing the operations of the business, it uses measures
of revenue and operating income that are different from their GAAP counterparts. As a result,
because the compensation committee establishes the compensation performance goals using this same
budget, these performance goals are also different from their GAAP counterparts and may also be
calculated differently from the non-GAAP metrics that we may disclose publicly from time to time.
For example, our internal budget targets, and therefore our performance goals, may exclude the
effect of acquisitions that occur during the year. The following table summarizes the differences
between our reported GAAP revenue and GAAP operating income and the corresponding measures used for
our
114
operating budget and our compensation performance goals, subject to any additional adjustments the
compensation committee may deem appropriate in a particular period:
|
|
|
Budget / Performance |
|
|
Goal Metric |
|
Differences from Corresponding GAAP Metric |
Revenue
|
|
GAAP revenue excluding the impact of certain extraordinary business transactions and fair
value adjustments relating to future support obligations under acquired contracts which would
otherwise have been recognized on a stand-alone basis, as well as adjustments for sales
concessions related to accounts receivable balances that existed prior to the date of an
acquisition. |
|
|
|
Operating income
|
|
GAAP operating income, adjusted for revenue as described above, and adjustments related to
acquisitions including amortization of acquisition-related intangible assets, integration costs,
acquisition-related write-downs, in-process research and development, impairment of goodwill
and intangible assets, and special legal costs and settlement income, as well adjustments for
stock-based compensation, expenses related to our restatement and extended filing delay, and
certain other non-cash or non-recurring charges, including restructuring costs. |
The financial performance goals established by the compensation committee generally come in
the form of a range, wherein the officer may achieve a percentage of his target bonus (generally
50-75%) at the low end of the performance range (or threshold), 100% of his target bonus towards
the middle of the performance range (target performance), and up to 200% of his target bonus at the
high end of the performance range. Below threshold, the officer is not entitled to any bonus (for
that goal). For performance that falls between points on the range, the bonus payout is calculated
on a linear basis between those points. The compensation committees objective in establishing a
range is to incentivize our officers to overachieve, while at the same time providing for a target
performance number that can reasonably be achieved and lesser levels of reward for performance that
approaches but does not achieve target performance. As a result, while the compensation committee
takes into account the probability of achieving different levels of performance in establishing the
threshold, target, and maximum for each performance goal and attempts to set the target at a level
the compensation committee believes requires strong performance on the part of the officer, the
compensation committee does not specifically attempt to identify a point in the range where it is
as likely that the officer will fail to achieve the goal as it is that he will achieve the goal.
Similarly, any MBO goals incorporated into an officers bonus plan are designed to require strong
performance on the part of the officer, but are not intended to be so difficult to achieve that it
is more likely than not that the officer will be unable to reach the goal.
For the year ended January 31, 2010, the independent members of the compensation committee
established a maximum bonus pool for the executive officers equal to 3% of our budgeted non-GAAP
operating income for the year ended January 31, 2010, which pool was then allocated among the
executive officers on a percentage basis. The compensation committee also established target
bonuses (below the amounts expected to result from the percentage allocations of the pool) and
retained discretion to reduce the percentage allocations of the pool to or below these target bonus
amounts based on, among other things, the level of achievement of the performance goals adopted by
the compensation committee or the occurrence of extraordinary events, provided that any such
adjustments (a) are consistent with and subject to the requirements set forth in Section 162(m) of
the Internal Revenue Code and (b) do not result in an actual bonus payout that is less than 80% of
the amount such executive officer would receive, if any, if bonuses were based solely on the
financial performance goals (i.e., excluding for this purpose the MBO goal).
In establishing target bonuses for the executive officers other than Mr. Bodner, the compensation
committee elected to set the target bonus for Messrs. Robinson and Moriah at approximately 60% of
base salary and the target bonus for Messrs. Sperling, Parcell, and Fante at 40-50% of base salary.
These percentages of base salary were based on the bonus target specified by the officers
employment agreement (if applicable) and the regular compensation review process, including the
committees review of benchmarking data provided by its independent compensation consultant. Mr.
Bodners target bonus was also based on benchmarking data provided by the compensation committees
independent compensation consultant as part of the regular compensation review process, but was not
115
tied directly to his base salary. For the year ended January 31, 2010, we did not increase target
bonuses for our executive officers due to the economic environment.
Annual Bonuses for the Year Ended January 31, 2010
The following summarizes the specific approach taken by the compensation committee for establishing
annual bonuses for each executive officer the year ended January 31, 2010. Consistent with the
terms of the officer bonus plans described above and taking into account the companys
circumstances during the performance period, in setting the bonus payouts for the year ended
January 31, 2010, the compensation committee accepted managements recommendation to reduce the
bonus levels for each of Messrs. Bodner, Robinson, Moriah, and Fante from the amounts resulting
from the formulaic plan calculation to amounts that management and the compensation committee
believed more accurately reflected the performance achieved against the established performance
goals. The compensation committee also approved managements recommendation to authorize
management to use the amount of this reduction to augment the bonuses for selected high performing
employees below the officer level.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Bonus |
|
|
|
|
|
|
|
Calculated |
|
|
|
|
|
|
Max % |
|
% of |
|
|
|
|
|
|
|
Calculated |
|
Payout Amount |
|
Actual |
|
|
|
|
Bonus |
|
Bonus |
|
|
|
|
|
Calculated Achievement Against |
|
Payout |
|
(Prior to |
|
Payout |
Name |
|
Description of Bonus Plan |
|
Pool |
|
Pool |
|
$ |
|
Performance Goals |
|
Percentage |
|
Adjustments) |
|
Amount(1) |
Bodner |
|
Bonus based 40% on company revenue, |
|
|
41.39 |
% |
|
|
12.5 |
% |
|
$ |
600,000 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
897,150 |
|
|
$ |
780,072 |
|
|
|
40% on company operating income, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
10% on DSO, and 10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 80% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
Robinson |
|
Bonus based 40% on company revenue, |
|
|
14.65 |
% |
|
|
4.4 |
% |
|
$ |
212,400 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
317,591 |
|
|
$ |
276,145 |
|
|
|
40% on company operating income, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
10% on DSO, and 10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 80% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
Moriah |
|
Bonus based 40% on company revenue, |
|
|
14.65 |
% |
|
|
4.4 |
% |
|
$ |
212,400 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
321,839 |
|
|
$ |
276,170 |
|
|
|
40% on company operating income, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
10% on DSO, and 10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 100% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
Sperling |
|
Bonus based 20% on company revenue, |
|
|
10.34 |
% |
|
|
3.1 |
% |
|
$ |
149,736 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
217,391 |
|
|
$ |
217,391 |
|
|
|
20% on company operating income, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
20% on unit revenue, 20% on unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit revenue: 100.7% |
|
|
102.6 |
% |
|
|
|
|
|
|
|
|
|
|
contribution margin (relating to the unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit contribution margin: 108.4% |
|
|
111.8 |
% |
|
|
|
|
|
|
|
|
|
|
for which
Mr. Sperling was responsible), |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
10% on DSO,
and 10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 100% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
Parcell |
|
Bonus based 20% on company revenue, |
|
|
7.76 |
% |
|
|
2.3 |
% |
|
$ |
112,472 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
159,280 |
|
|
$ |
159,280 |
|
|
|
20% on company operating income, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
20% on unit revenue, 20% on unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit revenue: 101.1% |
|
|
104.5 |
% |
|
|
|
|
|
|
|
|
|
|
contribution margin (relating to the unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit contribution margin: 85.2% |
|
|
83.2 |
% |
|
|
|
|
|
|
|
|
|
|
for which Mr. Parcell was responsible), |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
10% on DSO, and 10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 80% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
Fante |
|
Bonus based 40% on company revenue, |
|
|
11.21 |
% |
|
|
3.4 |
% |
|
$ |
162,500 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
246,228 |
|
|
$ |
211,288 |
|
|
|
40% on company operating income, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
10% on DSO, and 10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 100% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As described above, the amounts in this column reflect the amounts determined by the
compensation committee after discretionary adjustments. The payout amounts for Messrs. Parcell and
Sperling also reflect the impact of applicable exchange rates on the payment dates. |
116
Performance vs. Calculated Payout Matrices
(except as noted below, applies to each officer on a goal by goal
basis based on the officers individualized bonus plan per the table above)
|
|
|
Percentage of Company Revenue Goal Achieved |
|
Payout Percentage (for goal) |
Less than 80%
|
|
0% |
80%
|
|
50% |
88%
|
|
70% |
91%
|
|
80% |
97%
|
|
90% |
100%
|
|
100% |
103%
|
|
125% |
106%
|
|
150% |
109% or more
|
|
200% |
|
|
|
Percentage of Company Operating Income Goal Achieved |
|
Payout Percentage (for goal) |
Less than 32%
|
|
0% |
32%
|
|
50% |
60%
|
|
70% |
70%
|
|
80% |
90%
|
|
90% |
100%
|
|
100% |
110%
|
|
125% |
120%
|
|
150% |
130% or more
|
|
200% |
|
|
|
Percentage of DSO Goal Achieved |
|
Payout Percentage (for goal) |
Less than 80%
|
|
0% |
80%
|
|
50% |
87%
|
|
75% |
100%
|
|
100% |
107%
|
|
125% |
113%
|
|
150% |
120% or more
|
|
200% |
|
|
|
Sperling: Percentage of Unit Revenue Goal Achieved |
|
Payout Percentage (for goal) |
Less than 77%
|
|
0% |
77%
|
|
50% |
83%
|
|
70% |
90%
|
|
80% |
97%
|
|
90% |
100%
|
|
100% |
107%
|
|
125% |
112%
|
|
150% |
117% or more
|
|
200% |
117
Performance vs. Calculated Payout Matrices
(except as noted below, applies to each officer on a goal by goal
basis based on the officers individualized bonus plan per the table above)
|
|
|
Sperling: Percentage of Unit Contribution Margin Goal Achieved |
|
Payout Percentage (for goal) |
Less than 38%
|
|
0% |
38%
|
|
50% |
55%
|
|
70% |
73%
|
|
80% |
91%
|
|
90% |
100%
|
|
100% |
118%
|
|
125% |
132%
|
|
150% |
145% or more
|
|
200% |
|
|
|
Parcell: Percentage of Unit Revenue Goal Achieved |
|
Payout Percentage (for goal) |
Less than 78%
|
|
0% |
78%
|
|
50% |
83%
|
|
70% |
90%
|
|
80% |
97%
|
|
90% |
100%
|
|
100% |
106%
|
|
125% |
112%
|
|
150% |
118% or more
|
|
200% |
|
|
|
Parcell: Percentage of Unit Contribution Margin Goal Achieved |
|
Payout Percentage (for goal) |
Less than 56%
|
|
0% |
56%
|
|
50% |
67%
|
|
70% |
81%
|
|
80% |
94%
|
|
90% |
100%
|
|
100% |
112%
|
|
125% |
124%
|
|
150% |
135% or more
|
|
200% |
Equity Awards
Each of our executive officers is eligible to receive an annual equity award. Equity awards for
executive officers are normally made as part of our regular annual equity grant to employees.
Annual equity awards are established by the stock option committee based on recommended award
levels resulting from the compensation committees regular compensation review process. In
establishing each officers recommended annual equity award, in addition to the factors considered
as part of the compensation review process generally, the compensation committee places special
focus on internal pay equity among the executive officers.
Where possible, the board of directors (or the compensation committee or stock option committee)
endeavors to establish the grant date well in advance of the grant and to schedule vesting dates to
occur at a time when we would not normally be in a quarterly trading blackout (to reduce the
chances that vesting-related tax events occur during blackout periods). Apart from seeking to
grant or schedule vesting dates outside of blackout periods, we do not time our grants by reference
to the release of earnings or other material information.
Prior to the year ended January 31, 2006, our preferred form of equity award was stock options. In
recent years, we have moved to restricted stock and subsequently to RSUs as the preferred form of
award. This move from stock
118
options to restricted stock and RSUs resulted from a desire to
decrease equity compensation expense under applicable accounting standards and to improve the
retentive effect and perceived value of our equity awards, and was also informed by dilution
considerations. The compensation committee periodically reviews the elements of compensation it
uses, however, and we may in the future incorporate stock options as a component of our
compensation packages for executive officers or others. To the extent that stock options are used,
the exercise price of such options is always the closing price of our stock on the date of board of
directors or stock option committee approval.
Since the beginning of the year ended January 31, 2008, annual equity awards for our executive
officers have been divided evenly between time-vested awards and performance-vested awards. We
moved to this 50-50 mix in order to further align officer incentives with company performance and
put a greater proportion of our officers compensation at risk. Our current practice for
time-based equity awards for officers is equal vesting over a three-year period. Performance-based equity awards to date have been comprised of three separate vesting
periods corresponding to three separate performance periods, each concluding at the end of a fiscal
year, though in some cases, the performance period has been less than 12 months in duration. The
stock option committee sets the performance goal for each such performance period following the
beginning of the performance period. We believe that waiting until the beginning of the applicable
performance period to set the performance goal for that period allows greater precision in
tailoring the incentive and retentive effect of these awards than would setting the goals for all
periods at the time of grant.
The performance goal for each such performance period is revenue. The stock option committee
establishes the revenue goal for each performance period based on a recommendation from the
compensation committee. In making this recommendation, the compensation committee uses the same
budget prepared by management and approved by our board of directors for operating our business.
As described above in the discussion of annual bonuses, we believe that using the same budget for
operating the business and for establishing annual compensation performance goals helps to maximize
the alignment between the interests of our executive officers and our stockholders. As described
above with respect to our annual bonus plans, because our revenue performance goals come from our
annual operating budget, they are expressed on a non-GAAP basis. See Elements of Compensation
- - Annual Bonus above for more information.
The revenue performance goal established by the stock option committee generally comes in the form
of a range, wherein the officer may earn a portion of the award for the applicable performance
period (generally ranging from 50-75%) at the low end of the performance range (or threshold) and
100% of the award at target performance. The stock option committee may also provide for the
opportunity to earn in excess of 100% of the target award in the event actual performance exceeds
target performance. For the year ended January 31, 2010, the stock option committee provided for
such an opportunity for the new awards approved on March 4, 2009 and May 20, 2009. Performance
awards granted in prior years did not provide for such an opportunity to overachieve. For
performance that falls between points on the range, the amount earned is calculated on a linear
basis between those points.
As with the compensation committees approach for annual bonuses, the stock option committees
objective in establishing (after considering the compensation committees recommendation with
respect to equity-based awards) a range for the performance goal is to incentivize our officers to
overachieve (for awards which provide for an overachievement opportunity), while at the same time
providing for a target performance number that can reasonably be achieved and lesser levels of
reward for performance that approaches but does not achieve target performance. As a result, while
the stock option committee takes into account the probability of achieving different levels of
performance in establishing the threshold, target, and, if applicable, maximum performance levels
of the range and attempts to set the target performance number at a level the stock option
committee believes requires strong performance on the part of the officer, the stock option
committee does not specifically attempt to identify a point in the range where it is as likely that
the officer will fail to achieve the goal as it is that he will achieve the goal.
119
The following summarizes the performance versus payout matrices established by the stock option
committee for the performance period ended January 31, 2010:
|
|
|
Performance vs. Payout Matrix (for awards approved July 2, 2007) |
|
|
Percentage of Eligible Performance Shares |
Percentage of Revenue Goal Achieved |
|
Earned for Period |
Less than 82%
|
|
0% |
82%
|
|
50% |
100% or more
|
|
100% |
|
|
|
Performance vs. Payout Matrix (for awards approved May 28, 2008) |
|
|
Percentage of Eligible Performance Shares |
Percentage of Revenue Goal Achieved |
|
Earned for Period |
Less than 82%
|
|
0% |
82%
|
|
50% |
100% or more
|
|
100% |
|
|
|
Performance vs. Payout Matrix (for awards approved March 4, 2009 or May 20, 2009) |
|
|
Percentage of Eligible Performance Shares |
Percentage of Revenue Goal Achieved |
|
Earned for Period |
Less than 82%
|
|
0% |
82%
|
|
50% |
100%
|
|
100% |
112% or more
|
|
200% |
The stock option committee determines the amount earned by each officer under his outstanding
performance equity awards after year-end following the finalization of results for the applicable
performance period.
For the year ended January 31, 2010, the stock option committee determined that 107.4% of the
revenue goal had been achieved for the performance period, resulting in the officers earning 100%
of the performance shares eligible to be earned in such performance period under the third tranche
of the July 2, 2007 awards, 100% of the performance shares eligible to be earned in such
performance period under the second tranche of the May 28, 2008 awards, and 161.6% of the
performance shares eligible to be earned in such performance period under the first tranche of the
March 4, 2009 and May 20, 2009 awards.
Stock
Ownership Guidelines
On September 7, 2010, our board of directors adopted stock ownership guidelines for our executive
officers and non-employee directors who are compensated by us for
their services. The guidelines contain customary terms and conditions and establish the
following target ownership levels:
|
|
|
equity equal to five times salary for our chief executive officer; |
|
|
|
|
equity equal to three times salary for our other executive officers; and |
|
|
|
|
equity equal to three times annual cash retainer for non-employee directors. |
There is no specified timeframe for reaching the target ownership levels. Officers and directors
subject to the guidelines are permitted to count towards the target ownership levels all shares of
common stock held by such individual, regardless of source, including both vested and unvested
stock awards, as well as the intrinsic value of vested stock options.
Our insider trading policy
prohibits all personnel (including officers and directors) from short selling in our securities,
from short-term trades in our securities (open market purchase and sale within three months), and
from trading options in our securities.
Other Pay Elements
Except as described in the next section with respect to our extended filing delay period, we do not
currently make use of other equity or cash based long-term incentive compensation arrangements,
defined-benefit plans, or deferred compensation plans. We provide a limited amount of perquisites
to our executive officers, which vary from officer to officer and region to region and include:
|
|
|
use of a company car or an annual car allowance, |
|
|
|
|
fuel reimbursement allowance, |
120
|
|
|
an annual allowance for professional legal, tax, or financial advice, |
|
|
|
|
certain statutory payments, |
|
|
|
|
payments for accrued vacation days (prior to separation from service), and |
|
|
|
|
supplemental company-paid life insurance. |
Executive officers in the United States also receive the same partial match of their 401(k)
contributions as all other U.S. employees. Executive officers in the United Kingdom receive
company contributions to a retirement fund on the same basis as other U.K. employees. Executive
officers in Israel receive company contributions to a retirement fund, a severance fund, and a
continuing education fund, in each case, on the same basis as other Israeli employees. Executive
officers receive the same health insurance and company-paid group life and disability insurance
offered to all other employees in the country in which the executive officer is employed.
Employment Agreements
As of the date of this prospectus, each of our executive officers other than Mr. Sperling is party
to a formal employment agreement with us. Mr. Sperling has a customary offer letter from us and a
letter agreement regarding the release of his severance, retirement, and disability insurance funds
in the event of a termination event, but does not currently have a formal employment agreement. Mr.
Bodners employment agreement was signed on February 23, 2010, so he was not party to an agreement
with us during the period covered by this section.
The following table summarizes the dates that each formal employment agreement or material
amendment was signed:
|
|
|
Name |
|
Date of Employment Agreement or Material Amendment |
Bodner
|
|
§ Employment agreement signed on February 23, 2010 |
|
|
|
Robinson
|
|
§ Employment agreement signed on August 14, 2006 |
|
|
|
Moriah
|
|
§ Initial employment agreement signed on September 18, 2007 |
|
|
§ Amended and restated agreement signed on October 29, 2009 |
|
|
|
Sperling
|
|
§ No formal employment agreement as of the filing date of this report |
|
|
|
Parcell
|
|
§ Initial employment agreement signed on April 16, 2001 |
|
|
§ Supplemental employment agreement signed on June 13, 2008 |
|
|
|
Fante
|
|
§ Initial employment agreement signed on September 18, 2007 |
|
|
§ Amended and restated agreement signed on November 10, 2009 |
Mr. Parcells original employment agreement was signed in 2001 in accordance with our local U.K.
practice of entering into employment agreements with all U.K. employees. The other officer
employment agreements were put in place following the negotiation of our first formal executive
employment agreement in connection with the recruiting of Mr. Robinson as our new Chief Financial
Officer. This process of entering into formal employment agreements with our executive officers
has progressed iteratively and at different rates with each of our officers. We are currently in
discussions regarding a formal employment agreement with Mr. Sperling and amended employment
agreements with Mr. Robinson and Mr. Parcell. All of the employments agreements and amended
agreements entered into with our officers since 2006 have been designed in consultation with the
compensation committees independent compensation consultant at such time.
The terms and conditions of each of the executive officer employment agreements are discussed in
greater detail below under Executive Officer Severance Benefits and Change in Control
Provisions, but in general, the employment agreements entered into with Messrs. Robinson, Fante,
and Moriah during 2006 and 2007, and the
121
supplemental employment agreement entered into with Mr.
Parcell in 2008, provided for 12 months (inclusive of any notice period required by the officers
existing employment agreement) of severance and certain other continued benefits in the event of an
involuntary termination, as well as acceleration of unvested equity in the event of an involuntary
termination in connection with a change in control. Mr. Robinsons agreement provides for
acceleration of unvested equity in connection with a change in control whether or not his
employment was terminated. The new employment agreements or amended agreements entered into
beginning in 2009 as part of the compensation committee review of executive compensation
arrangements during 2008 and 2009 described below provide, among other things, for greater amounts
of severance in the event of an involuntary termination in connection with a change in control as
well as excise tax gross-ups for our U.S.-based executive officers.
Clawback Policy
Each of our executive officers who is party to an employment agreement with us is subject to a
clawback provision which allows us to recoup from the officer, or cancel, all or a portion of the
officers incentive compensation (including bonuses and equity awards) for a particular year if we
are required to restate our financial statements for that year due to material noncompliance with
any financial reporting requirement under the securities laws as a result of the officers
misconduct. The clawback applies from and after the year in which the employment
agreement was first signed to awards made during the term of the agreement. The amount to be
recovered or forfeited is the amount by which the incentive compensation in the year in question
exceeded the amount that would have been awarded had the financial statements originally been filed
as restated.
Compensation and Awards During Our Extended Filing Delay Period
Introduction
Due to the protracted length of our extended filing delay period, we placed special emphasis on
retention in our compensation philosophy during the last several years. As noted above, this has
impacted the sizing of executive officer and other key employee equity awards, and has also
included the use of special retention awards and bonuses, as well as modification of existing
awards to improve their retentive effect, and ensuring that executive compensation packages are at
market levels and contain market terms and conditions.
Due to our restatement and lack of audited financial statements during our extended filing delay
period, for compensation for the year ended January 31, 2010, performance goals for cash bonuses
and for performance-based equity, and corresponding year-end payout and vesting calculations, have
been based on preliminary, unaudited financial metrics and results. As a result, in addition to
the regular discretion retained by the compensation committee in awarding annual bonuses, these
performance goals and/or these year-end payouts and vesting calculations have been subject to
equitable adjustment by the compensation committee or the stock option committee, as applicable, in
connection with their regular annual determination of whether performance goals have been achieved,
to take into account changes resulting from our revenue recognition review and other accounting
adjustments unrelated to our operations. The compensation and stock option committees reserved the
right to make such equitable adjustments to ensure that neither the company nor the officers
unfairly benefited or were unfairly penalized by changes to our financial performance metrics
resulting solely from changes to our accounting methodology.
Granting of Equity Awards
As a result of our inability to file required SEC reports during our extended filing delay period,
we ceased using our Registration Statement on Form S-8 to make equity grants to employees during
such period. As a result, on March 27, 2006, we suspended option exercises under our equity
incentive plans and terminated purchases under our employee stock purchase plan for all employees,
including executive officers. In addition, we did not make any equity awards to employees,
including executive officers, during the year ended January 31, 2007. Our board of directors did
not believe it was appropriate to make equity grants to executive officers under an exemption from
registration at a time when grants could not be made to other employees. In connection with our
suspension of option exercises, on March 27, 2006, the stock option committee also adopted a
resolution generally extending the exercise period of our stock options for employees, including
executive officers, whose employment is terminated
122
during our extended filing delay period until
the 30th day following the date the board of directors determines we have become
compliant with our SEC filing obligations (subject, however, to the original term of such stock
options).
On May 24, 2007, we received a no-action letter from the SEC upon which we relied to make a
broad-based equity grant to employees under a no-sale theory. The stock option committee approved
this grant approximately 30 days later on July 2, 2007. On this same date, the board of directors
and the stock option committee also approved an equity grant to our directors, executive officers,
and certain other executives who were accredited investors in reliance upon a private placement
exemption from the federal securities laws. In addition to a regular annual equity award, the July
2, 2007 equity award to our executive officers also included a special time-vested retention grant
(the 2007 retention grants). This special time-vested retention grant corresponded to special
cash-based retention bonuses for certain key employees awarded during 2007 which the compensation
committee deemed necessary to help retain these key employees during our extended filing delay
period (the 2007 retention bonuses). Other than Mr. Parcell, who was not an executive officer in
the year ended January 31, 2007 and who received his 2007 retention award part in cash and part in
stock, none of our executive officers received a 2007 retention bonus. These 2007 special
retention programs were designed in consultation with the compensation committees independent
compensation consultant.
We continued to rely on our no-action relief to make broad-based equity grants during our extended
filing delay period, while simultaneously making annual grants to our executive officers and
directors under a private placement exemption. We believe that these continued broad-based equity
awards were an important part of our retention initiatives and also helped to incentivize
participants and to build long-term commitment and goodwill to the company.
Modification of Equity Awards
Other than awards to our independent directors, all of the equity awards granted in the years ended
January 31, 2008 and January 31, 2009 (including the 2007 retention grants awarded to the executive
officers) were made subject to special compliance vesting conditions which overrode the regular
time-vesting or performance-vesting schedule of the awards. These compliance vesting conditions
required that we be both current with our SEC filings and that our common stock be re-listed on
NASDAQ or another nationally recognized exchange for the awards to vest. The 2008 awards also
required that we have received stockholder approval of a new equity compensation plan or have
additional share capacity under an existing stockholder-approved equity compensation plan for the
2008 awards to vest. If any of these compliance vesting conditions were not satisfied on the date
the awards would otherwise vest, the portion of the award that would otherwise vest would remain
unvested until such time as all of the applicable compliance vesting conditions were satisfied,
except that awards granted to non-officers in 2008 vested and settled in cash if the compliance
vesting conditions were not satisfied on the awards vesting date. This feature was included in
the 2008 awards to non-officer employees as part of our retention initiative in lieu of a 2008
retention bonus program.
Following the payment of the 2007 retention bonuses in mid-2007 and early 2008 to certain key
employees (other than executive officers, except, as noted above, for Mr. Parcell) and the cash
settlement of the first half of the 2008 equity awards for employees (other than executive
officers) in April 2009, the compensation and stock option committees concluded that, in light of
these cash payments to other employees, the inability of the executive officers to derive any
present value from their outstanding equity awards (as a result of our extended filing delay period
at the time), and continued officer retention concerns on the part of senior management at the
time, the officers (a) should be permitted to vest into the portions of their outstanding equity
awards that would otherwise have vested but for the compliance vesting conditions and (b) to the
extent feasible, should not be subject to compliance vesting conditions under future equity awards.
The compensation and stock option committees believed that this approach of removing the risk of
loss on the earned portions of these awards was important in ensuring that the officers were not
being treated unfairly vis-à-vis other grantees and was preferable to paying a portion of these
awards in cash as we did for other grantees. As a result, the compensation and stock option
committees authorized us to enter into amendments with each of the executive officers to remove the
compliance vesting conditions from their 2007 and 2008 equity awards, thereby permitting these
awards to vest on their original schedule. As of the date of this prospectus, we have finalized
all of these amendments except for Mr. Parcells which was ultimately not signed due to local tax
considerations, however, as of the date of this prospectus, all of the compliance conditions in Mr.
123
Parcells 2007 and 2008 equity awards have been satisfied. In addition, the 2009 annual equity
awards to our executive officers approved on March 4, 2009 and May 20, 2009 (unlike the grants made
to other employees) did not contain these compliance vesting conditions, however, our most recent
officer grant, approved on March 17, 2010, did contain a plan capacity vesting condition due to
plan capacity limitations at such time.
This plan capacity vesting condition was satisfied in connection with the approval of a new equity incentive plan by our stockholders on October 5, 2010.
Review of Executive Compensation Arrangements
Over the course of the second half of 2008 and throughout 2009, the compensation committee, in
consultation with its independent compensation consultant and other advisors, undertook a review of
the employment terms of our senior management, including our executive officers, to ensure that
these arrangements were at market levels and contained market terms and conditions. This review
was motivated both by a desire to continue to improve executive retention during our extended
filing delay period as well as by a desire to remain competitive from a compensation perspective
generally. As a result of this process, we have entered into, or are currently in discussions
regarding, new or amended employment agreements with each of our executive officers to provide,
among other things, for enhanced severance benefits in the event of a termination in connection
with a corporate transaction. A more detailed discussion of these updated arrangements is provided
under Executive Officer Severance Benefits
and Change in Control Provisions below. In addition to the goals of enhancing executive officer
retention and bringing the terms of our executive employment arrangements up to market generally,
the compensation committee also believed that it was in our best interest to provide appropriate
change in control protections to our executive officers so they would not be distracted by personal
considerations in the event of a business combination transaction that may be beneficial to our
stockholders but may result in the loss of the officers position.
2009 Retention Awards
In 2009, we entered into retention award letter agreements with each of our executive officers
other than Mr. Bodner which provide for the payment of cash bonuses over a two-year period ending
in April 2011 (the 2009 retention bonuses). At Mr. Bodners request, the compensation committee
did not approve a 2009 retention bonus for him. As with the 2007 retention programs, the 2009
retention bonus program was designed in consultation with the compensation committees independent
compensation consultant.
Tax Implications
To maintain flexibility in compensating executive officers in a manner designed to promote varying
corporate goals, the compensation committee has not adopted a policy that all compensation must be
deductible under Section 162(m) of the Internal Revenue Code, however, we attempt to satisfy the
requirements for deductibility under Section 162(m) wherever possible.
Compensation Programs and Risk
In connection with the preparation of our Annual Report on Form 10-K for the year ended January 31,
2010, we reviewed our compensation policies and practices. In light of this review, we believe
that our compensation policies and practices are comparable to those used by similarly situated
companies in our industry and the companies with which we compete for talent and are reasonably
calculated to incentivize performance without encouraging unreasonable risk taking. Subject to
regional differences, we attempt to structure our compensation policies and practices that are
based on performance goals uniformly across the company, using quarterly or annual targets that are
based on company performance or unit performance and/or sales commissions. Our commission plans
contain provisions allowing us to reduce, withhold, or offset commissions for transactions that do
not meet specified minimum requirements, even after the commission has been paid. We have also
adopted quarter-end guidelines to help ensure that sales transactions are handled in a consistent
and ethical manner at the end of each reporting period. In addition, as noted in the Compensation
Discussion and Analysis above, our officer bonus and performance equity programs are subject to
annual maximum payouts and our officer and other executive employment agreements contain clawback
provisions.
124
Executive Compensation Tables
Summary Compensation Table
The following table lists the annual compensation of our named executive officers for the three
years ended January 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
January |
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Incentive Plan |
|
|
All Other |
|
|
|
|
Name and Principal Position |
|
31, |
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation |
|
|
Compensation |
|
|
Total |
|
|
|
|
|
|
|
|
|
($) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($)(2) |
|
|
($)(3) |
|
|
($)(4) |
|
|
($) |
|
|
Dan Bodner President and Chief Executive |
|
|
2010 |
|
|
|
600,000 |
|
|
|
|
|
|
|
601,620 |
|
|
|
|
|
|
|
780,072 |
|
|
|
41,818 |
|
|
|
2,023,510 |
|
Officer and Corporate Officer |
|
|
2009 |
|
|
|
600,000 |
|
|
|
|
|
|
|
1,509,436 |
|
|
|
|
|
|
|
584,230 |
|
|
|
41,090 |
|
|
|
2,734,756 |
|
|
|
|
2008 |
|
|
|
506,800 |
|
|
|
|
|
|
|
3,273,398 |
|
|
|
|
|
|
|
506,616 |
|
|
|
36,412 |
|
|
|
4,323,226 |
|
|
|
Douglas Robinson - Chief Financial Officer |
|
|
2010 |
|
|
|
354,000 |
|
|
|
|
|
|
|
218,942 |
|
|
|
|
|
|
|
276,145 |
|
|
|
14,000 |
|
|
|
863,087 |
|
and Corporate Officer |
|
|
2009 |
|
|
|
354,000 |
|
|
|
|
|
|
|
754,531 |
|
|
|
|
|
|
|
206,818 |
|
|
|
24,000 |
|
|
|
1,339,349 |
|
|
|
|
2008 |
|
|
|
340,000 |
|
|
|
|
|
|
|
1,959,597 |
|
|
|
|
|
|
|
238,298 |
|
|
|
24,000 |
|
|
|
2,561,895 |
|
|
|
Elan Moriah - President, Verint Witness |
|
|
2010 |
|
|
|
354,000 |
|
|
|
|
|
|
|
217,129 |
|
|
|
|
|
|
|
276,170 |
|
|
|
12,687 |
|
|
|
859,986 |
|
Actionable Solutions and Verint Video |
|
|
2009 |
|
|
|
354,000 |
|
|
|
|
|
|
|
742,832 |
|
|
|
|
|
|
|
206,818 |
|
|
|
14,644 |
|
|
|
1,318,294 |
|
Intelligence Solutions and Corporate Officer |
|
|
2008 |
|
|
|
340,000 |
|
|
|
|
|
|
|
1,285,086 |
|
|
|
|
|
|
|
213,650 |
|
|
|
11,969 |
|
|
|
1,850,705 |
|
|
|
Meir Sperling - President, Verint |
|
|
2010 |
|
|
|
317,528 |
(5) |
|
|
|
|
|
|
460,590 |
|
|
|
|
|
|
|
217,391 |
(5) |
|
|
82,360 |
|
|
|
1,077,869 |
|
Communications Intelligence and |
|
|
2009 |
|
|
|
345,899 |
|
|
|
|
|
|
|
669,475 |
|
|
|
|
|
|
|
205,040 |
|
|
|
97,030 |
|
|
|
1,317,444 |
|
Investigative Solutions and Corporate Officer |
|
|
2008 |
|
|
|
277,601 |
|
|
|
|
|
|
|
1,254,316 |
|
|
|
|
|
|
|
245,586 |
|
|
|
93,388 |
|
|
|
1,870,891 |
|
|
|
David Parcell Managing Director, EMEA |
|
|
2010 |
|
|
|
306,520 |
(6) |
|
|
|
|
|
|
191,254 |
|
|
|
|
|
|
|
159,280 |
(6) |
|
|
57,058 |
|
|
|
714,112 |
|
and Corporate Officer |
|
|
2009 |
|
|
|
348,695 |
|
|
|
102,823 |
(7) |
|
|
648,974 |
|
|
|
|
|
|
|
81,148 |
|
|
|
51,620 |
|
|
|
1,233,260 |
|
|
|
|
2008 |
|
|
|
376,470 |
|
|
|
67,413 |
|
|
|
560,116 |
|
|
|
|
|
|
|
146,356 |
|
|
|
52,188 |
|
|
|
1,202,543 |
|
|
|
Peter Fante Chief Legal Officer, Chief |
|
|
2010 |
|
|
|
325,000 |
|
|
|
|
|
|
|
188,194 |
|
|
|
|
|
|
|
211,288 |
|
|
|
18,250 |
|
|
|
742,732 |
|
Compliance Officer, Secretary and Corporate |
|
|
2009 |
|
|
|
325,000 |
|
|
|
|
|
|
|
629,219 |
|
|
|
|
|
|
|
158,229 |
|
|
|
14,000 |
|
|
|
1,126,448 |
|
Officer |
|
|
2008 |
|
|
|
292,500 |
|
|
|
25,590 |
|
|
|
989,631 |
|
|
|
|
|
|
|
139,410 |
|
|
|
48,672 |
(8) |
|
|
1,495,803 |
|
|
|
|
|
|
(1) |
|
Includes annual bonuses paid based on general performance reviews by the compensation
committee not tied to pre-defined performance goals or other special bonuses. |
|
(2) |
|
Reflects the aggregate grant date fair value of stock or option awards, as applicable,
approved for the executive officer in the applicable fiscal year computed in accordance
with applicable accounting standards. For performance-based awards, the value shown in the
table is based on the achievement of the target level (or probable level) of performance.
See the table below entitled Maximum Grant Date Value of Performance Awards for the
aggregate grant date fair value of these performance awards assuming the highest level of
performance had been achieved. The grant date fair value of our annual equity awards has
fluctuated significantly from year to year based on significant volatility in our stock
price during our extended filing delay period, particularly with respect to the awards made
in the year ended January 31, 2010. As noted in the Compensation Discussion and Analysis,
in the year ended January 31, 2008, in addition to a regular annual equity grant, each
officer also received a retention equity award. Mr. Robinson also received a one-time
welcome grant in that year. |
|
(3) |
|
Amount represents performance-based annual cash bonuses tied to pre-defined performance
goals. |
|
(4) |
|
See the table below for additional information on All Other Compensation amounts for
the year ended January 31, 2010. All Other Compensation does not include premiums for
group life, health, or disability insurance that is available generally to all salaried
employees in the country in which the executive officer is employed and do not discriminate
in scope, terms, or operation in favor of our executive officers or directors. |
|
(5) |
|
Mr. Sperling received a salary of NIS 1,238,892 per annum ($317,528 based on the
average exchange rate from February 1, 2009 through January 31, 2010 of NIS 1=$0.2563) and
a performance-based bonus of NIS 808,447 ($217,391 based on the May 2, 2010 exchange rate
of NIS 1=$0.2689). |
|
(6) |
|
Mr. Parcell received a salary of £194,000 per annum ($306,520 based on the average
exchange rate from February 1, 2009 through January 31, 2010 of £1= $1.5800), a
performance-based bonus of £98,650 ($159,280) paid in installments based on the average
exchange rate from May 31, 2009 through March 31, 2010 of £1= $1.6146). |
125
(7) |
|
For the year ended January 31, 2009, Mr. Parcell received a discretionary bonus of
$30,000 and £36,850 ($72,823 based on the May 31, 2008 exchange rate of £1=$1.9762)
representing the second half of his 2007 cash retention bonus, which was earned and paid in
2008. |
|
(8) |
|
Includes a one-time relocation allowance of $30,000 for Mr. Fante. |
Maximum Grant Date Value of Performance Awards
The following table sets forth the aggregate grant date fair value of the performance awards made
to our executive officers during the years ended January 31, 2010, 2009, and 2008 assuming the
highest level of performance had been achieved. Fair value is calculated based on the closing
price of our common stock on the accounting grant date, which is not always the same as the date
the stock option committee approved the grant, and award tranches are also grouped by accounting
grant date. The accounting grant date is generally the date on which the performance goal for the
applicable award tranche has been both established and communicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value on Date |
|
|
|
Date of Committee |
|
Accounting |
|
|
Maximum |
|
|
of Commitee |
|
Name |
|
Approval of Grant |
|
Grant Date |
|
|
Possible Shares |
|
|
Approval |
|
|
Dan Bodner |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
62,500 |
|
|
$ |
212,500 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
12,500 |
|
|
$ |
42,500 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
18,767 |
|
|
$ |
63,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
93,767 |
|
|
$ |
318,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
12,500 |
|
|
$ |
274,375 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
18,767 |
|
|
$ |
411,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
31,267 |
|
|
$ |
686,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
18,766 |
|
|
$ |
347,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
18,766 |
|
|
$ |
347,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Robinson |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
22,556 |
|
|
$ |
76,691 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
7,518 |
|
|
$ |
25,561 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
4,300 |
|
|
$ |
14,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
34,374 |
|
|
$ |
116,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
7,518 |
|
|
$ |
165,020 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
4,300 |
|
|
$ |
94,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
11,818 |
|
|
$ |
259,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
4,300 |
|
|
$ |
79,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
4,300 |
|
|
$ |
79,550 |
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value on Date |
|
|
|
Date of Committee |
|
Accounting |
|
|
Maximum |
|
|
of Commitee |
|
Name |
|
Approval of Grant |
|
Grant Date |
|
|
Possible Shares |
|
|
Approval |
|
|
Elan Moriah |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
22,556 |
|
|
$ |
76,690 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
7,518 |
|
|
$ |
25,561 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
3,767 |
|
|
$ |
12,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
33,841 |
|
|
$ |
115,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
7,518 |
|
|
$ |
165,020 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
3,767 |
|
|
$ |
82,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
11,285 |
|
|
$ |
247,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meir Sperling |
|
5/20/2009 (1st tranche) |
|
|
6/20/2009 |
|
|
|
20,050 |
|
|
$ |
212,530 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
6,683 |
|
|
$ |
22,722 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
3,767 |
|
|
$ |
12,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
30,500 |
|
|
$ |
248,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
6,683 |
|
|
$ |
146,692 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
3,767 |
|
|
$ |
82,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
10,450 |
|
|
$ |
229,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Parcell |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
20,050 |
|
|
$ |
68,170 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
6,683 |
|
|
$ |
22,722 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
2,834 |
|
|
$ |
9,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
29,567 |
|
|
$ |
100,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
6,683 |
|
|
$ |
146,692 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
2,833 |
|
|
$ |
62,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
9,516 |
|
|
$ |
208,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
2,833 |
|
|
$ |
52,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
2,833 |
|
|
$ |
52,411 |
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value on Date |
|
|
|
Date of Committee |
|
Accounting |
|
|
Maximum |
|
|
of Commitee |
|
Name |
|
Approval of Grant |
|
Grant Date |
|
|
Possible Shares |
|
|
Approval |
|
|
Peter Fante |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
20,050 |
|
|
$ |
68,170 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
6,683 |
|
|
$ |
22,722 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
1,934 |
|
|
$ |
6,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
28,667 |
|
|
$ |
97,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
6,683 |
|
|
$ |
146,692 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
1,933 |
|
|
$ |
42,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
8,616 |
|
|
$ |
189,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
1,933 |
|
|
$ |
35,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
1,933 |
|
|
$ |
35,761 |
|
All Other Compensation Table (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Car Allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or Cost of |
|
|
|
|
|
|
|
|
|
|
|
|
Employer |
|
Severance |
|
|
|
|
|
Company Car |
|
Professional |
|
Accrued |
|
Statutory |
|
Supplemental |
|
|
|
|
Retirement |
|
Fund |
|
Study Fund |
|
Plus Fuel |
|
Advice |
|
Vacation |
|
Recreation |
|
Life |
|
|
Name |
|
Contribution |
|
Contribution |
|
Contribution |
|
Allowance |
|
Allowance |
|
Payout |
|
Payment |
|
Insurance |
|
Total |
|
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
Dan Bodner |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
14,828 |
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
4,990 |
|
|
|
41,818 |
|
|
Douglas Robinson |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000 |
|
|
Elan Moriah |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
10,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,687 |
|
|
Meir Sperling (2) |
|
|
17,623 |
|
|
|
26,810 |
|
|
|
23,815 |
|
|
|
13,502 |
|
|
|
|
|
|
|
|
|
|
|
610 |
|
|
|
|
|
|
|
82,360 |
|
|
David Parcell (3) |
|
|
20,098 |
|
|
|
|
|
|
|
|
|
|
|
21,778 |
|
|
|
8,023 |
|
|
|
7,159 |
|
|
|
|
|
|
|
|
|
|
|
57,058 |
|
|
Peter Fante |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
4,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,250 |
|
|
|
|
|
(1) |
|
This supplemental table is provided as additional information for our stockholders and
is not intended as a substitute for the information presented in the Summary Compensation
Table. |
|
(2) |
|
For the year ended January 31, 2010, Mr. Sperling received a company contribution to
his retirement fund of NIS 68,759 ($17,623), to his severance fund of NIS 104,603
($26,810), to his study fund of NIS 92,917 ($23,815), use of a company car plus a fuel
reimbursement allowance which cost us NIS 52,679 ($13,502) for the period, and a statutory
recreation payment of NIS 2,380 ($610), in each case, based on the average exchange rate
from February 1, 2009 through January 31, 2010 of NIS 1=$0.2563. |
|
(3) |
|
For the year ended January 31, 2010, Mr. Parcell received a company contribution to his
retirement fund of £12,720 ($20,098), use of a company car plus a fuel reimbursement
allowance which cost us £13,783 ($21,778) for the period, reimbursement of professional
advice allowance of £5,078 ($8,023), and payout of accrued vacation of £4,477 ($7,159), in
each case, based on the average exchange rate from February 1, 2009 through January 31,
2010 of £1= $1.5800. |
128
Grants of Plan-Based Awards for the Year Ended January 31, 2010
The following table sets forth information concerning equity grants to our named executive officers
during the year ended January 31, 2010. For the sake of clarity, the table also contains
information about awards made in other years to the extent that the performance goal for any
tranche of such awards was set in the year ended January 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock |
|
Accounting |
|
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Grant Date |
|
|
|
|
Committee |
|
|
|
|
|
Estimated Possible Payouts |
|
Estimated Future Payouts |
|
Number of |
|
Fair Value of |
|
|
|
|
Approval |
|
Accounting |
|
Under Non-Equity Incentive |
|
Under Equity Incentive Plan |
|
Shares of Stock |
|
Stock and |
Name |
|
Type of Award |
|
of Grant |
|
Grant Date |
|
Plan Awards |
|
Awards |
|
or Units |
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
|
|
Threshold |
|
Target |
|
Max |
|
Threshold |
|
Target |
|
Max |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($)(1) |
|
($) |
|
($) |
|
(#)(10) |
|
(#) |
|
(#) |
|
(#) |
|
(2) |
Dan |
|
RSU (Time- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bodner |
|
vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,750 |
|
|
$ |
389,063 |
|
|
|
RSU |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,625 |
|
|
|
31,250 |
|
|
|
62,500 |
|
|
|
|
|
|
$ |
106,250 |
|
|
|
(Performance- |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750 |
|
|
|
31,250 |
|
|
|
62,500 |
|
|
|
|
|
|
$ |
768,125 |
|
|
|
vested |
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
31,250 |
|
|
|
62,500 |
|
|
|
|
|
|
|
n/a |
|
|
|
grant)(4)(5)(6) |
|
|
5/28/2008 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
|
|
|
$ |
274,375 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,250 |
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
|
|
|
$ |
42,500 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
|
|
|
$ |
307,250 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
1/31/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,075 |
|
|
|
18,766 |
|
|
|
18,766 |
|
|
|
|
|
|
$ |
347,171 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,075 |
|
|
|
18,767 |
|
|
|
18,767 |
|
|
|
|
|
|
$ |
411,936 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,384 |
|
|
|
18,767 |
|
|
|
18,767 |
|
|
|
|
|
|
$ |
63,808 |
|
|
|
Annual Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for YE 1/31/10 |
|
|
n/a |
|
|
|
n/a |
|
|
|
270,000 |
|
|
|
600,000 |
|
|
|
1,140,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas |
|
RSU (Time- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robinson |
|
vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,835 |
|
|
$ |
140,415 |
|
|
|
RSU |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,639 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
38,345 |
|
|
|
(Performance- |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,767 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
277,213 |
|
|
|
vested |
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
11,279 |
|
|
|
22,558 |
|
|
|
|
|
|
|
n/a |
|
|
|
grant)(4)(5)(6) |
|
|
5/28/2008 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,518 |
|
|
|
7,518 |
|
|
|
7,518 |
|
|
|
|
|
|
$ |
165,020 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,759 |
|
|
|
7,518 |
|
|
|
7,518 |
|
|
|
|
|
|
$ |
25,561 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,512 |
|
|
|
7,520 |
|
|
|
7,520 |
|
|
|
|
|
|
$ |
184,842 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
1/31/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,225 |
|
|
|
4,300 |
|
|
|
4,300 |
|
|
|
|
|
|
$ |
79,550 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,225 |
|
|
|
4,300 |
|
|
|
4,300 |
|
|
|
|
|
|
$ |
94,385 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,150 |
|
|
|
4,300 |
|
|
|
4,300 |
|
|
|
|
|
|
$ |
14,620 |
|
|
|
Annual Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for YE 1/31/10 |
|
|
n/a |
|
|
|
n/a |
|
|
|
95,580 |
|
|
|
212,400 |
|
|
|
403,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elan |
|
RSU (Time- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moriah |
|
vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,835 |
|
|
$ |
140,415 |
|
|
|
RSU |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,639 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
38,345 |
|
|
|
(Performance- |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,767 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
277,213 |
|
|
|
vested |
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
11,279 |
|
|
|
22,558 |
|
|
|
|
|
|
|
n/a |
|
|
|
grant)(4)(5)(6) |
|
|
5/28/2008 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,518 |
|
|
|
7,518 |
|
|
|
7,518 |
|
|
|
|
|
|
$ |
165,020 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,759 |
|
|
|
7,518 |
|
|
|
7,518 |
|
|
|
|
|
|
$ |
25,561 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,512 |
|
|
|
7,520 |
|
|
|
7,520 |
|
|
|
|
|
|
$ |
184,842 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
1/31/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825 |
|
|
|
3,766 |
|
|
|
3,766 |
|
|
|
|
|
|
$ |
69,671 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825 |
|
|
|
3,767 |
|
|
|
3,767 |
|
|
|
|
|
|
$ |
82,686 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,884 |
|
|
|
3,767 |
|
|
|
3,767 |
|
|
|
|
|
|
$ |
12,808 |
|
|
|
Annual Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for YE 1/31/10 |
|
|
n/a |
|
|
|
n/a |
|
|
|
95,580 |
|
|
|
212,400 |
|
|
|
403,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock |
|
Accounting |
|
|
|
|
Date of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Grant Date |
|
|
|
|
Committee |
|
|
|
|
|
Estimated Possible Payouts |
|
Estimated Future Payouts |
|
Number of |
|
Fair Value of |
|
|
|
|
Approval |
|
Accounting |
|
Under Non-Equity Incentive |
|
Under Equity Incentive Plan |
|
Shares of Stock |
|
Stock and |
Name |
|
Type of Award |
|
of Grant |
|
Grant Date |
|
Plan Awards |
|
Awards |
|
or Units |
|
Option Awards |
|
|
|
|
|
|
|
|
|
|
|
|
Threshold |
|
Target |
|
Max |
|
Threshold |
|
Target |
|
Max |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($)(1) |
|
($) |
|
($) |
|
(#)(10) |
|
(#) |
|
(#) |
|
(#) |
|
(2) |
Meir |
|
RSU (Time- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sperling |
|
vested grant)(3) |
|
|
5/20/2009 |
|
|
|
6/20/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
$ |
318,795 |
|
|
|
RSU |
|
|
5/20/2009 |
|
|
|
6/20/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
106,265 |
|
|
|
(Performance- |
|
|
5/20/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,015 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
246,415 |
|
|
|
vested |
|
|
5/20/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
|
n/a |
|
|
|
grant)(4)(5)(6) |
|
|
5/28/2008 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
|
|
|
$ |
146,692 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,342 |
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
|
|
|
$ |
22,722 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010 |
|
|
|
6,684 |
|
|
|
6,684 |
|
|
|
|
|
|
$ |
164,293 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
1/31/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825 |
|
|
|
3,766 |
|
|
|
3,766 |
|
|
|
|
|
|
$ |
69,671 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825 |
|
|
|
3,767 |
|
|
|
3,767 |
|
|
|
|
|
|
$ |
82,686 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,884 |
|
|
|
3,767 |
|
|
|
3,767 |
|
|
|
|
|
|
$ |
12,808 |
|
|
|
Annual Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for YE |
|
|
n/a |
|
|
|
n/a |
|
|
|
67,381 |
|
|
|
149,736 |
|
|
|
284,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David |
|
RSU (Time- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parcell |
|
vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
$ |
124,811 |
|
|
|
RSU |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
34,085 |
|
|
|
(Performance- |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,015 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
246,415 |
|
|
|
vested |
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
|
n/a |
|
|
|
grant)(4)(5)(6) |
|
|
5/28/2008 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
|
|
|
$ |
146,692 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,342 |
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
|
|
|
$ |
22,722 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010 |
|
|
|
6,684 |
|
|
|
6,684 |
|
|
|
|
|
|
$ |
164,293 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
1/31/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,125 |
|
|
|
2,833 |
|
|
|
2,833 |
|
|
|
|
|
|
$ |
52,411 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,125 |
|
|
|
2,833 |
|
|
|
2,833 |
|
|
|
|
|
|
$ |
62,184 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,417 |
|
|
|
2,834 |
|
|
|
2,834 |
|
|
|
|
|
|
$ |
9,636 |
|
|
|
Annual Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for YE |
|
|
n/a |
|
|
|
n/a |
|
|
|
50,612 |
|
|
|
112,472 |
|
|
|
213,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter |
|
RSU (Time- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fante |
|
vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
$ |
124,811 |
|
|
|
RSU |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
34,085 |
|
|
|
(Performance- |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,015 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
246,415 |
|
|
|
vested |
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
|
n/a |
|
|
|
grant)(4)(5)(6) |
|
|
5/28/2008 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
|
|
|
$ |
146,692 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,342 |
|
|
|
6,683 |
|
|
|
6,683 |
|
|
|
|
|
|
$ |
22,722 |
|
|
|
|
|
|
5/28/2008 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010 |
|
|
|
6,684 |
|
|
|
6,684 |
|
|
|
|
|
|
$ |
164,293 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
1/31/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,450 |
|
|
|
1,933 |
|
|
|
1,933 |
|
|
|
|
|
|
$ |
35,761 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
5/28/2008 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,450 |
|
|
|
1,933 |
|
|
|
1,933 |
|
|
|
|
|
|
$ |
42,429 |
|
|
|
|
|
|
7/2/2007 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967 |
|
|
|
1,934 |
|
|
|
1,934 |
|
|
|
|
|
|
$ |
6,576 |
|
|
|
Annual Bonus |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for YE 1/31/10 |
|
|
n/a |
|
|
|
n/a |
|
|
|
73,125 |
|
|
|
162,500 |
|
|
|
308,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The threshold column corresponds to the minimum bonus payable to the executive officer
assuming that minimum performance goals are achieved. If minimum performance goals are not
achieved, the bonus payable to the executive officer would be zero. |
|
(2) |
|
The accounting grant date fair value of equity awards is based on the target number of
shares and calculated using the closing price of our common stock on the accounting grant
date, which is not always the same as the date the stock option committee approved the
grant. The accounting grant date is generally the date on which the performance goal for
the applicable award tranche has been both established and communicated. For further
discussion of our accounting for equity compensation, see Note 14, Employee Benefit Plans
to the audited consolidated financial statements included elsewhere in this prospectus. |
130
The following table summarizes the fair value of the July 2, 2007, May 28, 2008, March 4,
2009, and May 20, 2009 performance-vested awards based on the target number of shares and
calculated using the closing price of our common stock on, as applicable, July 2, 2007
($30.77), May 28, 2008 ($21.95), March 4, 2009 ($4.15), and May 20, 2009 ($7.80), the dates
the stock option committee approved the grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value on Date |
|
|
|
Date of Committee |
|
Accounting |
|
|
Target |
|
|
of Committee |
|
Name |
|
Approval of Grant |
|
Grant Date |
|
|
Shares |
|
|
Approval |
|
|
Dan Bodner |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
31,250 |
|
|
$ |
106,250 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
12,500 |
|
|
$ |
42,500 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
18,767 |
|
|
$ |
63,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
62,517 |
|
|
$ |
212,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
12,500 |
|
|
$ |
274,375 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
18,767 |
|
|
$ |
411,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
31,267 |
|
|
$ |
686,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
18,766 |
|
|
$ |
347,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
18,766 |
|
|
$ |
347,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas Robinson |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
11,278 |
|
|
$ |
38,345 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
7,518 |
|
|
$ |
25,561 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
4,300 |
|
|
$ |
14,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
23,096 |
|
|
$ |
78,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
7,518 |
|
|
$ |
165,020 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
4,300 |
|
|
$ |
94,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
11,818 |
|
|
$ |
259,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
4,300 |
|
|
$ |
79,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
4,300 |
|
|
$ |
79,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elan Moriah |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
11,278 |
|
|
$ |
38,345 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
7,518 |
|
|
$ |
25,561 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
3,767 |
|
|
$ |
12,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
22,563 |
|
|
$ |
76,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
7,518 |
|
|
$ |
165,020 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
3,767 |
|
|
$ |
82,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
11,285 |
|
|
$ |
247,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value on Date |
|
|
|
Date of Committee |
|
Accounting |
|
|
Target |
|
|
of Committee |
|
Name |
|
Approval of Grant |
|
Grant Date |
|
|
Shares |
|
|
Approval |
|
|
Meir Sperling |
|
5/20/2009 (1st tranche) |
|
|
6/20/2009 |
|
|
|
10,025 |
|
|
$ |
106,265 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
6,683 |
|
|
$ |
22,722 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
3,767 |
|
|
$ |
12,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
20,475 |
|
|
$ |
141,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
6,683 |
|
|
$ |
146,692 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
3,767 |
|
|
$ |
82,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
10,450 |
|
|
$ |
229,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
3,766 |
|
|
$ |
69,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Parcell |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
10,025 |
|
|
$ |
34,085 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
6,683 |
|
|
$ |
22,722 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
2,834 |
|
|
$ |
9,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
19,542 |
|
|
$ |
66,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
6,683 |
|
|
$ |
146,692 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
2,833 |
|
|
$ |
62,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
9,516 |
|
|
$ |
208,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
2,833 |
|
|
$ |
52,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
2,833 |
|
|
$ |
52,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Fante |
|
3/4/2009 (1st tranche) |
|
|
3/18/2009 |
|
|
|
10,025 |
|
|
$ |
34,085 |
|
|
|
5/28/2008 (2nd tranche) |
|
|
3/18/2009 |
|
|
|
6,683 |
|
|
$ |
22,722 |
|
|
|
7/2/2007 (3rd tranche) |
|
|
3/18/2009 |
|
|
|
1,934 |
|
|
$ |
6,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2010 |
|
|
|
18,642 |
|
|
$ |
63,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 (1st tranche) |
|
|
5/28/2008 |
|
|
|
6,683 |
|
|
$ |
146,692 |
|
|
|
7/2/2007 (2nd tranche) |
|
|
5/28/2008 |
|
|
|
1,933 |
|
|
$ |
42,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2009 |
|
|
|
8,616 |
|
|
$ |
189,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 (1st tranche) |
|
|
1/31/2008 |
|
|
|
1,933 |
|
|
$ |
35,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total YE 1/31/2008 |
|
|
|
1,933 |
|
|
$ |
35,761 |
|
|
|
|
(3) |
|
The March 4, 2009 time-based award vests 1/3 on April 12, 2010, 1/3 on April 12, 2011,
and 1/3 on April 12, 2012. The May 20, 2009 time-based award vests 1/3 on April 12, 2010,
1/3 on April 12, 2011, and 1/3 on May 20, 2012. |
|
(4) |
|
The March 4, 2009 and May 20, 2009 performance awards vest 1/3 upon the stock option
committees determination of our achievement of specified revenue targets (set by the stock
option committee for the relevant performance period) for the period from February 1, 2009
through January 31, 2010, 1/3 upon the determination of such achievement for the period
from February 1, 2010 through January 31, 2011, and 1/3 upon the determination of such
achievement for the period from February 1, 2011 through January 31, 2012 (provided that,
with respect to the period from February 1, 2011 through January 31, 2012, no such
determination by the stock option committee shall be final until on or after the third
anniversary of the date the award was approved). |
132
|
|
|
(5) |
|
The May 28, 2008 performance award vests 1/3 upon the stock option committees
determination of our achievement of specified revenue targets (set by the stock option
committee for the relevant performance period) for the period from May 1, 2008 through
January 31, 2009, 1/3 upon the determination of such achievement for the period from
February 1, 2009 through January 31, 2010, and 1/3 upon the determination of such
achievement for the period from February 1, 2010 through January 31, 2011 (provided that,
with respect to the period from February 1, 2010 through January 31, 2011, no such
determination by the stock option committee shall be final until on or after May 28, 2011),
and as of January 31, 2010 was, in the case of Mr. Parcell, subject to the special vesting
conditions described in Narrative to Grants of Plan-Based Awards Table. |
|
(6) |
|
The July 2, 2007 performance award vests 1/3 upon the stock option committees
determination of our achievement of specified revenue targets (set by the stock option
committee for the relevant performance period) for the period from August 1, 2007 through
January 31, 2008, 1/3 upon the determination of such achievement for the period from
February 1, 2008 through January 31, 2009, and 1/3 upon the determination of such
achievement for the period from February 1, 2009 through January 31, 2010 (provided that,
with respect to the period from February 1, 2009 through January 31, 2010, no such
determination by the stock option committee shall be final until on or after July 2, 2010),
and as of January 31, 2010 was, in the case of Mr. Parcell, subject to the special vesting
conditions described in Narrative to Grants of Plan-Based Awards Table. |
|
(7) |
|
On March 18, 2009 the compensation committee approved threshold, target, and maximum
bonus awards for Mr. Sperling of NIS 278,550, NIS 619,000, and NIS 1,176,100, respectively
($67,381, $149,736, and $284,499 based on the March 18, 2009 exchange rate of
NIS1=$0.2419). |
|
(8) |
|
On March 18, 2009, the compensation committee approved threshold, target, and maximum
bonus awards for Mr. Parcell of £36,000, £80,000, and £152,000, respectively ($50,612,
$112,472 and $213,697 based on the March 18, 2009 exchange rate of £1=$1.4059). |
|
(9) |
|
Each performance award contains three equal tranches which vest based on three separate
performance periods. Dates correspond to the accounting grant date applicable to the
first, second, and third tranches, respectively. The accounting grant date is generally
the date on which the performance goal for the applicable award tranche has been both
established and communicated. Tranches for which performance goals have not yet been
established do not yet have an accounting grant date. |
|
(10) |
|
Represents the threshold number of shares that were available to be earned in each of
the 2007, 2008, 2009, and 2010 performance periods, as applicable. Tranches for which
performance goals have not yet been established do not yet have a threshold award level.
The following table summarizes the actual number of shares earned for each of the
performance periods that has already been completed. If the minimum performance goal is
not achieved in any performance period, no shares are earned for that period. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Grant Approved July 2, 2007 |
|
|
Actual Shares Earned for |
|
Actual Shares Earned for |
|
Actual Shares Earned for |
Name |
|
2007 Performance Period |
|
2008 Performance Period |
|
2009 Performance Period |
Dan Bodner |
|
|
18,625 |
|
|
|
15,275 |
|
|
|
18,767 |
|
Douglas Robinson |
|
|
4,267 |
|
|
|
3,500 |
|
|
|
4,300 |
|
Elan Moriah |
|
|
3,737 |
|
|
|
3,065 |
|
|
|
3,767 |
|
Meir Sperling |
|
|
3,737 |
|
|
|
3,065 |
|
|
|
3,767 |
|
David Parcell |
|
|
2,811 |
|
|
|
2,306 |
|
|
|
2,834 |
|
Peter Fante |
|
|
1,918 |
|
|
|
1,573 |
|
|
|
1,934 |
|
|
|
|
|
|
|
|
|
|
Performance Grant Approved May 28, 2008 |
|
|
Actual Shares Earned for |
|
Actual Shares Earned for |
Name |
|
2008 Performance Period |
|
2009 Performance Period |
Dan Bodner |
|
|
12,500 |
|
|
|
12,500 |
|
Douglas Robinson |
|
|
7,518 |
|
|
|
7,518 |
|
Elan Moriah |
|
|
7,518 |
|
|
|
7,518 |
|
Meir Sperling |
|
|
6,683 |
|
|
|
6,683 |
|
David Parcell |
|
|
6,683 |
|
|
|
6,683 |
|
Peter Fante |
|
|
6,683 |
|
|
|
6,683 |
|
133
|
|
|
|
|
Performance Grant Approved March 4, 2009 or |
May 20, 2009 |
|
|
Actual Shares Earned for |
Name |
|
2009 Performance Period |
Dan Bodner |
|
|
50,505 |
|
Douglas Robinson |
|
|
18,227 |
|
Elan Moriah |
|
|
18,227 |
|
Meir Sperling |
|
|
16,202 |
|
David Parcell |
|
|
16,202 |
|
Peter Fante |
|
|
16,202 |
|
Further Information Regarding Summary Compensation Table and Grants of Plan-Based Awards Table
As of the date of this prospectus, each of our executive officers other than Mr. Sperling is party
to an employment agreement with us. Each agreement provides for certain severance payments and
benefits, including in connection with a change in control. See Executive Officer Severance
Benefits and Change in Control Provisions below for a discussion of these severance and change in
control benefits, as well as a description of the restrictive covenants and clawback provisions
contained in such agreements.
The agreements with our U.S. executive officers generally provide for an initial term of two years,
followed by automatic one-year renewals (unless terminated by either party in accordance with the
agreement and subject to required notice). The agreements with our non-U.S. executive officers do
not provide for a fixed term. Mr. Sperling has a customary offer letter from us and a letter
agreement regarding the release of his severance, retirement, and disability insurance funds in the
event of a termination event, but does not currently have a formal employment agreement.
Narrative to Summary Compensation Table
As discussed in the Compensation Discussion and Analysis above, each employment agreement
provides for an annual base salary, target bonus (subject to the achievement of performance goals),
and certain perquisites. Although target bonuses are specified in each employment agreement,
bonuses are not guaranteed and are paid based on the achievement of performance goals. In Mr.
Robinsons case, the target bonus is fixed at 60% of his base salary under the terms of his
employment agreement. For the other executive officers party to an employment agreement, the
target bonus is expressed as a dollar amount or an amount denominated in local currency. As of
January 31, 2010, the target bonuses specified by the employment agreements were as follows:
$162,500 (for Mr. Fante), $212,400 (for Mr. Moriah), and £38,000 (for Mr. Parcell). Mr. Parcells
contractual target bonus of £38,000 corresponded to $60,770 as of January 31, 2010 based on an
exchange rate of £1=$1.5992 on such date. As of January 31, 2010, Messrs. Bodner and Sperling had
not entered into employment agreements with us and therefore did not yet have contractually defined
target bonuses. Mr. Sperlings offer letter provides for an annual base salary and a discretionary
annual bonus. Historically, the target bonuses for each executive officer established by the
compensation committee as part of its annual compensation review process has equaled or exceeded
the target bonus specified in the officers employment agreement (if any) and the target bonus from
the previous year.
The grant date fair value of our annual equity awards has fluctuated significantly from year to
year based on significant volatility in our stock price during our extended filing delay period,
particularly with respect to the awards made in the year ended January 31, 2010. As noted in the
Compensation Discussion and Analysis, in the year ended January 31, 2008, in addition to a regular
annual equity grant, each officer also received a retention equity award. Mr. Robinson also
received a one-time welcome grant in that year.
Narrative to All Other Compensation Table
We provide a limited amount of perquisites to our executive officers, which vary from officer to
officer. Each of the executive officers is entitled to use of a company car or an annual car
allowance. Messrs. Sperling and Parcell are
134
entitled to an annual allowance for fuel reimbursement. Messrs. Bodner, Robinson, and Fante are
entitled to an annual allowance for legal, tax, or accounting advice. In some years, Mr. Parcell
has received reimbursement of a modest amount of legal or tax advice as agreed by us on a case by
case basis in connection with proposed modifications of his employment arrangements. All executive
officers receive the same health insurance and company-paid group life and disability insurance
offered to all other employees in the country in which the executive officer is employed. In
addition, Mr. Bodner has historically received a supplemental company-paid life insurance policy.
Executive officers in the U.S. receive the same partial match of their 401(k) contributions as all
other U.S. employees, up to a maximum company contribution of $2,000 per year.
In the case of Mr. Parcell, we contribute a percentage of his base salary to a retirement fund on
the same basis as other U.K. employees. Under the retirement fund Mr. Parcell, can elect to
contribute a percentage of his monthly salary to the fund, which is administered by an outside
third party, similar to a 401(k). If he elects to contribute 3% or less of his salary, we
contribute an amount equal to 4% of his salary. If he elects to contribute 4% of salary, our
contribution is 5%. If he elects to contribute 5% or more, our contribution is 6%. Our
contributions are incremental to his salary and are paid by us directly to the third-party
provider.
Like all Israeli employees, under Israeli law, Mr. Sperling is entitled to severance pay equal to
one months salary for each year of employment upon termination without cause (as defined in the
Israel Severance Pay Law). To satisfy this requirement, for all Israeli employees, including Mr.
Sperling, we make contributions on behalf of the employee to a severance fund. This severance fund
is often part of a larger savings fund which also includes a retirement fund and in some cases an
insurance component. Each employee can elect to contribute an amount equal to between 5% and 7% of
his or her monthly salary to the retirement fund. We contribute an amount equal to 5% of the
employees monthly salary to the retirement fund plus an additional amount equal to 8.33% of the
employees monthly salary to the severance fund. The employee is not required to pay anything
towards the severance fund. Our contributions are incremental to the employees base salary and,
except as noted below, are paid by us directly to the third-party plan administrator. Applicable
tax law permits allocations made by the employer to the retirement fund to be made on a tax-free
basis up to a limit set by applicable Israeli tax regulations. Under local Israeli company policy,
the employee may request that any company contributions in excess of this limit be made directly to
him or her rather than being placed in the retirement fund. For executives like Mr. Sperling, if
the amount in the severance fund is insufficient to cover the required statutory payment under
Israeli labor law at the time of a termination event, we are obligated to supplement the amounts in
the severance fund.
In addition, all Israeli employees, including Mr. Sperling, are also entitled to participate in a
continuing education fund, often referred to as a study fund. The continuing education fund is a
savings fund from which the employee can withdraw on a tax-free basis for any purpose after six
years, irrespective of his or her employment status with us. Each month, eligible employees
contribute 2.5%, and we contribute 7.5%, of the employees base salary to the study fund.
Applicable tax law permits a portion of the company contributions to the study fund to be made
tax-free. Under local Israeli company policy, the employee may request that any company
contributions in excess of this limit be made directly to him or her rather than being placed in
the fund. Our contributions are incremental to the employees base salary and, except as noted
above, are paid by us directly to the third-party plan administrator.
Under applicable Israeli law, each employee is paid a small annual amount for recreation based on
the employees tenure and a per-diem rate published by the government. Under local Israeli company
policy, our Israeli employees are also entitled to receive a cash payment in exchange for vacation
days in accordance with the terms of the policy.
Narrative to Grants of Plan-Based Awards Table
All of the equity awards listed in the table entitled Grants of Plan-Based Awards were made under
or subsequently allocated to the Verint Systems Inc. Stock Incentive Compensation Plan or the
Verint Systems Inc. Amended and Restated 2004 Stock Incentive Compensation Plan (each as amended).
Time-based equity awards for officers normally vest over a three- or a four-year period.
Performance-based equity awards to date have been comprised of three separate vesting periods
corresponding to three separate performance periods which generally correspond to our fiscal year.
Specific vesting schedules for each award listed in the table entitled Grants of Plan-Based
Awards are provided in the footnotes to the table.
135
All of the equity awards granted to our executive officers in the years ended January 31, 2009 and
2008 (but not in year ended January 31, 2010) were made subject to special compliance vesting
conditions which overrode the regular time-vesting or performance-vesting schedule of the awards.
These compliance vesting conditions required us to be both current with our SEC filings and
re-listed on NASDAQ or another nationally recognized exchange for the awards to vest. The May 2008
awards also required that we have received stockholder approval of a new equity compensation plan
or have additional share capacity under an existing stockholder-approved equity compensation plan
for the 2008 awards to vest. If any of these compliance vesting conditions was not satisfied on
the date the awards would otherwise vest, the portion of the award that would otherwise vest
remained unvested until such time as all of the applicable compliance vesting conditions were
satisfied. As described in the Compensation Discussion and Analysis above, the compensation and
stock option committees subsequently authorized us to enter into amendments with each of the
executive officers to remove the compliance vesting conditions, thereby permitting these awards to
vest on their original schedule. As of the date of this prospectus, we have finalized all of these
amendments except for Mr. Parcells which was ultimately not signed due to local tax
considerations; however, as of the date of this prospectus, all of the compliance conditions in Mr.
Parcells 2007 and 2008 equity awards have been satisfied. For our U.S. executive officers, these
amendments also provide for a delay in the delivery of the shares underlying these awards
until the resale of such shares is covered by an effective registration statement and
until the conclusion of any company-imposed trading blackout the officer may be subject to
at the time such shares would otherwise be delivered, subject
to limitations imposed by Section 409A of the Internal Revenue Code.
Outstanding Equity Awards at January 31, 2010
The following table sets forth information regarding various equity awards held by our named
executive officers as of January 31, 2010. The market value of all RSU and restricted stock awards
is based on the closing price of our common stock as of the last trading day in the year ended
January 31, 2010 ($18.30 on January 29, 2010).
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan |
|
Equity Incentive Plan |
|
|
|
|
|
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Market Value of |
|
Awards: Number of |
|
Awards: Market or Payout |
|
|
Date of |
|
Unexercised |
|
Unexercised |
|
Option |
|
|
|
|
|
or Units of Stock |
|
Shares or Units of |
|
Unearned Shares, Units or |
|
Value of Unearned Shares, |
|
|
Committee |
|
Options |
|
Options |
|
Exercise |
|
Option |
|
That Have Not |
|
Stock That Have |
|
Other Rights That Have Not |
|
Units or Other Rights That |
|
|
Approval of |
|
(#) |
|
(#) |
|
Price |
|
Expiration |
|
Vested |
|
Not Vested |
|
Vested |
|
Have Not Vested |
Name |
|
Grant |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
(#) |
|
($) |
|
(#) |
|
($) |
Dan |
|
|
5/21/2002 |
(1) |
|
|
16,635 |
|
|
|
|
|
|
|
16.00 |
|
|
|
5/21/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bodner |
|
|
3/5/2003 |
(1) |
|
|
40,000 |
|
|
|
|
|
|
|
17.00 |
|
|
|
3/5/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/12/2003 |
(1) |
|
|
37,200 |
|
|
|
|
|
|
|
23.00 |
|
|
|
12/12/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/9/2004 |
(1) |
|
|
80,000 |
|
|
|
|
|
|
|
35.11 |
|
|
|
12/9/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/11/2006 |
(1) |
|
|
88,000 |
|
|
|
|
|
|
|
34.40 |
|
|
|
1/11/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,400 |
|
|
|
355,020 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,142 |
|
|
|
350,299 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,768 |
|
|
|
343,454 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
457,500 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
228,750 |
|
|
|
12,500 |
|
|
|
228,750 |
|
|
|
|
3/4/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,750 |
|
|
|
1,715,625 |
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2009 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,505 |
|
|
|
924,242 |
|
|
|
62,500 |
|
|
|
1,143,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas |
|
|
7/2/2007 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,900 |
|
|
|
236,070 |
|
|
|
|
|
|
|
|
|
Robinson |
|
|
7/2/2007 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,600 |
|
|
|
102,480 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,290 |
|
|
|
23,607 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,300 |
|
|
|
78,690 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,038 |
|
|
|
275,195 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,518 |
|
|
|
137,579 |
|
|
|
7,520 |
|
|
|
137,616 |
|
|
|
|
3/4/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,835 |
|
|
|
619,181 |
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2009 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,227 |
|
|
|
333,554 |
|
|
|
22,557 |
|
|
|
412,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elan |
|
|
4/1/2001 |
(1) |
|
|
4,892 |
|
|
|
|
|
|
|
8.69 |
|
|
|
4/1/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moriah |
|
|
5/21/2002 |
(1) |
|
|
2,446 |
|
|
|
|
|
|
|
16.00 |
|
|
|
5/16/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/5/2003 |
(1) |
|
|
20,000 |
|
|
|
|
|
|
|
17.00 |
|
|
|
3/5/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/12/2003 |
(1) |
|
|
18,750 |
|
|
|
|
|
|
|
23.00 |
|
|
|
12/12/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/9/2004 |
(1) |
|
|
25,000 |
|
|
|
|
|
|
|
35.11 |
|
|
|
12/9/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/11/2006 |
(1) |
|
|
20,000 |
|
|
|
|
|
|
|
34.40 |
|
|
|
1/11/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,100 |
|
|
|
258,030 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,842 |
|
|
|
70,309 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,768 |
|
|
|
68,954 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,038 |
|
|
|
275,195 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,518 |
|
|
|
137,579 |
|
|
|
7,520 |
|
|
|
137,616 |
|
|
|
|
3/4/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,835 |
|
|
|
619,181 |
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2009 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,227 |
|
|
|
333,554 |
|
|
|
22,557 |
|
|
|
412,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meir |
|
|
4/1/2001 |
(1) |
|
|
2,446 |
|
|
|
|
|
|
|
8.69 |
|
|
|
4/1/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sperling |
|
|
5/21/2002 |
(1) |
|
|
2,446 |
|
|
|
|
|
|
|
16.00 |
|
|
|
5/16/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/5/2003 |
(1) |
|
|
25,000 |
|
|
|
|
|
|
|
17.00 |
|
|
|
3/5/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/12/2003 |
(1) |
|
|
25,000 |
|
|
|
|
|
|
|
23.00 |
|
|
|
12/12/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/9/2004 |
(1) |
|
|
25,000 |
|
|
|
|
|
|
|
35.11 |
|
|
|
12/9/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/11/2006 |
(1) |
|
|
20,000 |
|
|
|
|
|
|
|
34.40 |
|
|
|
1/11/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,600 |
|
|
|
248,880 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,842 |
|
|
|
70,309 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,768 |
|
|
|
68,954 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,366 |
|
|
|
244,598 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,683 |
|
|
|
122,299 |
|
|
|
6,684 |
|
|
|
122,317 |
|
|
|
|
5/20/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
|
550,373 |
|
|
|
|
|
|
|
|
|
|
|
|
5/20/2009 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,202 |
|
|
|
296,497 |
|
|
|
20,050 |
|
|
|
366,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David |
|
|
5/21/2002 |
(1) |
|
|
2,446 |
|
|
|
|
|
|
|
16.00 |
|
|
|
5/16/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parcell |
|
|
3/5/2003 |
(1) |
|
|
7,500 |
|
|
|
|
|
|
|
17.00 |
|
|
|
3/5/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/12/2003 |
(1) |
|
|
11,250 |
|
|
|
|
|
|
|
23.00 |
|
|
|
12/12/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/9/2004 |
(1) |
|
|
20,000 |
|
|
|
|
|
|
|
35.11 |
|
|
|
12/9/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
146,400 |
|
|
|
|
7/2/2007 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,500 |
|
|
|
155,550 |
|
|
|
|
7/2/2007 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,951 |
|
|
|
145,503 |
|
|
|
|
5/28/2008 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,050 |
|
|
|
366,915 |
|
|
|
|
5/28/2008 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,050 |
|
|
|
366,915 |
|
|
|
|
3/4/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
|
550,373 |
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2009 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,202 |
|
|
|
296,497 |
|
|
|
20,050 |
|
|
|
366,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter |
|
|
11/20/2002 |
(1) |
|
|
6,250 |
|
|
|
|
|
|
|
14.90 |
|
|
|
11/20/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fante |
|
|
12/12/2003 |
(1) |
|
|
18,750 |
|
|
|
|
|
|
|
23.00 |
|
|
|
12/12/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/9/2004 |
(1) |
|
|
20,000 |
|
|
|
|
|
|
|
35.11 |
|
|
|
12/9/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,600 |
|
|
|
230,580 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,972 |
|
|
|
36,088 |
|
|
|
|
|
|
|
|
|
|
|
|
7/2/2007 |
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,934 |
|
|
|
35,392 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,366 |
|
|
|
244,598 |
|
|
|
|
|
|
|
|
|
|
|
|
5/28/2008 |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,683 |
|
|
|
122,299 |
|
|
|
6,684 |
|
|
|
122,317 |
|
|
|
|
3/4/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
|
550,373 |
|
|
|
|
|
|
|
|
|
|
|
|
3/4/2009 |
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,202 |
|
|
|
296,497 |
|
|
|
20,050 |
|
|
|
366,915 |
|
137
|
|
|
(1) |
|
This award was fully vested at January 31, 2010. |
|
(2) |
|
The vesting schedule for this RSU grant was/is 50% on March 15, 2008 and 50% on July 2,
2010, and as of January 31, 2010, this award was, for Mr. Parcell, subject to the special
vesting conditions described below. |
|
(3) |
|
The vesting schedule for this RSU grant was/is 33% on March 15, 2008, 33% on March 15,
2009, and 34% on July 2, 2010, and as of January 31, 2010, this award was, for Mr. Parcell,
subject to the special vesting conditions described below. |
|
(4) |
|
The vesting schedule for this RSU grant was/is 1/3 upon the stock option committees
determination of our achievement of specified revenue targets (set by the stock option
committee for the relevant performance period) for the period from August 1, 2007 through
January 31, 2008, 1/3 upon the determination of such achievement for the period from
February 1, 2008 through January 31, 2009, and 1/3 upon the determination of such
achievement for the period from February 1, 2009 through January 31, 2010 (provided that,
with respect to the period from February 1, 2009 through January 31, 2010, no such
determination by the stock option committee shall be final until on or after July 2, 2010),
and as of January 31, 2010, this award was, for Mr. Parcell, subject to the special vesting
conditions described below. |
|
(5) |
|
The vesting schedule for this RSU grant was/is 25% on August 14, 2007, 25% on August
14, 2008, 25% on August 14, 2009, and 25% on August 14, 2010. |
|
(6) |
|
The vesting schedule for this RSU grant was/is 30% on August 14, 2007, 30% on August
14, 2008, 30% on August 14, 2009, and 10% on July 2, 2010. |
|
(7) |
|
The May 28, 2008 award vests 1/3 on April 3, 2009, 1/3 on April 3, 2010, and 1/3 on May
28, 2011 and as of January 31, 2010 was, for Mr. Parcell, subject to the special vesting
conditions described below. |
|
(8) |
|
The May 28, 2008 performance award vests 1/3 upon the stock option committees
determination of our achievement of specified revenue targets (set by the stock option
committee for the relevant performance period) for the period from May 1, 2008 through
January 31, 2009, 1/3 upon the determination of such achievement for the period from
February 1, 2009 through January 31, 2010, and 1/3 upon the determination of such
achievement for the period from February 1, 2010 through January 31, 2011 (provided that,
with respect to the period from February 1, 2010 through January 31, 2011, no such
determination by the stock option committee shall be final until on or after May 28, 2011),
and as of January 31, 2010 was, for Mr. Parcell, subject to the special vesting conditions
described below. |
|
(9) |
|
The March 4, 2009 time-based award vests 1/3 on April 12, 2010, 1/3 on April 12, 2011,
and 1/3 on April 12, 2012. The May 20, 2009 time-based award vests 1/3 on April 12, 2010,
1/3 on April 12, 2011, and 1/3 on May 20, 2012. |
|
(10) |
|
The March 4, 2009 and May 20, 2009 performance awards vest 1/3 upon the stock option
committees determination of our achievement of specified revenue targets (set by the stock
option committee for the relevant performance period) for the period from February 1, 2009
through January 31, 2010, 1/3 upon the determination of such achievement for the period
from February 1, 2010 through January 31, 2011, and 1/3 upon the determination of such
achievement for the period from February 1, 2011 through January 31, 2012 (provided that,
with respect to the period from February 1, 2011 through January 31, 2012, no such
determination by the stock option committee shall be final until on or after the third
anniversary of the date the award was approved). The table excludes shares eligible to be
earned in excess of the target level based on the overachievement of the applicable
performance goals except with respect to tranches for which the performance period had been
completed as of January 31, 2010 (and the number of such overachievement shares could be
calculated). For tranches corresponding to the January 31, 2010 performance period, the
table shows the number of shares ultimately earned in the column entitled Number of Shares
or Units of Stock That Have Not Vested because the performance period had been completed
as of January 31, 2010, however, the determination of the number of shares earned (and the
vesting thereof) did not occur until March 17, 2010. See the table entitled Maximum Grant
Date Value of Performance Awards and the table entitled Grants of Plan-Based Awards for
the Year Ended January 31, 2010 for more information. |
All of the equity awards granted to our executive officers in the years ended January 31, 2009 and
2008 (including the special 2007 retention equity grants), but not in year ended January 31, 2010,
were made subject to special compliance vesting conditions which overrode the regular
time-vesting or performance-vesting schedule of the awards. These compliance vesting conditions
required us to be both current with our SEC filings and re-listed on NASDAQ or another nationally
recognized exchange for the awards to vest. The May 2008 awards also required that we have
received stockholder approval of a new equity compensation plan or have additional share capacity
under an existing stockholder-approved equity compensation plan for the 2008 awards to vest. If
any of these compliance vesting conditions was not satisfied on the date the awards would otherwise
vest, the portion of the
138
award that would otherwise vest remained unvested until such time as all
of the applicable compliance vesting conditions were satisfied. As described in the Compensation
Discussion and Analysis above, the compensation and stock option committees subsequently
authorized us to enter into amendments with each of the executive officers to remove the compliance
vesting conditions, thereby permitting these awards to vest on their original schedule. As of the
date of this prospectus, we have finalized all of these amendments except for Mr. Parcells which
was ultimately not signed due to local tax considerations; however, as of the date of this
prospectus, all of the
compliance conditions in Mr. Parcells 2007 and 2008 equity awards have been satisfied. For our
U.S. executive officers, these amendments also provide for a delay in the delivery of the shares
underlying these awards
until the resale of such shares is covered by an effective registration statement and until
the conclusion of any company-imposed trading blackout the officer may be subject to at the
time such shares would otherwise be delivered,
subject to limitations imposed by Section 409A of the Internal Revenue
Code.
Option Exercises and Stock Vesting During the Year Ended January 31, 2010
No stock options were exercised during the year ended January 31, 2010. The value of stock awards
realized on vesting is calculated by multiplying the number of shares vesting by the closing price
of our common stock on the vesting date. See the table entitled Outstanding Equity Awards at
January 31, 2010 above for the vesting schedule of outstanding awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of Shares |
|
|
|
|
|
Number of Shares |
|
|
|
|
Acquired on |
|
Value Realized on |
|
Acquired on |
|
Value Realized on |
|
|
Exercise |
|
Exercise |
|
Vesting |
|
Vesting |
Name |
|
(#) |
|
($) |
|
(#) |
|
($) |
Dan Bodner |
|
|
|
|
|
|
|
|
|
|
9,675 |
|
|
|
183,825 |
|
Douglas Robinson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elan Moriah |
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
47,500 |
|
Meir Sperling |
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
47,500 |
|
David Parcell |
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
38,000 |
|
Peter Fante |
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
33,250 |
|
Executive Officer Severance Benefits and Change in Control Provisions
As of the date of this prospectus, each of our executive officers other than Mr. Sperling is party
to an employment agreement with us. The following is a summary of the severance and change in
control provisions of these employment agreements as of the date of this prospectus, with
differences existing at January 31, 2010 noted under the Provisions of Executive Officer
Agreements Historically caption. The following also summarizes benefits that our non-U.S.
executive officers may become entitled to under local law or local company policy.
Provisions of Executive Officer Agreements at Present Date
Each of the employment agreements with our executive officers provides for an annual base salary
and a performance-based bonus target.
Severance Not in Connection with a Change in Control
In the event of an involuntary termination of employment (a termination without cause or a
resignation for good reason) not in connection with a change in control, the executive officers
are, subject to their execution of a release and continued compliance with the restrictive
covenants described below, entitled to severance consisting of base salary and, for our U.S.
executive officers, reimbursement of health insurance premiums for 12 months (inclusive of any
notice period required under the officers employment agreement), or 18 months in the case of Mr.
Bodner. Mr. Bodner is also entitled to 60 days advanced notice of any termination other than for
cause, continuation of his professional advice allowance, and access to his company-leased vehicle
for 18 months in such instance.
In addition, in the event of an involuntary termination, each executive officer other than Mr.
Bodner and Mr. Robinson is entitled to a pro-rated portion of his annual bonus for such year plus
an amount equal to 100% of his
139
average annual bonus measured over the last three years. Mr.
Bodners agreement provides for a pro-rated portion of his annual bonus for such year plus an
amount equal to 150% of his target bonus. Mr. Robinsons agreement provides for payment of 150% of
his average annual bonus measured over the last three years, but no pro-rated portion of his annual
bonus for the year in question.
Severance in Connection with a Change in Control
In the event of a termination of employment in connection with a change in control, in lieu of the
cash severance described above, each of the officers who has entered into a new or amended
employment agreement with us beginning in 2009 is entitled to enhanced cash severance equal to the
sum of 1.5 times base salary and target bonus, plus a pro-rated target bonus for the year of
termination, or in the case of Mr. Bodner, 2.5 times the sum of base salary and target bonus, plus
a pro-rated target bonus for the year of termination. We are currently in discussions regarding a
formal employment agreement with Mr. Sperling and amended employment agreements with Mr. Robinson
and Mr. Parcell, which we expect would include similar change in control benefits to Messrs. Moriah
and Fante.
Equity
Other than in the case of Mr. Bodner, no equity acceleration is provided in the case of an
involuntary termination not in connection with a change in control. In the event of an involuntary
termination of employment in connection with a change in control, each of the employment agreements
provides for acceleration of all unvested equity awards. Mr. Robinsons agreement provides for
acceleration of his unvested equity awards in the event of a change in control whether or not his
employment is terminated. Each of the new or amended employment agreements signed beginning in
2009 also provides that all of the officers outstanding equity awards will become fully vested if
not assumed in connection with a change in control.
Other Provisions
Each of the employment agreements provides for customary restrictive covenants, with a covenant
period ranging from 12 to 24 months, including a non-compete, a non-solicitation of customers and
employees, and an indefinite non-disclosure provision. Each agreement also contains a clawback
provision which allows us to recoup from the officer, or cancel, a portion of the officers
incentive compensation (including bonuses and equity awards) for a particular year if we are
required to restate our financial statements for that year due to material noncompliance with any
financial reporting requirement under the securities laws as a result of the officers misconduct.
The clawback applies from and after the year in which the employment agreement was first signed to
awards made during the term of the agreement. The amount to be recovered or forfeited is the
amount by which the incentive compensation in the year in question exceeded the amount that would
have been awarded had the financial statements originally been filed as restated. Each of our U.S.
executive officers who has entered into a new or amended employment agreement with us beginning in
2009 is also entitled to a gross-up for any excise taxes he may become subject to in connection
with a change in control. The terms cause, good reason, and change in control are defined in
the forms of employment agreements.
Provisions of Executive Officer Agreements Historically
As of January 31, 2010, Messrs. Bodner and Sperling had not entered into employment agreements with
us and therefore did not have any of the contractual benefits described in the preceding section.
As of January 31, 2010 and the date of this prospectus, Mr. Sperling is party to a customary offer
letter with us which provides for 90 days advanced notice in the event of a termination of
employment by either party. Mr. Sperling is also party to a letter agreement with us pursuant to
which we have agreed to release the full amounts in his severance, retirement, and disability
insurance funds in the event of a termination event.
As noted above, Mr. Robinsons and Mr. Parcells current employment agreements do not, and did not
as of January 31, 2010, provide for the enhanced cash severance or tax gross-ups in the event of a
termination in connection with a change in control described above.
140
Benefits Under Local Law or Local Company Policy
As discussed under Narrative to All Other Compensation Table above, Mr. Sperling is entitled
to severance pay equal to one months salary for each year of employment upon termination without
cause (as defined in the Israel Severance Pay Law) under Israeli law applicable to all Israeli
employees. We make payments into a severance fund to secure this severance obligation during the
course of Mr. Sperlings employment and, unless there
is a shortfall as described below, we are not responsible for any payments at the time of a
qualifying termination. As a result, these amounts are included in the table entitled Summary
Compensation Table above, but not in the table entitled Potential Payments Upon Termination or
Change in Control below. However, the table entitled Potential Payments Upon Termination or
Change in Control does include any additional amount of severance we are responsible for in excess
of the balance in the severance fund at the time of a qualifying termination (in the event there is
a shortfall) based on the legally mandated formula described above.
In addition to any severance fund shortfall, Mr. Sperling is also entitled to a minimum notice
period under Israeli law in the event of an involuntary termination and to 90 days advanced notice
of termination under his offer letter. Local company notice guidelines for our Israeli employees
subsume this legal notice requirement and, in Mr. Sperlings case, exceed the requirements of his
offer letter. Assuming application of these local company guidelines, employees are entitled to
between two weeks and three and one-half months of pay depending on the circumstances of the
termination and the employees tenure. In Mr. Sperlings case, assuming application of the
guidelines at January 31, 2010, he would have been entitled to three and one-half months of notice,
during which he would receive continued salary and all benefits.
Employees in the United Kingdom are entitled to severance payments under local U.K. company policy
in the event of an involuntary termination in which the employee is made redundant (meaning that
the termination resulted from us closing or downsizing our U.K. operations or a particular
function). Under this policy, U.K. employees receive between two and three weeks of pay for each
year of service depending on the employees age, with partial service years of six months or more
being rounded up. Assuming the application of this local company policy at January 31, 2010, Mr.
Parcell would have been entitled to three weeks of pay for each year of service in addition to the
benefits provided under his employment agreement. The payment is comprised of salary, pro rata
bonus, and car allowance, but no other benefits.
Because payments under the foregoing Israeli and U.K. company guidelines or policies do not arise
until a qualifying termination event, these payments are included in the table entitled Potential
Payments Upon Termination or Change in Control below, but not in the table entitled Summary
Compensation Table above.
Potential Payments Upon Termination or Change in Control
The table below outlines the potential payments and benefits that would have become payable by us
to our named executive officers in the event of an involuntary termination and/or a change in
control, assuming that the relevant event occurred on January 31, 2010. In reviewing the table,
please note the following:
|
|
|
The table does not include amounts that would be payable by third parties where we have
no continuing liability, such as amounts payable under private insurance policies,
government insurance such as social security or national insurance, or 401(k) or similar
defined contribution retirement plans. As a result, the table does not reflect amounts
payable to Mr. Sperling or Mr. Parcell under the applicable local company retirement plan
or retirement fund, for which we have no liability at the time of payment. |
|
|
|
|
Except as noted in the following bullet, the table does not include payments or benefits
that are available generally to all salaried employees in the country in which the
executive officer is employed and do not discriminate in scope, terms, or operation in
favor of our executive officers or directors, such as short-term disability payments or
payment for accrued but unused vacation. |
|
|
|
|
The table includes all severance or notice payments for which we are financially
responsible, even if such payments are available generally to all salaried employees in the
country in which the executive officer is employed and do not discriminate in scope, terms,
or operation in favor of our executive officers or directors. |
141
|
|
|
With respect to Mr. Sperlings severance fund, the table includes the difference between
the amount that would have been owed to Mr. Sperling under applicable Israeli labor law in
the event of an involuntary termination and the amount in his severance fund at January 31,
2010. |
|
|
|
|
As noted in the previous section, as of January 31, 2010, Messrs. Bodner and Sperling
had not entered into employment agreements with us, however, Mr. Sperling (but not Mr.
Bodner) is included in the table below because he was entitled to certain statutory
severance benefits and advanced notice payments, as described below. |
|
|
|
|
The value of equity awards in the table below is based on the closing price of our
common stock on the last trading day in the year ended January 31, 2010 ($18.30 on January
29, 2010). |
|
|
|
|
Except with respect to tax gross up amounts, all amounts are calculated on a pre-tax
basis. |
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated |
|
Cont. Health |
|
Cont. |
|
280G Tax |
|
|
|
|
Salary |
|
Pro Rata |
|
Additional |
|
Equity |
|
(present Insurance |
|
Other |
|
Gross up |
|
|
|
|
Continuation(1) |
|
Bonus(2) |
|
Bonus(3) |
|
Awards(4) |
|
Coverage value)(5) |
|
Benefits(6) |
|
(7) |
|
Total |
|
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
Douglas Robinson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
|
|
|
|
212,400 |
|
|
|
|
|
|
|
|
|
|
|
35,801 |
|
|
|
|
|
|
|
|
|
|
|
248,201 |
|
Disability |
|
|
177,000 |
|
|
|
212,400 |
|
|
|
|
|
|
|
|
|
|
|
17,901 |
|
|
|
|
|
|
|
|
|
|
|
407,301 |
|
Resignation
for Good Reason/Involuntary Termination without Cause |
|
|
354,000 |
|
|
|
|
|
|
|
626,371 |
|
|
|
|
|
|
|
35,801 |
|
|
|
|
|
|
|
|
|
|
|
1,016,172 |
|
Resignation
for Good Reason/Involuntary Termination without Cause in Connection with CIC |
|
|
354,000 |
|
|
|
|
|
|
|
626,371 |
|
|
|
2,356,766 |
|
|
|
35,801 |
|
|
|
|
|
|
|
|
|
|
|
3,372,938 |
|
CIC Only (continued employment) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,356,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,356,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elan Moriah |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
|
|
|
|
276,170 |
|
|
|
|
|
|
|
|
|
|
|
35,801 |
|
|
|
|
|
|
|
|
|
|
|
311,971 |
|
Disability |
|
|
177,000 |
|
|
|
276,170 |
|
|
|
|
|
|
|
|
|
|
|
17,901 |
|
|
|
|
|
|
|
|
|
|
|
471,071 |
|
Resignation
for Good Reason/Involuntary Termination without Cause |
|
|
354,000 |
|
|
|
276,170 |
|
|
|
482,213 |
|
|
|
|
|
|
|
35,801 |
|
|
|
|
|
|
|
|
|
|
|
1,148,184 |
|
Resignation
for Good Reason/Involuntary Termination without Cause in Connection with CIC |
|
|
531,000 |
|
|
|
212,400 |
|
|
|
568,600 |
|
|
|
2,313,212 |
|
|
|
35,801 |
|
|
|
|
|
|
|
568,617 |
|
|
|
4,229,630 |
|
CIC Only (continued employment) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meir Sperling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resignation
for Good Reason/Involuntary Termination without Cause |
|
|
97,201 |
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
15 |
|
|
|
27,642 |
|
|
|
|
|
|
|
324,858 |
|
Resignation
for Good Reason/Involuntary Termination without Cause in Connection with CIC |
|
|
97,201 |
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
15 |
|
|
|
27,642 |
|
|
|
|
|
|
|
324,858 |
|
CIC Only (continued employment) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Parcell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
|
|
|
|
127,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,936 |
|
Disability |
|
|
|
|
|
|
127,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,936 |
|
Resignation
for Good Reason/Involuntary Termination without Cause |
|
|
471,334 |
|
|
|
271,269 |
|
|
|
330,440 |
|
|
|
|
|
|
|
2,535 |
|
|
|
33,058 |
|
|
|
|
|
|
|
1,108,636 |
|
Resignation
for Good Reason/Involuntary Termination without Cause in Connection with CIC |
|
|
471,334 |
|
|
|
271,269 |
|
|
|
330,440 |
|
|
|
2,395,067 |
|
|
|
2,535 |
|
|
|
33,058 |
|
|
|
|
|
|
|
3,503,703 |
|
CIC Only (continued employment) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Fante |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death |
|
|
|
|
|
|
211,288 |
|
|
|
|
|
|
|
|
|
|
|
35,801 |
|
|
|
|
|
|
|
|
|
|
|
247,089 |
|
Disability |
|
|
162,500 |
|
|
|
211,288 |
|
|
|
|
|
|
|
|
|
|
|
17,901 |
|
|
|
|
|
|
|
|
|
|
|
391,689 |
|
Resignation
for Good Reason/Involuntary Termination without Cause |
|
|
325,000 |
|
|
|
211,288 |
|
|
|
428,172 |
|
|
|
|
|
|
|
35,801 |
|
|
|
|
|
|
|
|
|
|
|
1,000,261 |
|
Resignation
for Good Reason/Involuntary Termination without Cause in Connection with CIC |
|
|
487,500 |
|
|
|
162,500 |
|
|
|
493,750 |
|
|
|
2,005,058 |
|
|
|
35,801 |
|
|
|
|
|
|
|
559,473 |
|
|
|
3,744,082 |
|
CIC Only (continued employment) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For Mr. Sperling, includes three and one-half months base salary during his notice
period assuming the application of local company notice guidelines equaling NIS 361,344
($97,201 based on the January 31, 2010 exchange rate of NIS 1 = $0.2690). For Mr. Parcell,
includes six months of base salary during his contractual notice period, plus six months of
severance under his supplemental employment contract, plus an additional 27 weeks of salary
(assuming a termination event on January 31, 2010) assuming the application of local
company redundancy policy, costing an aggregate of £294,731, or $471,334 as indicated in
the table above, based on the January 31, 2010 exchange rate of £1= $1.5992. |
|
(2) |
|
For Mr. Parcell, includes six-months worth (or 50%) of the average annual bonus paid
or payable to him over the course of the three years ended January 31, 2010 as part of his
six month contractual notice period, 100% of his target bonus that was set for the year
ended January 31, 2010 (assuming a termination event on January 31, 2010) as part of his
supplemental employment agreement plus an additional 27 weeks worth (assuming a
termination event on January 31, 2010) of his three-year average annual bonus assuming the |
143
|
|
|
|
|
application of local company redundancy policy, costing an aggregate of £169,628, or
$271,269 as indicated in the table above, based on the January 31, 2010 exchange rate of
£1= $1.5992. |
|
(3) |
|
For Mr. Parcell, represents the average annual bonus paid or payable to him over the
course of the three years ended January 31, 2010 as part of his supplemental employment
agreement equaling £81,566 ($130,440 based on the January 31, 2010 exchange rate of £1=
$1.5992). Includes a retention bonus of $250,000 in the case of Messrs. Robinson, Moriah
and Fante and of $200,000 in the case of Messrs. Parcell and Sperling payable in the case
of an involuntary termination without cause only. |
|
(4) |
|
For equity awards other than stock options, value is calculated as the closing price of
our common stock on the last trading day in the year ended January 31, 2010 ($18.30 on
January 29, 2010) times the number of shares accelerating. Shares accelerating includes
the actual number of performance shares ultimately earned for the January 31, 2010
performance period notwithstanding that the formal determination of the number of shares
earned did not occur until March 17, 2010. For performance periods that had not yet been
completed as of January 31, 2010, shares accelerating includes the target number of
performance
shares. For stock options, value is calculated as the difference between the closing price
of our common stock on the last trading day in the year ended January 31, 2010 ($18.30 on
January 29, 2010) and the option exercise price per share times the number of stock options
accelerating. |
|
(5) |
|
For executive officers other than Messrs. Parcell and Sperling, amounts shown represent
the actual cost of the contractually agreed number of months of COBRA payments. As of
January 31, 2010, neither Mr. Parcell nor Mr. Sperling was entitled to company-paid or
reimbursed health insurance following a termination event, however, Mr. Parcell was
entitled to continued health benefits during his six-month notice period costing £1,585 or
$2,535 as indicated in the table above, based on the January 31, 2010 exchange rate of £1=
$1.5992 and Mr. Sperling was entitled to continued health benefits during his notice period
assuming the application of local company notice guidelines costing NIS 57, or $15 as
indicated in the table above, based on the January 31, 2010 exchange rate of NIS 1 =
$0.2690. |
|
(6) |
|
For Mr. Sperling, assuming the application of local company notice guidelines, includes
three and one-half months of continued contributions to his retirement fund of NIS 20,055
($5,395), to his severance fund of NIS 30,509 ($8,207), to his study fund of NIS 27,101
($7,290), disability insurance premiums of NIS 9,034 ($2,430), a statutory recreation
payment of NIS 694 ($187), and use of a company car plus a fuel reimbursement allowance
costing NIS 15,365 ($4,133) for the period, for a total of NIS 102,758 ($27,642), in each
case, based on the January 31, 2010 exchange rate of NIS 1 = $0.2690. For Mr. Parcell,
includes six months of continued retirement plan contributions, car allowance/fuel
reimbursement allowance, and insurance premiums during his contractual notice period
costing £6,360 ($10,171), £6,892 ($11,021), and £1,286 ($2,057), respectively, plus an
additional 27 weeks of car allowance assuming the application of local company redundancy
policy, costing £6,134 ($9,809), for a total of £19,686 ($31,482), in each case, based on
the January 31, 2010 exchange rate of £1= $1.5992. |
|
(7) |
|
The tax reimbursement amount represents a reasonable estimate of costs to cover the
excise tax liability under Internal Revenue Code Section 4999 and the subsequent federal,
state and FICA taxes on the reimbursement payment. With respect to tax gross-ups, the
assumptions used to calculate this estimate are: an excise tax rate under 280G of the
Internal Revenue Code of 20%, a federal, state (New York), and FICA tax blended rate of
42.28% (a 35% federal income tax rate, a 8.97% state income tax rate, and a 1.45% Medicare
tax rate). These calculations do not take into account the value of any covenant not to
compete that may affect the calculation of any excess parachute payment. |
Subsequent to January 31, 2010 , on February 23, 2010, Mr. Bodner entered into an employment
agreement with us which provided him with significant severance and/or change in control benefits.
The terms of this new agreement are described in greater detail under Executive Officer
Severance Benefits and Change in Control Provisions above.
Compensation Committee Interlocks and Insider Participation
No executive officer has served on the board of directors or compensation committee of any other
entity that has or has had one or more executive officers who served as a member of the companys
board of directors or compensation committee. None of the members of the compensation committee is
or has ever been an officer or employee of the company.
144
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and accompanying footnotes show information regarding the beneficial ownership
of our common stock as of September 15, 2010 (the Reference Date) by:
|
|
|
each person (or group within the meaning of Section 13(d)(3) of the Exchange Act) who
is known by us to beneficially own 5% or more of common stock as of the Reference Date; |
|
|
|
|
each member of our board of directors and each of our named executive officers; and |
|
|
|
|
all members of our board of directors and our executive officers as a group. |
As used in this table, beneficial ownership means the sole or shared power to vote or direct the
voting or to dispose or direct the disposition of any equity security. A person is deemed to be
the beneficial owner of securities that he or she has the right to acquire within 60 days from the
Reference Date through the exercise of any option, warrant, or right. Shares of our common stock
subject to options, warrants, or rights which are currently exercisable or exercisable within 60
days are deemed outstanding for computing the ownership percentage of the person holding such
options, warrants, or rights, but are not deemed outstanding for computing the ownership percentage
of any other person. The amounts and percentages are based upon
35,157,845 shares of common stock
outstanding as of the Reference Date
(which excludes 638,450 shares of our common stock issued upon vesting of restricted stock units on October 5, 2010)
and exclude approximately 10.2 million shares of common stock
issuable to Comverse upon conversion of shares of preferred stock (if converted on the Reference
Date). The foregoing outstanding share number includes employee equity awards that have been
settled but excludes awards that are vested but not yet delivered. The table below, however,
includes awards that have vested or will vest within 60 days of the Reference Date even if the
underlying shares have not yet been delivered.
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares to be sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
|
|
if underwriters |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of shares |
|
Shares beneficially owned |
|
option is |
|
Shares beneficially owned |
Name of Beneficial Owner |
|
Class |
|
Shares beneficially owned (1) |
|
offered |
|
after offering |
|
exercised in full |
|
after offering |
|
|
|
|
Number |
|
Percentage |
|
|
|
Number |
|
Percentage |
|
|
|
Number |
|
Percentage |
Principal Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comverse Technology, Inc.
810 Seventh Avenue
New York, NY 10019 |
|
Common |
|
|
18,589,023 |
(2) |
|
|
52.9 |
%(2) |
|
|
2,434,783 |
|
|
|
16,154,240 |
|
|
|
45.9 |
%(2) |
|
|
2,800,000 |
|
|
|
15,789,023 |
|
|
|
44.9 |
%(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comverse Technology, Inc.
810 Seventh Avenue
New York, NY 10019 |
|
Series A Preferred |
|
|
10,270,695 |
(3) |
|
|
100 |
%(4) |
|
|
0 |
|
|
|
10,270,695 |
(3) |
|
|
100 |
%(4) |
|
|
0 |
|
|
|
10,270,695 |
(3) |
|
|
100 |
%(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadian Capital Management, LLC (5)
461 Fifth Avenue 24th Floor
New York, NY 10017 |
|
Common |
|
|
2,302,525 |
|
|
|
6.5 |
% |
|
|
0 |
|
|
|
2,302,525 |
|
|
|
6.5 |
% |
|
|
0 |
|
|
|
2,302,525 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan Bodner |
|
Common |
|
|
515, 682 |
(6) |
|
|
1.5 |
% |
|
|
0 |
|
|
|
515, 682 |
(6) |
|
|
1.5 |
% |
|
|
0 |
|
|
|
515,682 |
(6) |
|
|
1.5 |
% |
Douglas E. Robinson |
|
Common |
|
|
58,016 |
(7) |
|
|
|
* |
|
|
0 |
|
|
|
58,016 |
(7) |
|
|
|
* |
|
|
0 |
|
|
|
58,016 |
(7) |
|
|
|
* |
Peter Fante |
|
Common |
|
|
38,750 |
(8) |
|
|
|
* |
|
|
0 |
|
|
|
38,750 |
(8) |
|
|
|
* |
|
|
0 |
|
|
|
38,750 |
(8) |
|
|
|
* |
Elan Moriah |
|
Common |
|
|
94,363 |
(9) |
|
|
|
* |
|
|
0 |
|
|
|
94,363 |
(9) |
|
|
|
* |
|
|
0 |
|
|
|
94,363 |
(9) |
|
|
|
* |
David Parcell |
|
Common |
|
|
31,250 |
(10) |
|
|
|
* |
|
|
0 |
|
|
|
31,250 |
(10) |
|
|
|
* |
|
|
0 |
|
|
|
31,250 |
(10) |
|
|
|
* |
Meir Sperling |
|
Common |
|
|
96,227 |
(11) |
|
|
|
* |
|
|
0 |
|
|
|
96,227 |
(11) |
|
|
|
* |
|
|
0 |
|
|
|
96,227 |
(11) |
|
|
|
* |
Paul D. Baker |
|
Common |
|
|
10,723 |
(12) |
|
|
|
* |
|
|
0 |
|
|
|
10,723 |
(12) |
|
|
|
* |
|
|
0 |
|
|
|
10,723 |
(12) |
|
|
|
* |
John Bunyan |
|
Common |
|
|
0 |
(13) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(13) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(13) |
|
|
|
* |
Andre Dahan |
|
Common |
|
|
0 |
(14) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(14) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(14) |
|
|
|
* |
Victor A. DeMarines |
|
Common |
|
|
34,000 |
(15) |
|
|
|
* |
|
|
0 |
|
|
|
34,000 |
(15) |
|
|
|
* |
|
|
0 |
|
|
|
34,000 |
(15) |
|
|
|
* |
Kenneth A. Minihan |
|
Common |
|
|
35,000 |
(16) |
|
|
|
* |
|
|
0 |
|
|
|
35,000 |
(16) |
|
|
|
* |
|
|
0 |
|
|
|
35,000 |
(16) |
|
|
|
* |
Larry Myers |
|
Common |
|
|
23,000 |
(17) |
|
|
|
* |
|
|
0 |
|
|
|
23,000 |
(17) |
|
|
|
* |
|
|
0 |
|
|
|
23,000 |
(17) |
|
|
|
* |
Howard Safir |
|
Common |
|
|
40,000 |
(18) |
|
|
|
* |
|
|
0 |
|
|
|
40,000 |
(18) |
|
|
|
* |
|
|
0 |
|
|
|
40,000 |
(18) |
|
|
|
* |
Shefali Shah |
|
Common |
|
|
0 |
(19) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(19) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(19) |
|
|
|
* |
Lauren Wright |
|
Common |
|
|
0 |
(20) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(20) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(20) |
|
|
|
* |
Stephen M. Swad |
|
Common |
|
|
0 |
(21) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(21) |
|
|
|
* |
|
|
0 |
|
|
|
0 |
(21) |
|
|
|
* |
All executive officers and
directors as a group (sixteen
persons) |
|
|
|
|
|
|
977,011 |
|
|
|
2.7 |
% |
|
|
0 |
|
|
|
977,011 |
|
|
|
2.7 |
% |
|
|
0 |
|
|
|
977,011 |
|
|
|
2.7 |
% |
|
|
|
* |
|
Less than 1% |
|
(1) |
|
Unless otherwise indicated and except pursuant to applicable community property laws, to our
knowledge, each person or entity listed in the table above has sole voting and investment
power with respect to all shares listed as owned by such person or entity. |
|
|
|
(2) |
|
Represents shares of common stock directly owned by Comverse. Comverse beneficially
owns an additional 10.2 million shares of common stock issuable upon conversion of our
preferred stock, which together with the common stock directly owned by Comverse
would equal 63.5% of our common stock prior to the offering, 58.2% of our common
stock after the offering (assuming no exercise of the underwriters over-allotment option)
and 57.4% of our common stock after the offering (assuming full exercise of the
underwriters over-allotment option).
See Description of Capital Stock for details on the
conversion rights of the preferred stock. |
|
|
|
|
|
(3) |
|
Reflects the number of shares of common stock issuable to Comverse upon conversion of 293,000
shares of preferred stock if the preferred stock were converted into common stock 60 days
after the Reference Date inclusive of the effect of additional dividend accruals on the
preferred stock during such 60 day period. If converted on the Reference Date, the preferred
stock would be converted into approximately 10.2 million shares of common stock as indicated
in the lead in to the table. |
|
|
|
(4) |
|
Comverse is the sole holder of our preferred stock. See Description of Capital Stock for
details on the rights of the preferred stock. |
|
(5) |
|
As reported in the Schedule 13G filed with the SEC on January 15, 2010 by Cadian Capital
Management, LLC (CCM), on behalf of itself and Eric Bannasch, CCM and Eric Bannasch have
shared voting and dispositive power over all the shares. |
|
|
146
|
|
(6) |
|
Includes options to purchase 261,835 shares of common stock which are currently exercisable.
Includes 253,847 shares of restricted stock which are fully vested. Mr. Bodner beneficially owns options to purchase 4,781 shares
(less than 1%) of Comverse common stock exercisable within 60 days after the Reference Date. |
|
|
|
|
|
(7) |
|
Consists of 58,016 RSUs which are fully vested. |
|
|
|
|
|
(8) |
|
Includes options to purchase 38,750 shares of common stock which are currently exercisable. |
|
|
|
|
|
(9) |
|
Includes options to purchase 68,642 shares of common stock which are currently exercisable.
Includes 25,721 shares of restricted stock which are fully vested. |
|
|
|
|
|
(10) |
|
Includes options to purchase 31,250 shares of common stock which are currently exercisable.
|
|
|
|
|
|
(11) |
|
Includes options to purchase 70,000 shares of common stock which are currently exercisable.
Includes 26,227 shares of restricted stock which are fully vested. |
|
|
|
|
(12) |
|
Includes options to purchase 10,223 shares of common stock which are currently exercisable
and 500 shares of common stock held following the exercise of stock options. Mr. Baker
beneficially owns 12,000 shares (less than 1%) of Comverse common stock deliverable in
settlement of vested deferred stock unit awards on the first date within calendar 2010 on
which such shares are the subject of an effective Registration Statement on Form S-8 and no
resale restrictions apply. Mr. Baker also beneficially owns options to purchase 81,250 shares
(less than 1%) of Comverse common stock exercisable within 60 days after the Reference Date.
Mr. Baker is a senior executive at Comverse. He disclaims beneficial ownership of any of our
securities held by Comverse. |
|
|
|
(13) |
|
Mr. Bunyan beneficially owns 81,000 shares (less than 1%) of Comverse common stock
deliverable in settlement of vested deferred stock unit awards on the first date within
calendar 2010 on which such shares are the subject of an effective Registration Statement on
Form S-8 and no resale restrictions apply. Mr. Bunyan is a senior executive at Comverse. He
disclaims beneficial ownership of any of our securities held by Comverse. |
|
|
|
(14) |
|
Mr. Dahan beneficially owns 502,823 shares (less than 1%) of Comverse common stock
deliverable in settlement of vested deferred stock unit awards on the first date within
calendar 2010 on which such shares are the subject of an effective Registration Statement on
Form S-8 and no resale restrictions apply. Mr. Dahan is President, Chief Executive Officer,
and a director of Comverse. He disclaims beneficial ownership of any of our securities held
by Comverse. |
|
|
|
(15) |
|
Includes options to purchase 17,000 shares of common stock which are currently exercisable.
Includes 17,000 shares of restricted stock, 12,000 of which are fully vested and of which
5,000 are unvested and subject to forfeiture. |
|
|
|
(16) |
|
Includes options to purchase 18,000 shares of common stock which are currently exercisable.
Includes 17,000 shares of restricted stock, 12,000 of which are fully vested and of which
5,000 are unvested and subject to forfeiture. |
|
|
|
(17) |
|
Includes options to purchase 6,000 shares of common stock which are currently exercisable.
Includes 17,000 shares of restricted stock, 12,000 of which are fully vested and of which
5,000 are unvested and subject to forfeiture. |
|
|
|
(18) |
|
Includes options to purchase 23,000 shares of common stock which are currently exercisable.
Includes 17,000 shares of restricted stock, 12,000 of which are fully vested and of which
5,000 are unvested and subject to forfeiture. |
|
|
|
(19) |
|
Ms. Shah beneficially owns 44,667 shares (less than 1%) of Comverse common stock deliverable
in settlement of vested deferred stock unit awards on the first date within calendar 2010 on
which such shares are the subject of an effective Registration Statement on Form S-8 and no
resale restrictions apply. Ms. Shah is a senior executive at Comverse. She disclaims
beneficial ownership of any of our securities held by Comverse. |
|
|
|
(20) |
|
Ms. Wright beneficially owns 55,001 shares (less than 1%) of Comverse common stock
deliverable in settlement of vested deferred stock unit awards on the first date within
calendar 2010 on which such shares are the subject of an effective Registration Statement on
Form S-8 and no resale restrictions apply. Ms. Wright is a senior executive at Comverse. She
disclaims beneficial ownership of any of our securities held by Comverse. |
|
|
|
(21) |
|
Mr. Swad beneficially owns 46,667 shares (less than 1%) of Comverse common stock deliverable
in settlement of vested deferred stock unit awards on the first date within calendar 2010 on
which shares are the subject of an effective Registration Statement on Form S-8 and no resale
restrictions apply. Mr. Swad is a senior executive at Comverse. He disclaims beneficial
ownership of any of our securities held by Comverse. |
|
147
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following summarizes various agreements in place between Verint and related parties,
principally Comverse (our majority stockholder) and its affiliates.
Under our audit committee charter, all related-party transactions (other than director and officer
compensation arrangements approved by the full board of directors or the compensation committee)
must be approved in advance by the audit committee of our board of directors. Proposed
related-party transactions are generally brought to the audit committees attention for
consideration by our legal department based on its review of the requirements of Item 404 of
Regulation S-K. Apart from the requirements of our audit committee charter, we have no other
written policy or procedure regarding the approval of related-party transactions. The audit
committee has reviewed and approved all of the agreements and transactions referred to in this
section.
Comverse Financing Agreements
On May 25, 2007, in connection with our acquisition of Witness, we entered into a Securities
Purchase Agreement with Comverse pursuant to which Comverse purchased, for cash, an aggregate of
293,000 shares of our preferred stock, at an aggregate purchase price of $293.0 million. Proceeds
from the issuance of the preferred stock were used, together with the proceeds of the $650.0
million term loan under our credit agreement and cash on hand, to finance the consideration for the
acquisition. For a description of the terms of the preferred stock held by Comverse, see
Description of Capital Stock.
Other Agreements with Comverse
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 Comverses consolidated federal tax return. By virtue of its controlling
ownership and this tax sharing agreement, Comverse effectively controls all of our tax decisions
for periods ending prior to the completion of our IPO. Under the agreement, for periods during
which we were included in Comverses 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 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 groups 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.
Business Opportunities Agreement
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. For example, if one of the
directors on our board designated by Comverse becomes aware of an opportunity that might be of
interest to us, we cannot pursue that opportunity unless and until Comverse has failed to pursue
it. The agreement also allocates to Comverse in the first instance a common interest opportunity
which is offered to a person who is an employee of both Comverse and us or a director of both
Comverse and us. We have also 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 no one on our board of
directors is a director or employee of Comverse.
148
We have in the past and may from time to time in the future enter into other agreements with
Comverse or its subsidiaries. For example, in the past we have entered into certain intercompany
services agreements with Comverse or its subsidiaries relating to shared computer services,
insurance, and use of personnel, as well as a patent cross-license agreement involving a third
party. We believe that the terms of any such agreements have been, and expect that in the future
any such terms would be, no less favorable to us than those we could obtain from an unaffiliated
third party. Other than as described elsewhere in this prospectus, we do not believe that any of
these historical agreements are currently material to us or to Comverse.
Registration Rights Agreements
We have entered into two registration rights agreements with Comverse. Under these registration
rights agreements, Comverse can demand that we file a registration statement or request that its
shares be covered by a registration statement that we are otherwise filing, as described below.
Demand Registration Rights
Pursuant to the registration rights agreement we entered into with Comverse at the time of our
initial public offering, Comverse may, at any time, request that we register all or a portion of
its common stock for sale under the Securities Act. Comverse is entitled to unlimited demand
registrations of its shares on a registration statement on Form S-3 and one demand registration on
a registration statement on Form S-1. This offering is being made as a result of Comverses
exercise of its Form S-1 demand registration right. In connection with the exercise of the demand,
we and Converse entered into a letter agreement pursuant to which we agreed not to exercise our
rights pursuant to the registration rights agreement to delay the filing of or offer shares
pursuant to this prospectus, subject to certain limitations. Additionally, pursuant to
a registration rights agreement we entered into with Comverse in May 2007, commencing 180 days
after we regain compliance with SEC reporting requirements, and provided that the shares of our
common stock underlying the preferred stock have been approved for issuance by a majority of our
common stockholders, Comverse will be entitled to two demands to require us to register (which may
be underwritten registrations, upon Comverses request) the preferred stock and the shares of
common stock underlying the preferred stock for resale under the Securities Act. We are required
to effect any such demand registration as requested, unless in the good faith judgment of our board
of directors, such registration should be delayed. In addition, when we are eligible to use a
registration statement on Form S-3, holders of a majority of the shares having demand registration
rights may make unlimited requests that we register all or a portion of their common stock for sale
under the Securities Act on a registration statement on Form S-3, so long as, in the case of a
demand under the registration rights agreement relating to the preferred stock, the aggregate price
to the public in connection with any such offering is at least $100.0 million.
Piggyback Registration Rights
In addition, if at any time after this offering we register any shares of our common stock, the
holders of all shares having registration rights are entitled to include all or a portion of their
preferred or common stock in the registration.
Other Provisions
In the event that any registration in which the holders of registrable shares participate pursuant
to a registration rights agreement is an underwritten public offering, the number of registrable
shares to be included may, in specified circumstances, be limited due to market conditions.
We are required to pay all registration expenses related to any demand or piggyback registration,
other than underwriting discounts, selling commissions and the fees and expenses of the selling
stockholders own counsel. The registration rights agreements contain customary
cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling
stockholders in the event of material misstatements or omissions in the registration statement
attributable to us, and they are obligated to indemnify us for material misstatements or omissions
in the registration statement attributable to them.
149
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 120,000,000 shares of common stock, par value $0.001 per
share, and 2,500,000 shares of preferred stock, par value $0.001 per share. We refer you to our
Amended and Restated Certificate of Incorporation, our Bylaws, and the Certificate of Designations
relating to the preferred stock, each of which are filed as exhibits
to the registration statement of which this prospectus
is a part, as well as the applicable provisions of the DGCL.
Common Stock
Liquidation
Upon the liquidation, dissolution or winding up of Verint, holders of common stock are entitled to
share ratably in all assets remaining after the payment of all debts and other liabilities and the
liquidation preferences of any outstanding shares of preferred stock.
Dividends
Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders
of common stock are entitled to receive ratably such dividends, if any, as the board of directors
may declare on the common stock out of funds legally available for that purpose. Our credit
agreement contains a restrictive covenant which limits our ability to pay cash dividends on our
common stock.
Voting Rights
Holders of common stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. A majority of the votes cast at a meeting of the shareholders
by the holders of shares entitled to vote is required for any action by the stockholders (a) except
as otherwise provided by law or our certificate of incorporation and (b) except that directors shall be elected by a
plurality of the votes cast at elections. Holders of common stock do not have cumulative voting
rights in the election of directors. Accordingly, Comverse, our controlling stockholder, has the
ability to elect all of our directors.
Series A Preferred Stock
Ranking
The preferred stock was issued at purchase price of $1,000 per share and ranks senior to our common
stock.
Liquidation
The preferred stock has an initial liquidation preference equal to the purchase price of the
preferred stock, or $1,000 per share. In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of Verint, the holders of the preferred stock will be entitled to
receive, out of the assets available for distribution to our stockholders and before any
distribution of assets is made on our common stock, an amount equal to the then-current liquidation
preference plus accrued and unpaid dividends.
Dividends
Cash dividends on the preferred stock are cumulative and are accrued quarterly at a specified
dividend rate on the liquidation preference in effect at such time. The dividend rate is 3.875%
per annum. If we determine that we are
prohibited from paying cash dividends on the preferred stock under the terms of our credit
agreement or other debt instruments, we may elect to make such dividend payments in shares of our
common stock, which common stock will be valued at 95% of the volume weighted-average price of our
common
150
stock for each of the five consecutive trading days ending on the second trading day immediately
prior to the record date for such dividend. Our credit agreement contains a restrictive covenant
which limits our ability to pay dividends on our preferred stock. Our ability to pay dividends on
our common stock, which ranks junior to our preferred stock with respect to the payment of
dividends, is limited if we have not declared a dividend for payment on the regularly scheduled
dividend payment date of our preferred stock. Through the date hereof, no dividends have been
declared or paid on the preferred stock.
Voting Rights
Each share
of preferred stock is entitled to a number of votes equal
to the number of shares of common stock into which such share of
preferred stock is
convertible at the conversion rate in effect on the date the preferred stock was issued to
Comverse.
Conversion
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 (as may be adjusted from time to time). The liquidation
preference is equal to the issue price of $1,000 per share plus the sum of all accrued and unpaid
dividends, whether or not declared. The initial conversion rate is set at 30.6185 shares of common
stock for each share of preferred stock that is converted.
At any time, we may force the conversion of all, but not less than all, of the
preferred stock into common stock at our option, but only if the closing sale price of our common
stock immediately prior to such conversion equals or exceeds the conversion price then in effect
by: (a) 140%, if the conversion is on or after the third anniversary of the issue date of the
preferred stock but prior to the fourth anniversary of that issue date, or (b) 135%, if the
conversion is on or after the fourth anniversary of that issue date.
Special Rights Upon a Fundamental Change
The terms of the preferred stock also provide that upon a fundamental change, as defined in the
Certificate of Designation, the holders of the preferred stock will have the right to require us to
repurchase the preferred stock for 100% of the liquidation preference then in effect. 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 the holders of the
preferred stock will have the right to elect two directors to fill such vacancies. Upon repurchase
of the preferred stock subject to the fundamental change repurchase right, the holders of the
preferred stock will no longer have the right to elect additional directors, the term of office of
each additional director will terminate immediately upon such repurchase, and the number of
directors will, without further action, be reduced by two. In addition, in the event of a
fundamental change, the conversion rate will be increased to provide for additional shares of
common stock issuable to the holders of the preferred stock upon conversion, based on a sliding
scale depending on the acquisition price, as defined in the Certificate of Designation, ranging
from zero to 3.7 additional shares of common stock for every share of preferred stock converted
into common stock following a fundamental change.
Additional Series of Preferred Stock
The board of directors has the authority, without further action by the stockholders, to issue up
to an additional 2,207,000 shares of preferred stock, par value $0.001 per share, in one or more
series and to fix the powers, preferences, privileges and rights thereof, and the number of shares
constituting any series or the designation of the series, without any further vote or action by
stockholders. We believe that the board of directors authority to set the terms of, and our
ability to issue, preferred stock will provide flexibility in connection with possible financing
transactions in the future. The issuance of preferred stock, however, could adversely affect the
voting power of holders of common stock and the likelihood that the holders will receive dividend
payments and payments upon
151
liquidation and could have the effect of delaying, deferring or preventing a change in control in
us. We have no present plans to issue any additional shares of preferred stock.
Provisions
of Delaware Law and Our Certificate of Incorporation and By-laws and State Law Provisions
With Potential Antitakeover Effect
Certificate of Incorporation; By-laws
Our certificate of incorporation and by-laws contain provisions that could make more difficult the
acquisition of the company by means of a tender offer, a proxy contest, or otherwise.
Advance Notice Procedures. Our by-laws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors, or bring other business before an annual
or special meeting of our stockholders. This notice procedure provides that only persons who are
nominated by or at the direction of our board of directors or by a stockholder who has given timely
written notice to the secretary of our company prior to the meeting at which directors are to be
elected will be eligible for election as directors. The procedure also requires that, in order to
raise matters at an annual or special meeting, those matters be raised before the meeting pursuant
to the notice of meeting we deliver or by, or at the direction of, our board of directors or by a
stockholder who is entitled to vote at the meeting and who has given timely written notice to the
secretary of our company of his intention to raise those matters at the annual meeting. If our
chairman or other officer presiding at a meeting determines that a person was not nominated, or
other business was not brought before the meeting, in accordance with the notice procedure, that
person will not be eligible for election as a director, or that business will not be conducted at
the meeting.
Authorized but Unissued Shares. The authorized but unissued shares of common stock are available
for future issuance without stockholder approval. We may use these additional shares for a variety
of corporate purposes, including future public offerings to raise additional capital, corporate
acquisitions, and employee benefit plans. The existence of authorized but unissued shares of
common stock could render more difficult or discourage an attempt to obtain control of us by means
of a proxy contest, tender offer, merger, or otherwise.
The Delaware General Corporation Law
We are subject to Section 203 of the DGCL which regulates corporate acquisitions. In general,
Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination
with any person who becomes an interested stockholder for a period of three
years following the date the person became an interested stockholder, unless:
|
|
|
the board of directors approved the transaction in which such stockholder became an
interested stockholder prior to the date the interested stockholder attained such status; |
|
|
|
|
upon consummation of the transaction that resulted in the stockholders becoming an
interested stockholder, he or she owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares owned by persons who
are directors and also officers and employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; and |
|
|
|
|
the business combination is approved by a majority of the board of directors and by the
affirmative vote of at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder. |
Limitation of Liability of Directors and Officers
Our certificate of incorporation provides that our directors will not be personally liable to us or
our stockholders for damages for breach of any duty owed to us or our stockholders except for
liability for: (i) any breach of the directors duty of loyalty to us or our stockholders, (ii)
acts or omissions not in good faith or, in failing to act, not
152
having acted in good faith, or which involve intentional misconduct or a knowing violation of law,
(iii) any matter for which a director shall be liable for willfully or negligently approving an
unlawful payment of dividends or an unlawful purchase or redemption of stock under the DGCL, or
(iv) having derived an improper personal benefit.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company.
Its address is 59 Maiden Lane, New York, New York 10038 and its telephone number at this location
is (212) 936-5100.
153
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
The following is a summary of certain United States federal income tax considerations related to
the purchase, ownership and disposition of our common stock that are applicable to a non-U.S.
holder (defined below) of the common stock.
This summary:
|
|
|
does not purport to be a complete analysis of all of the potential tax
considerations that may be applicable to an investor as a result of the investors
particular tax situation; |
|
|
|
|
is based on the Internal Revenue Code of 1986, as amended (the Code), the
existing applicable United States federal income tax regulations promulgated or proposed
under the Code, which we refer to as the Treasury Regulations, judicial authority and
currently effective published rulings and administrative pronouncements, each as of the
date hereof and each of which are subject to change or differing interpretation at any
time, possibly with retroactive effect; |
|
|
|
|
is applicable only to beneficial owners of common stock who hold their common
stock as a capital asset, within the meaning of section 1221 of the Code; |
|
|
|
|
does not address all aspects of United States federal income taxation that may
be relevant to holders in light of their particular circumstances or who are subject to
special treatment under United States federal income tax laws, including but not limited
to: |
|
o |
|
certain former citizens and long-term residents of the United States; |
|
|
o |
|
persons who acquire common stock pursuant to the exercise of compensatory stock
options or otherwise as compensation; |
|
|
o |
|
banks, insurance companies or other financial institutions; |
|
|
o |
|
dealers in securities or currencies; |
|
|
o |
|
traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings; |
|
|
o |
|
persons who hold our common stock as a position in a hedging
transaction, straddle, conversion transaction or other risk
reduction transaction; |
|
|
o |
|
controlled foreign corporations and passive foreign investment companies; and |
|
|
o |
|
partnerships, other pass-through entities and investors in these entities. |
|
|
|
|
|
does not discuss any possible applicability of any United States state or
local taxes, non-United States taxes or any United States federal tax other than the income
tax, including, but not limited to, the federal gift tax and estate tax and the alternative
minimum tax. |
154
This summary of certain United States federal income tax considerations constitutes neither tax nor
legal advice. Prospective investors are urged to consult their own tax advisors to determine the
specific tax consequences and risks to them of purchasing, holding and disposing of our common
stock, including the application to their particular situation of any United States federal estate
and gift, United States alternative minimum, United States state and local, non-United States and
other tax laws and of any applicable income tax treaty.
Non-U.S. Holder Defined
For purposes of this discussion, a non-U.S. holder is a beneficial holder of our common stock that
is neither a United States person nor a partnership or entity or arrangement treated as a
partnership for United States federal income tax purposes. A United States person is:
|
|
|
an individual citizen or resident of the United States; |
|
|
|
|
a corporation, or other entity treated as an association taxable as a
corporation for United States federal income tax purposes, that is organized in or under
the laws of the United States, any state thereof or the District of Columbia; |
|
|
|
|
an estate the income of which is subject to United States federal income
taxation regardless of its source; or |
|
|
|
|
a trust if it (i) is subject to the primary supervision of a court within the
United States and one or more United States persons have the authority to control all
substantial decisions of the trust or (ii) has a valid election in effect under applicable
the Treasury Regulations to be treated as a United States person. |
If a partnership (including any entity or arrangement treated as a partnership for United States
federal income tax purposes) holds our common stock, then the United States federal income tax
treatment of a partner in that partnership generally will depend on the status of the partner and
the partnerships activities. Partners and partnerships should consult their own tax advisors with
regard to the United States federal income tax treatment of an investment in our common stock.
Distributions
Distributions, if any, paid to a non-U.S. holder of our common stock, other than certain pro rata
distributions of common stock, will constitute dividends for United States federal income tax
purposes to the extent paid out of our current or accumulated earnings and profits as of the end of
our taxable year of the distribution, as determined for United States federal income tax purposes.
Any distributions that exceed both our current and accumulated earnings and profits would first
constitute a non-taxable return of capital, which would reduce the holders basis in our common
stock, but not below zero, and thereafter would be treated as gain from the sale of our common
stock (see Sale or Taxable Disposition of Common Stock below).
Subject to the following paragraphs, dividends on our common stock generally will be subject to
United States federal withholding tax at a 30% gross rate, subject to any exemption or reduction
as may be specified by an applicable income tax treaty. We may withhold up to 30% of either (i)
the gross amount of the entire distribution, even if the amount of the distribution is greater than
the amount constituting a dividend, as described above, or (ii) the amount of the distribution we
project will be a dividend, based upon a reasonable estimate of both our current and our
accumulated earnings and profits for the taxable year in which the distribution is made. If tax is
withheld on the amount of a distribution in excess of the amount constituting a dividend, a
non-U.S. holder may obtain a refund of such excess amounts by timely filing a claim for refund with
the Internal Revenue Service.
In order to claim the benefit of a reduced rate of or an exemption from withholding tax under an
applicable income tax treaty, a non-U.S. holder will be required (i) to satisfy certain
certification requirements, which may be made by providing us or our agent with a properly executed
and completed Internal Revenue Service Form W-8BEN (or other applicable form) certifying, under
penalty of perjury, that the holder qualifies for treaty benefits and is not a
United States person or (ii) if our common stock is held through certain non-United States
intermediaries, to satisfy
155
the relevant certification requirements of Treasury Regulations.
Special certification and other requirements apply to certain non-U.S. holders that are
partnerships or other pass-through entities.
Dividends that are effectively connected with the conduct of a trade or business by the non-U.S.
holder within the United States (and, if required by an applicable income tax treaty, are
attributable to a U.S. permanent establishment or fixed base) are not subject to the withholding
tax, provided that the non-U.S. holder so certifies, under penalty of perjury, on a properly
executed and delivered Internal Revenue Service Form W-8ECI (or other applicable form). Instead,
such dividends would be subject to United States federal income tax on a net income basis in the
same manner as if the non-U.S. holder were a United States person.
Corporate holders who receive effectively connected dividends may also be subject to an additional
branch profits tax at a gross rate of 30% on their earnings and profits for the taxable year that
are effectively connected with the holders conduct of a trade or business within the United
States, subject to any exemption or reduction provided by an applicable income tax treaty.
Sale or Taxable Disposition of Common Stock
Any gain realized on the sale, exchange or other taxable disposition of our common stock generally
will not be subject to United States federal income tax unless:
|
|
|
the gain is effectively connected with a trade or business of the non-U.S.
holder in the United States (and, if required by an applicable income tax treaty, is
attributable to a U.S. permanent establishment of the non-U.S. holder or, in the case of an
individual, a fixed base); |
|
|
|
|
the non-U.S. holder is an individual who is present in the United States for
183 days or more in the taxable year of that disposition, and certain other conditions are
met; or |
|
|
|
|
we are or have been a United States real property holding corporation (a
USRPHC) for United States federal income tax purposes at any time during the shorter of the
five-year period preceding such disposition and the non-U.S. holders holding period in the
common stock. |
A non-U.S. holder described in the first bullet point above generally will be subject to United
States federal income tax on the net gain derived from the sale or disposition under regular
graduated United States federal income tax rates, as if the holder were a United States person. If
such non-U.S. holder is a corporation, then it may also, under certain circumstances, be subject to
an additional branch profits tax at a gross rate of 30% on its earnings and profits for the
taxable year that are effectively connected with its conduct of its United States trade or
business, subject to exemption or reduction provided by an applicable income tax treaty.
An individual non-U.S. holder described in the second bullet point above will be
subject to a tax at a 30% gross rate, subject to any exemption or reduction under an applicable
income tax treaty, on the net gain derived from the sale, which may be offset by U.S. source
capital losses, even though the individual is not considered a resident of the United States.
With respect to the third bullet point above, we believe we are not, have not been and will not
become a USRPHC for United States federal income tax purposes. However, in the event that we are
or become a USRPHC at any time during the applicable period described in the third bullet point
above, any gain recognized on a sale or other taxable disposition of our common stock may be
subject to United States federal income tax, including any applicable withholding tax, if either
(i) the non-U.S. holder beneficially owns, or has owned, more than 5% of the total fair value of
our common stock at any time during the applicable period, or (ii) our common stock ceases to be
traded on an established securities market within the meaning of the Code. Non-U.S. holders who
own or may own more than 5% of our common stock are encouraged to consult their tax advisors with
respect to the United States tax consequences of a disposition of our common stock.
Information Reporting and Backup Withholding
156
We must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of
dividends paid to such holder and the tax withheld with respect to such dividends, regardless of
whether withholding was required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in which the non-U.S.
holder resides under the provisions of an applicable income tax treaty.
A non-U.S. holder will be subject to backup withholding, currently at a 28% rate, for dividends
paid to such holder unless such holder certifies under penalty of perjury as to its non-United States
person status, or such holder otherwise establishes an exemption (provided that neither we nor the
paying agent has actual knowledge or reason to know that such holder is a United States person or
that the conditions of any other exemptions are not in fact satisfied).
Information reporting and, depending on the circumstances, backup withholding will apply to the
proceeds of a sale of our common stock within the United States or conducted through certain
U.S.-related financial intermediaries, unless the beneficial owner certifies under penalty of
perjury as to its non-United States person status, or such owner otherwise establishes an exemption
(provided that neither the broker nor intermediary has actual knowledge or reason to know that such
owner is a United States person or that the conditions of any other exemptions are not in fact
satisfied).
Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against a non-U.S. holders United States federal income tax liability provided the required
information is timely furnished to the Internal Revenue Service.
Recently Enacted Legislation
The recently enacted Hiring Incentives to Restore Employment Act (the HIRE Act), which was signed
into law on March 18, 2010, modifies some of the rules described above, including with respect to
certification requirements and information reporting, for certain stock held through a foreign
financial institution. In the event of non-compliance with
those revised requirements, a 30% United States
withholding tax could be imposed on payments of dividends and sale proceeds in respect of our
common stock made after December 31, 2012. Congress delegated broad authority to the United States
Treasury Department to promulgate regulations to implement the new withholding and reporting
regime. It cannot be predicted whether or how any regulations promulgated by the United States
Treasury Department pursuant to this broad delegation of regulatory authority will affect holders
of our stock. Prospective investors are urged to consult their own tax advisors regarding the HIRE
Act and any regulations that may be promulgated thereunder that may be relevant to their investment in our stock.
157
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting agreement
dated , we and the selling stockholder have agreed to sell to the underwriters named below, for
whom are acting as
representatives, the following respective numbers of shares of common stock:
|
|
|
|
|
Number |
Underwriter |
|
of Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
The underwriting agreement provides that the underwriters are obligated to purchase all the
shares of common stock in the offering if any are purchased, other than those shares covered by the
over-allotment option described below. The underwriting agreement also provides that if an
underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or
the offering may be terminated.
The
selling stockholder has granted to the underwriters a 30-day option to purchase on
a pro rata basis an aggregate of 365,217 additional outstanding shares
at the public offering price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at the public offering
price on the cover page of this prospectus and to selling group members at that price less a
selling concession of $ per share. The underwriters and selling group members may allow a discount
of $ per share on sales to other broker/dealers. After the public offering the representatives may
change the public offering price and concession and discount to broker/dealers.
The following table summarizes the compensation and estimated expenses we and the selling
stockholders will pay:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share |
|
Total |
|
|
Without |
|
With |
|
Without |
|
With |
|
|
Over-allotment |
|
Over-allotment |
|
Over-allotment |
|
Over-allotment |
Expenses payable by
us |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Underwriting
Discounts and
Commissions paid by
selling stockholder |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Expenses payable by
the selling
stockholder |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
We and the selling stockholder have agreed to indemnify the underwriters against liabilities
under the Securities Act, or contribute to payments that the underwriters may be required to make
in that respect.
The shares of common stock are listed on the NASDAQ Global Market under the symbol VRNT.
158
.
In connection with the offering the underwriters may engage in stabilizing transactions,
over-allotment transactions, syndicate covering transactions, penalty bids and passive market
making in accordance with Regulation M under the Exchange Act.
|
|
|
Stabilizing transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. |
|
|
|
|
Over-allotment involves sales by the underwriters of shares in excess of the number of
shares the underwriters are obligated to purchase, which creates a syndicate short
position. The short position may be either a covered short position or a naked short
position. In a covered short position, the number of shares over-allotted by the
underwriters is not greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares involved is greater
than the number of shares in the over-allotment option. The underwriters may close out any
covered short position by either exercising their over-allotment option and/or purchasing
shares in the open market. |
|
|
|
|
Syndicate covering transactions involve purchases of the common stock in the open market
after the distribution has been completed in order to cover syndicate short positions. In
determining the source of shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for purchase in the open market
as compared to the price at which they may purchase shares through the over-allotment
option. If the underwriters sell more shares than could be covered by the over-allotment
option, a naked short position, the position can only be closed out by buying shares in the
open market. A naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who purchase in the offering. |
|
|
|
|
Penalty bids permit the representatives to reclaim a selling concession from a syndicate
member when the common stock originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate short positions. |
|
|
|
|
In passive market making, market makers in the common stock who are underwriters or
prospective underwriters may, subject to limitations, make bids for or purchases of our
common stock until the time, if any, at which a stabilizing bid is made. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the
effect of raising or maintaining the market price of our common stock or preventing or retarding a
decline in the market price of the common stock. As a result the price of our common stock may be
higher than the price that might otherwise exist in the open market. These transactions may be
effected on the NASDAQ Global Market or otherwise and, if commenced, may be discontinued at any
time.
A prospectus in electronic format may be made available on the web sites maintained by one or
more of the underwriters, or selling group members, if any, participating in this offering and one
or more of the underwriters participating in this offering may distribute prospectuses
electronically. The representatives may agree to allocate a number of shares to underwriters and
selling group members for sale to their online brokerage account holders. Internet distributions
will be allocated by the underwriters and selling group members that will make internet
distributions on the same basis as other allocations.
159
VALIDITY OF THE SHARES
The
validity of the common stock will be passed upon for us by Jones Day,
New York, New York.
EXPERTS
The
consolidated financial statements as of January 31, 2010 and 2009 and
for each of the three years in the period ended January 31, 2010 of Verint Systems Inc. and the effectiveness of Verint
Systems Inc.s internal control over financial reporting as of January 31, 2010 have been audited
by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their
reports. Such reports are (1) included herein with respect to the consolidated financial
statements (which report expresses an unqualified opinion on the consolidated financial statements
and includes an explanatory paragraph relating to the adoption of new accounting guidance for the
reporting and disclosure of noncontrolling interests), and (2) incorporated in this prospectus by
reference from the Companys Annual Report on Form 10-K with respect to the report on internal
control over financial reporting (which report expresses an adverse opinion on the effectiveness of
Verint Systems Inc.s internal control over financial reporting because of material weaknesses).
Such consolidated financial statements have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference certain of our publicly filed documents into this
prospectus, which means that we can disclose important business and financial information to you
that is not included in or delivered with this prospectus by referring you to publicly filed
documents that contain the omitted information. The information incorporated by reference is
considered to be part of this prospectus. You will be deemed to have notice of all information
incorporated by reference into this prospectus as if that information were included in this
prospectus.
The following documents that we have filed with the SEC are incorporated herein by reference:
|
|
|
our Annual Report on Form 10-K for the year ended January 31, 2010, filed with
the SEC on May 19, 2010, as amended on June 18, 2010; |
|
|
|
|
our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010,
filed with the SEC on June 9, 2010; |
|
|
|
|
our Quarterly Report on Form 10-Q for the quarterly period
ended July 31, 2010, filed with the SEC on September 8, 2010; |
|
|
|
|
our Definitive Proxy Statement on Schedule 14A, filed with
the SEC on August 31, 2010; and |
|
|
|
|
our Current Reports on Form 8-K, filed with the SEC on February 4, 2010,
February 23, 2010, March 3, 2010, March 22, 2010, April 21, 2010, May 3, 2010,
July 19, 2010 and August 2, 2010. |
160
Any statement contained in any document incorporated by reference herein will be deemed to be
modified or superseded for purposes of this prospectus to the extent that a statement contained
herein modifies or supersedes such statement. Any such statement so modified or superseded will
not be deemed, except as modified or superseded, to constitute a part of this prospectus. This
prospectus is part of a Registration Statement on Form S-1 that we filed with the SEC and does not
contain all of the information set forth in that Registration Statement.
We will provide, free of charge, to any person to whom a copy of this prospectus is delivered, upon
written or oral request, a copy of any or all of the documents incorporated by reference into this
prospectus, other than exhibits to those documents unless specifically incorporated by reference.
To request a copy of those documents, you should contact us as set forth below under Where You Can
Find Additional Information.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements, and other information with the
SEC. The SEC allows us to incorporate by reference the information we file with it, which means
that we can disclose important business and financial information to you that is not included in or
delivered with this prospectus by referring you to publicly filed documents that contain the
omitted information. We provide a list of all documents we incorporate by reference into this
prospectus under Information Incorporated by Reference above.
Through our website at www.verint.com, we make available the information that we incorporate by
reference into this prospectus, as well as other reports, proxy statements, and other information
that we file with the SEC. You may also read and copy those materials at the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800)
SEC-0330 for further information on the operation of the Public Reference Room. In addition, we are
required to file electronic versions of those materials with the SEC through the SECs EDGAR
system. The SEC maintains a website at www.sec.gov that contains reports, proxy statements, and
other information that registrants, such as we, file electronically with the 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 prospectus.
Each person to whom a prospectus is delivered may also request a copy of those materials, free of
charge, by contacting us at:
Verint Systems Inc.
330 South Service Road
Melville, New York 11747
(631) 962-9600
Attn: Corporate Secretary
161
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-69 |
|
|
|
|
|
|
|
|
|
F-70 |
|
|
|
|
|
|
|
|
|
F-71 |
|
|
|
|
|
|
|
|
|
F-72 |
|
|
|
|
|
|
|
|
|
F-73 |
|
F-1
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, 2010 and 2009, 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, 2010. These financial statements are the responsibility of
the Companys 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, 2010 and 2009 and
the results of their operations and their cash flows for each of the three years in the period
ended January 31, 2010, in conformity with accounting principles generally accepted in the United
States of America.
As discussed in Note 1 to the consolidated financial statements, effective February 1, 2009, the
Company adopted Financial Accounting Standards Board ASC 810, Consolidation Noncontrolling
Interests.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of January 31,
2010, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 18, 2010
expressed an adverse opinion on the Companys internal control over financial reporting because of
material weaknesses.
/s/ DELOITTE & TOUCHE LLP
New York, New York
May 18, 2010
F-2
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of January 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands, except share and per share data) |
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
184,335 |
|
|
$ |
115,928 |
|
Restricted cash and bank time deposits |
|
|
5,206 |
|
|
|
7,722 |
|
Accounts receivable, net of allowance for doubtful accounts of $4.7 million and $6.0 million, |
|
|
127,826 |
|
|
|
113,178 |
|
Inventories |
|
|
14,373 |
|
|
|
20,455 |
|
Deferred cost of revenue |
|
|
11,232 |
|
|
|
8,935 |
|
Deferred income taxes |
|
|
21,140 |
|
|
|
14,314 |
|
Prepaid expenses and other current assets |
|
|
43,414 |
|
|
|
32,434 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
407,526 |
|
|
|
312,966 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
24,453 |
|
|
|
30,544 |
|
Goodwill |
|
|
724,670 |
|
|
|
709,984 |
|
Intangible assets, net |
|
|
173,833 |
|
|
|
200,203 |
|
Capitalized software development costs, net |
|
|
8,530 |
|
|
|
10,489 |
|
Deferred cost of revenue |
|
|
33,019 |
|
|
|
47,913 |
|
Deferred income taxes |
|
|
7,469 |
|
|
|
6,478 |
|
Other assets |
|
|
16,837 |
|
|
|
18,816 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,396,337 |
|
|
$ |
1,337,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Preferred Stock, and Stockholders Deficit |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
46,570 |
|
|
$ |
38,484 |
|
Accrued expenses and other liabilities |
|
|
154,935 |
|
|
|
146,338 |
|
Current maturities of long-term debt |
|
|
22,678 |
|
|
|
4,088 |
|
Deferred revenue |
|
|
183,719 |
|
|
|
160,918 |
|
Deferred income taxes |
|
|
487 |
|
|
|
403 |
|
Liabilities to affiliates |
|
|
1,709 |
|
|
|
1,389 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
410,098 |
|
|
|
351,620 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
598,234 |
|
|
|
620,912 |
|
Deferred income taxes |
|
|
21,425 |
|
|
|
13,424 |
|
Deferred revenue |
|
|
51,412 |
|
|
|
88,985 |
|
Other liabilities |
|
|
44,193 |
|
|
|
52,980 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,125,362 |
|
|
|
1,127,921 |
|
|
|
|
|
|
|
|
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
$325,904 at January 31, 2010. |
|
|
285,542 |
|
|
|
285,542 |
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
Stockholders Deficit: |
|
|
|
|
|
|
|
|
Common stock $0.001 par value; authorized 120,000,000 shares. Issued 32,687,000 and 32,623,000
shares, respectively; outstanding 32,584,000 and 32,535,000 shares, respectively. |
|
|
33 |
|
|
|
32 |
|
Additional paid-in capital |
|
|
451,166 |
|
|
|
419,937 |
|
Treasury stock, at cost 103,000 and 88,000 shares, respectively. |
|
|
(2,493 |
) |
|
|
(2,353 |
) |
Accumulated deficit |
|
|
(420,338 |
) |
|
|
(435,955 |
) |
Accumulated other comprehensive loss |
|
|
(43,134 |
) |
|
|
(58,404 |
) |
|
|
|
|
|
|
|
Total Verint Systems Inc. stockholders deficit |
|
|
(14,766 |
) |
|
|
(76,743 |
) |
Noncontrolling interest |
|
|
199 |
|
|
|
673 |
|
|
|
|
|
|
|
|
Total stockholders deficit |
|
|
(14,567 |
) |
|
|
(76,070 |
) |
|
|
|
|
|
|
|
Total liabilities, preferred stock, and stockholders deficit |
|
$ |
1,396,337 |
|
|
$ |
1,337,393 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended January 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
374,272 |
|
|
$ |
365,485 |
|
|
$ |
333,130 |
|
Service and support |
|
|
329,361 |
|
|
|
304,059 |
|
|
|
201,413 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
703,633 |
|
|
|
669,544 |
|
|
|
534,543 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
131,523 |
|
|
|
131,638 |
|
|
|
121,627 |
|
Service and support |
|
|
100,391 |
|
|
|
117,588 |
|
|
|
100,397 |
|
Amortization and impairment of acquired technology |
|
|
8,021 |
|
|
|
9,024 |
|
|
|
8,018 |
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
239,935 |
|
|
|
258,250 |
|
|
|
230,042 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
463,698 |
|
|
|
411,294 |
|
|
|
304,501 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net |
|
|
83,797 |
|
|
|
88,309 |
|
|
|
87,668 |
|
Selling, general and administrative |
|
|
291,813 |
|
|
|
282,147 |
|
|
|
259,183 |
|
Amortization of other acquired intangible assets |
|
|
22,268 |
|
|
|
25,249 |
|
|
|
19,668 |
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
6,682 |
|
Impairments of goodwill and other acquired intangible assets |
|
|
|
|
|
|
25,961 |
|
|
|
22,934 |
|
Integration, restructuring and other, net |
|
|
141 |
|
|
|
4,654 |
|
|
|
22,996 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
398,019 |
|
|
|
426,320 |
|
|
|
419,131 |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
65,679 |
|
|
|
(15,026 |
) |
|
|
(114,630 |
) |
|
|
|
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
616 |
|
|
|
1,872 |
|
|
|
5,443 |
|
Interest expense |
|
|
(24,964 |
) |
|
|
(37,211 |
) |
|
|
(36,862 |
) |
Other expense, net |
|
|
(17,123 |
) |
|
|
(8,541 |
) |
|
|
(23,767 |
) |
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(41,471 |
) |
|
|
(43,880 |
) |
|
|
(55,186 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
24,208 |
|
|
|
(58,906 |
) |
|
|
(169,816 |
) |
Provision for income taxes |
|
|
7,108 |
|
|
|
19,671 |
|
|
|
27,729 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
17,100 |
|
|
|
(78,577 |
) |
|
|
(197,545 |
) |
Net income attributable to noncontrolling interest |
|
|
1,483 |
|
|
|
1,811 |
|
|
|
1,064 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. |
|
|
15,617 |
|
|
|
(80,388 |
) |
|
|
(198,609 |
) |
Dividends on preferred stock |
|
|
(13,591 |
) |
|
|
(13,064 |
) |
|
|
(8,681 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. common shares |
|
$ |
2,026 |
|
|
$ |
(93,452 |
) |
|
$ |
(207,290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Verint Systems Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
32,478 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
33,127 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity (Deficit)
For the Years Ended January 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verint Systems Inc. Stockholders Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Cumulative |
|
|
|
|
|
|
Stockholders |
|
|
|
|
|
|
|
Par |
|
|
Paid-in |
|
|
Treasury |
|
|
Accumulated |
|
|
Gains |
|
|
Translation |
|
|
Noncontrolling |
|
|
Equity |
|
(in thousands) |
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
(Losses) |
|
|
Adjustment |
|
|
Interest |
|
|
(Deficit) |
|
Balances as of January 31, 2007 - as reported |
|
|
32,519 |
|
|
$ |
32 |
|
|
$ |
352,895 |
|
|
$ |
(936 |
) |
|
$ |
(153,602 |
) |
|
$ |
(12 |
) |
|
$ |
(773 |
) |
|
$ |
|
|
|
$ |
197,604 |
|
Effect of adoption of new accounting standard for
noncontrolling interests in consolidated financial
statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,286 |
|
|
|
1,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 31, 2007 - as adjusted |
|
|
32,519 |
|
|
|
32 |
|
|
|
352,895 |
|
|
|
(936 |
) |
|
|
(153,602 |
) |
|
|
(12 |
) |
|
|
(773 |
) |
|
|
1,286 |
|
|
|
198,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,609 |
) |
|
|
|
|
|
|
|
|
|
|
1,064 |
|
|
|
(197,545 |
) |
Unrealized gains on available for sale securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,609 |
) |
|
|
12 |
|
|
|
163 |
|
|
|
1,064 |
|
|
|
(197,370 |
) |
Cumulative effect of the adoption of new accounting
standard for uncertainty in income taxes |
|
|
|
|
|
|
|
|
|
|
(1,674 |
) |
|
|
|
|
|
|
(3,356 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,030 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
31,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,013 |
|
Stock options issued in business acquisition |
|
|
|
|
|
|
|
|
|
|
4,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,717 |
|
Common stock issued for stock awards |
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted stock awards |
|
|
(33 |
) |
|
|
|
|
|
|
792 |
|
|
|
(792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
(366 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(366 |
) |
Dividends to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,323 |
) |
|
|
(1,323 |
) |
Tax effects from stock award plans |
|
|
|
|
|
|
|
|
|
|
(206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 31, 2008 |
|
|
32,526 |
|
|
|
32 |
|
|
|
387,537 |
|
|
|
(2,094 |
) |
|
|
(355,567 |
) |
|
|
|
|
|
|
(610 |
) |
|
|
1,027 |
|
|
|
30,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,388 |
) |
|
|
|
|
|
|
|
|
|
|
1,811 |
|
|
|
(78,577 |
) |
Unrealized gains on derivative financial instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
101 |
|
Unrealized losses on available for sale securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
(29 |
) |
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,866 |
) |
|
|
(23 |
) |
|
|
(57,889 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,388 |
) |
|
|
72 |
|
|
|
(57,866 |
) |
|
|
1,788 |
|
|
|
(136,394 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
32,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,040 |
|
Common stock issued for stock awards |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted stock awards |
|
|
(9 |
) |
|
|
|
|
|
|
166 |
|
|
|
(166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
(93 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93 |
) |
Dividends to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,142 |
) |
|
|
(2,142 |
) |
Tax effects from stock award plans |
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
Other tax adjustments |
|
|
|
|
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 31, 2009 |
|
|
32,535 |
|
|
|
32 |
|
|
|
419,937 |
|
|
|
(2,353 |
) |
|
|
(435,955 |
) |
|
|
72 |
|
|
|
(58,476 |
) |
|
|
673 |
|
|
|
(76,070 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,617 |
|
|
|
|
|
|
|
|
|
|
|
1,483 |
|
|
|
17,100 |
|
Unrealized gains on derivative financial instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Unrealized gains on available for sale securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
Currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,231 |
|
|
|
46 |
|
|
|
15,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,617 |
|
|
|
39 |
|
|
|
15,231 |
|
|
|
1,529 |
|
|
|
32,416 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
31,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,195 |
|
Common stock issued for stock awards |
|
|
64 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Forfeitures of restricted stock awards |
|
|
(4 |
) |
|
|
|
|
|
|
34 |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
(106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106 |
) |
Dividends to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,003 |
) |
|
|
(2,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 31, 2010 |
|
|
32,584 |
|
|
$ |
33 |
|
|
$ |
451,166 |
|
|
$ |
(2,493 |
) |
|
$ |
(420,338 |
) |
|
$ |
111 |
|
|
$ |
(43,245 |
) |
|
$ |
199 |
|
|
$ |
(14,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
VERINT SYSTEMS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2010, 2009, and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
17,100 |
|
|
$ |
(78,577 |
) |
|
$ |
(197,545 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
49,290 |
|
|
|
55,142 |
|
|
|
46,791 |
|
Provision for doubtful accounts |
|
|
849 |
|
|
|
793 |
|
|
|
3,380 |
|
Impairments of assets |
|
|
|
|
|
|
25,961 |
|
|
|
28,083 |
|
In-process research and development |
|
|
|
|
|
|
|
|
|
|
6,682 |
|
Stock-based compensation |
|
|
31,195 |
|
|
|
32,040 |
|
|
|
31,013 |
|
Provision (benefit) for deferred income taxes |
|
|
(62 |
) |
|
|
17,768 |
|
|
|
19,992 |
|
Non-cash losses on derivative financial instruments, net |
|
|
14,709 |
|
|
|
14,591 |
|
|
|
22,267 |
|
Non-cash gains on sales of auction rate securities |
|
|
|
|
|
|
(4,713 |
) |
|
|
|
|
Other non-cash items, net |
|
|
1,443 |
|
|
|
441 |
|
|
|
1,567 |
|
Changes in operating assets and liabilities, net of effects of business combinations: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(13,910 |
) |
|
|
(3,328 |
) |
|
|
(20,184 |
) |
Inventories |
|
|
5,686 |
|
|
|
(2,761 |
) |
|
|
1,005 |
|
Deferred cost of revenue |
|
|
14,082 |
|
|
|
12,201 |
|
|
|
5,613 |
|
Accounts payable and accrued expenses |
|
|
12,912 |
|
|
|
(10,754 |
) |
|
|
8,480 |
|
Deferred revenue |
|
|
(21,143 |
) |
|
|
(7,329 |
) |
|
|
25,130 |
|
Prepaid expenses and other assets |
|
|
(11,542 |
) |
|
|
8,876 |
|
|
|
14,040 |
|
Other liabilities |
|
|
471 |
|
|
|
(6,877 |
) |
|
|
4,697 |
|
Other, net |
|
|
(243 |
) |
|
|
161 |
|
|
|
(1,310 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
100,837 |
|
|
|
53,635 |
|
|
|
(299 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
for business combinations, net of cash acquired, including payments of contingent consideration |
|
|
(96 |
) |
|
|
(3,092 |
) |
|
|
(953,154 |
) |
Purchases of property and equipment |
|
|
(4,965 |
) |
|
|
(11,113 |
) |
|
|
(14,247 |
) |
Purchases of investments |
|
|
|
|
|
|
|
|
|
|
(208,000 |
) |
Sales and maturities of investments |
|
|
|
|
|
|
7,000 |
|
|
|
328,465 |
|
Settlements of derivative financial instruments not designated as hedges |
|
|
(19,414 |
) |
|
|
(10,041 |
) |
|
|
|
|
Cash paid for capitalized software development costs |
|
|
(2,715 |
) |
|
|
(4,547 |
) |
|
|
(4,624 |
) |
Other investing activities |
|
|
2,591 |
|
|
|
(4,454 |
) |
|
|
(173 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(24,599 |
) |
|
|
(26,247 |
) |
|
|
(851,733 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of preferred stock |
|
|
|
|
|
|
|
|
|
|
293,000 |
|
Proceeds from borrowings |
|
|
|
|
|
|
15,000 |
|
|
|
650,000 |
|
Repayments of borrowings and other financing obligations |
|
|
(6,088 |
) |
|
|
(2,869 |
) |
|
|
(42,496 |
) |
Payment of debt issuance and other debt related costs |
|
|
(152 |
) |
|
|
(150 |
) |
|
|
(13,606 |
) |
Dividends paid to noncontrolling interest |
|
|
(4,145 |
) |
|
|
|
|
|
|
(1,323 |
) |
Other financing activities |
|
|
(106 |
) |
|
|
(93 |
) |
|
|
(558 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(10,491 |
) |
|
|
11,888 |
|
|
|
885,017 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
2,660 |
|
|
|
(6,581 |
) |
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
68,407 |
|
|
|
32,695 |
|
|
|
33,908 |
|
Cash and cash equivalents, beginning of year |
|
|
115,928 |
|
|
|
83,233 |
|
|
|
49,325 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
184,335 |
|
|
$ |
115,928 |
|
|
$ |
83,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
24,705 |
|
|
$ |
36,544 |
|
|
$ |
30,680 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
11,661 |
|
|
$ |
3,319 |
|
|
$ |
4,113 |
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of stock options exchanged in connection with business combinations |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,717 |
|
|
|
|
|
|
|
|
|
|
|
Accrued but unpaid purchases of property and equipment |
|
$ |
642 |
|
|
$ |
382 |
|
|
$ |
1,466 |
|
|
|
|
|
|
|
|
|
|
|
Inventory transfers to property and equipment |
|
$ |
621 |
|
|
$ |
1,325 |
|
|
$ |
795 |
|
|
|
|
|
|
|
|
|
|
|
Business combination consideration earned, but paid in subsequent periods |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,796 |
|
|
|
|
|
|
|
|
|
|
|
Settlement of embedded derivative |
|
$ |
|
|
|
$ |
8,121 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend to noncontrolling interest declared, but paid in subsequent period |
|
$ |
|
|
|
$ |
2,142 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
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® Systems Inc. is a leading global provider of Actionable Intelligence® solutions and
value-added services designed to help organizations make timely and effective decisions. Our
solutions are used to capture, distill, and analyze complex and underused information sources, such
as voice, video, and unstructured text. In the enterprise market, our workforce optimization
solutions help organizations enhance customer service operations in contact centers, branches, and
back-office environments to increase customer satisfaction, reduce operating costs, identify
revenue opportunities, and improve profitability. In the security intelligence market, our video
intelligence, public safety, and communications intelligence and investigative solutions are used
by government and commercial organizations in their efforts to protect people, property, and
infrastructure.
Basis of Presentation
We are a majority-owned subsidiary of Comverse Technology, Inc. (Comverse). During the three
years ended January 31, 2010, Comverse did not provide us with material levels of corporate or
administrative services.
Principles of Consolidation
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. 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.
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.
F-7
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, and
warranty programs. Restricted bank time deposits generally consist of certificates of deposit with
original maturities of between 90 and 360 days.
Investments
As of January 31, 2010 and 2009, all of our available operating funds are in cash and cash
equivalents or restricted cash. Historically, investments generally consist of marketable debt
securities of corporations, the U.S. government, and agencies of the U.S. government. Through
January 31, 2008, we also periodically invested in auction rate securities (ARS). Effective in
the year ended January 31, 2009, we no longer invest in ARS 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 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 interest and other income, net.
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 geographic areas.
Accounts Receivable, Net
Accounts receivable are recorded at the invoiced amount and are not interest-bearing, subject to
the following:
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.
F-8
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.
The following table summarizes the activity in our allowance for doubtful accounts for the years
ended January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Balance at beginning of year |
|
$ |
5,989 |
|
|
$ |
6,490 |
|
|
$ |
2,630 |
|
Provisions charged to expense |
|
|
801 |
|
|
|
793 |
|
|
|
3,366 |
|
Amounts written off |
|
|
(2,210 |
) |
|
|
(868 |
) |
|
|
(251 |
) |
Other (1) |
|
|
126 |
|
|
|
(426 |
) |
|
|
745 |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
4,706 |
|
|
$ |
5,989 |
|
|
$ |
6,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes balances from acquisitions and changes in balances due to changes in 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 our property and equipment, other than buildings and leasehold
improvements, over periods ranging from three to ten years. Buildings are depreciated over periods
ranging from twenty-five to thirty years. Furniture and fixtures are depreciated over periods
ranging from three to ten years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the related lease term.
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,
trade names, customer relationships, distribution networks, sales backlogs, and non-competition
agreements. We amortize the cost of
F-9
finite-lived identifiable 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. As of January 31,
2010 and 2009, we had no indefinite-lived intangible assets other than goodwill. To test for
potential impairment, we first perform an assessment of the fair value of our reporting units. We
utilize three primary approaches to determine 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 weighting 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.
The fair value of each reporting unit is compared to its carrying value to determine whether there
is an indication of impairment in value. If an indication of impairment exists, we perform a
second analysis to measure the amount of impairment, if any. During the years ended January 31,
2009 and 2008, we recorded non-cash charges to recognize impairments of goodwill of $26.0 million
and $20.6 million, respectively. We did not record any impairment of goodwill for the year ended
January 31, 2010.
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.
During the year ended January 31, 2008, we recorded non-cash charges to recognize impairments of
long-lived intangible assets other than goodwill of $2.7 million. No impairments of long-lived
assets other than goodwill were recorded during the years ended January 31, 2010 or 2009.
Further discussion of these impairment charges appears in Note 5, Intangible Assets and Goodwill.
Impairment charges related to operating expenses are included in impairments of goodwill and other
acquired intangible assets and impairment charges related to cost of revenue are included in
amortization and impairment of acquired technology on the accompanying consolidated
statements of operations.
Fair Value 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. The fair value of money market funds, derivative financial instruments, and
long-term debt are disclosed in Note 13, Fair Value Measurements and Derivative Financial
Instruments.
Derivative Financial Instruments
As part of our risk management strategy 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
F-10
offset gains and losses that occur from the underlying exposure
with gains and losses on the derivative contracts used to offset them. As a matter of company
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 instruments 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.
For the years ended January 31, 2010 and 2009, 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. For the year ended January 31, 2008, none of our derivative
instruments were accounted for using hedge accounting, and accordingly, all derivatives were
marked-to-market at the end of each accounting period, with changes in fair value, whether realized
or unrealized, recognized in current period earnings within other income (expense), net. See Note
13, Fair Value Measurements and Derivative Financial Instruments, for further details regarding
our hedging activities and related accounting policies.
Long-term Debt
We capitalize debt issuance costs incurred in connection with our long-term borrowings and credit
facilities. We amortize these costs as an adjustment to interest expense over the 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 issuance
costs to reflect the expected remaining terms of the borrowing.
Segment Reporting
We have three operating segments, which are also our reportable segments, Enterprise Workforce
Optimization Solutions (Workforce Optimization), Video Intelligence Solutions (Video
Intelligence), and Communications Intelligence and Investigative Solutions (Communications
Intelligence). 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 revenues 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
We derive and report our revenue in two categories: (a) product revenue including hardware and
software products and (b) service and support revenue, including revenue from installation
services, post-contract customer support (PCS), project management, hosting services, 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 considered probable and whether fees are fixed and determinable. In
addition, our multiple-element arrangements must be carefully reviewed to determine whether the
fair value of each
element can be established, which is a critical factor in determining the timing of the
arrangements revenue recognition.
F-11
For software license arrangements that do not require significant modification or customization of
the underlying software, we recognize revenue when we have persuasive evidence of an arrangement,
the product has been shipped or the services have been provided to the customer, the sales price is
fixed or determinable and collectability is probable.
The majority of our software license arrangements contain multiple elements including software,
hardware, PCS, and professional services such as installation, consulting, and training. We
allocate revenue to the delivered elements of the arrangement using the residual method, whereby
revenue is allocated to the undelivered elements based on vendor specific objective evidence of
fair value (VSOE) of the undelivered elements with the remaining arrangement fee allocated to the
delivered elements and recognized as revenue assuming all other revenue recognition criteria are
met. 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 for which we are unable to establish VSOE of one or more
elements, and where such arrangements are recognized ratably, we use various available indicators
of fair value and apply our best judgment to reasonably classify the arrangements revenue into
product revenue and service revenue for financial reporting purposes. For these arrangements, we
review our VSOE for training, installation, and PCS services from similar transactions and
stand-alone services arrangements and prepare comparisons to peers, in order to determine
reasonable and consistent approximations of fair values of service revenue for statement of
operations classification purposes with the remaining amount being allocated to product revenue.
Installation services associated with our Communications Intelligence arrangements are included
within product revenue as such amounts are not considered material.
Our policy for establishing VSOE for installation, consulting, and training is based upon an
analysis of separate sales of services.
PCS revenues are 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. 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 for the PCS, depending upon the
business segment, geographical region, or product line.
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.
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 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 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 the customers
expectations. We have concluded that our software products have estimated economic lives ranging
from five to seven years.
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 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.
F-12
For shipment of products that include embedded firmware that has been deemed incidental, we
recognize revenue provided that persuasive evidence of an arrangement exists, delivery has occurred
or services have been rendered, the fee is fixed or determinable, and collectability of the fee is
reasonably assured. For shipments of hardware products, delivery is considered to have occurred
upon shipment, provided that the risks of loss, and title in certain jurisdictions, have been
transferred to the customer.
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 projects profitability can be estimated or the services have
been completed. In addition, if VSOE does not exist for the contracts PCS element but some level
of profitability is assured, revenue is recognized to the extent of costs incurred. Once the
services are completed, the remaining portion of the arrangement fee is recognized ratably over the
remaining PCS period. In the event some level of profitability on a contract cannot be assured,
the completed-contract method of revenue recognition is applied.
In certain of our arrangements accounted for under contract accounting methods, the fee is
contingent on the return on investment our customers receive from such services. Revenue from
these arrangements is recognized under the completed-contract method of accounting when the
contingency is resolved and collectability is assured, which in most cases is upon final receipt of
payment.
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 a software license arrangement obligates us
to deliver specified future products or upgrades, revenue under the arrangement is initially
deferred and is recognized only when the specified future products or upgrades are delivered, or
when the obligation to deliver specified future 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 at gross and record costs related to a
sale in cost of revenue. In those cases where we are acting as an agent between the customer and
the vendor, and we are not the primary obligor and/or do not bear credit risk, or where we earn a
fixed transactional fee, 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.
F-13
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
generally expensed as incurred, except for certain contracts that are accounted for using contract
accounting principles. Deferred cost of revenue are classified in their 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 these
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. Since calendar year 2006, we 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 for resale 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.
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 the 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
F-14
represents income taxes paid or
payable for the current year plus the change in deferred taxes during the year. 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.
Functional Currency and Foreign Currency Transaction Gains and Losses
The functional currency for each of our foreign subsidiaries is the respective local currency with
the exception of our subsidiaries in Israel and Canada, whose functional currencies are the U.S.
Dollar (dollar). Most of our revenue and materials purchased from suppliers are denominated in
or linked to the dollar. Transactions denominated in currencies other than the dollar (primarily
compensation and benefits costs of foreign operations) are converted to the dollar 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 $1.9 million
of net foreign currency losses for the year ended January 31, 2010, and $1.6 million and $1.4
million of net foreign currency gains for the years ended January 31, 2009 and 2008, respectively.
In those limited instances where a foreign subsidiary has a functional currency other than the
dollar, revenue and expenses are translated into dollars using average exchange rates for the
reporting period, while assets and liabilities are translated into 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.
F-15
Net Income (Loss) Per Share Attributable to Verint Systems Inc.
Shares used in the calculation of basic net income (loss) per share are based on the
weighted-average number of shares outstanding during the accounting period. Shares used in the
calculation of basic net income (loss) per share exclude unvested shares of restricted stock
because they are contingent upon future service conditions. Shares used in the calculation of
diluted net income (loss) per 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 (loss) per 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 share and diluted net loss
per share are identical since the effect of potential common shares is anti-dilutive and therefore
excluded.
Recent Accounting Pronouncements
Standards Implemented:
In December 2007, the Financial Accounting Standards Board (FASB) revised their guidance on
business combinations. This new guidance requires an acquiring entity to measure and recognize
identifiable assets acquired and liabilities assumed, and contingent consideration at their fair
value at the acquisition date with subsequent changes recognized in earnings. In addition,
acquisition related costs and restructuring costs are recognized separately from the business
combination and expensed as incurred. The new guidance also requires acquired in-process research
and development costs to be capitalized as an indefinite-lived intangible asset and requires that
changes in accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period be recognized as a component of the provision for income
taxes. In April 2009, the FASB issued a new standard which clarified the accounting for
pre-acquisition contingencies. This guidance was effective for us beginning on February 1, 2009.
For further discussion see Note 4, Business Combinations.
In December 2007, the FASB issued a new accounting standard which establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and the noncontrolling interest,
changes in a parents ownership interest and the valuation of retained noncontrolling equity
investments when a subsidiary is deconsolidated. The new standard also establishes disclosure
requirements that clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. On February 1, 2009, we adopted this standard, and the
presentation and disclosure requirements of this standard were applied retrospectively to all
periods presented, as required by the standard. The adoption of this standard did not have a
material impact on our consolidated financial statements, other than the following changes in
presentation of the noncontrolling interest:
|
|
|
Net income (loss) now includes net income (loss) attributable to both Verint
Systems Inc. and the noncontrolling interest in the consolidated statements of operations.
The presentation of net income (loss) in prior periods excluded the noncontrolling interest
in the net income of our joint venture. Net income (loss) excluding the noncontrolling
interest in the net income of our joint venture is now presented after net income (loss),
with the caption net income (loss) attributable to Verint Systems Inc. |
|
|
|
|
The noncontrolling interest, which was previously reflected in other
liabilities, is now presented in stockholders equity (deficit), separate from Verint
Systems Inc.s stockholders equity (deficit), in the consolidated balance sheets. |
|
|
|
|
The consolidated statements of cash flows now begin with net income (loss),
including the noncontrolling interest, instead of net income (loss) attributable to Verint
Systems Inc. |
In March 2008, the FASB amended the disclosure requirements for derivative instruments and hedging
activities. This new guidance requires enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and related hedged items are accounted for,
and (c) how derivative instruments and related hedged items affect an entitys financial position,
financial performance, and cash flows. This guidance was
F-16
effective for us beginning on February 1,
2009. For further discussion, see Note 13, Fair Value Measurements and Derivative Financial
Instruments.
In April 2009, the FASB issued staff positions that require enhanced fair value disclosures,
including interim disclosures, on financial instruments, determination of fair value in turbulent
markets, and recognition and presentation of other than temporary impairments. These staff
positions were effective beginning with our quarter ended July 31, 2009. These staff positions
will enhance our interim disclosures but will not have a material effect on our consolidated
financial statements.
In May 2009, the FASB issued a standard that establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued. In February 2010, the FASB issued an amendment to this guidance that removed the
requirement for an SEC filer to disclose a date through which subsequent events have been evaluated
in both issued and revised financial statements. This standard as amended was effective for us
beginning with our interim period ended July 31, 2009. The adoption of this standard, as amended,
had no impact on our consolidated financial statements.
During the third quarter of the year ended January 31, 2010, we adopted the new Accounting
Standards Codification (ASC) as issued by the FASB. The ASC has become the source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The ASC
is not intended to change or alter existing GAAP. The adoption of the ASC had no impact on our
consolidated financial statements.
New Standards to be Implemented:
In June 2009, the FASB issued a new accounting standard related to the consolidation of variable
interest entities, requiring a company to perform an analysis to determine whether its variable
interests give it a controlling financial interest in a variable interest entity. This analysis
requires a company to assess whether it has the power to direct the activities of the variable
interest entity and if it has the obligation to absorb losses or the right to receive benefits that
could potentially be significant to the variable interest entity. This standard requires an
ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity,
eliminates the quantitative approach previously required for determining the primary beneficiary of
a variable interest entity, and significantly enhances disclosures. The standard may be applied
retrospectively to previously issued financial statements with a cumulative-effect adjustment to
retained earnings as of the beginning of the first year restated. This standard is effective for
us for the fiscal year beginning on February 1, 2010. We are in the process of evaluating this
standard and therefore have not yet determined the impact that adoption will have on our
consolidated financial statements.
In October 2009, the FASB issued guidance that applies to multiple-deliverable revenue
arrangements. This guidance also provides principles and application guidance on whether a revenue
arrangement contains multiple deliverables, how the arrangement should be separated, and how the
arrangement consideration should be allocated. The guidance requires an entity to allocate revenue
in a multiple-deliverable arrangement using estimated selling prices of the deliverables if a
vendor does not have VSOE or third-party evidence of selling price. It eliminates the use of the
residual method and, instead, requires an entity to allocate revenue using the relative selling
price method. It also expands disclosure requirements with respect to multiple-deliverable revenue
arrangements.
Also in October 2009, the FASB issued guidance related to multiple-deliverable revenue arrangements
that contain both software and hardware elements, focusing on determining which revenue
arrangements are within the scope of existing software revenue guidance. This additional guidance
removes tangible products from the scope of the software revenue guidance and provides guidance on
determining whether software deliverables in an arrangement that includes a tangible product are
within the scope of the software revenue guidance.
The above guidance related to revenue recognition should be applied on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June
15, 2010. It will be effective for us in our fiscal year beginning February 1, 2011, although
early adoption is permitted. Alternatively,
an entity can elect to adopt the provisions of these issues on a retrospective basis. We are
assessing the impact that the application of this new guidance may have on our consolidated
financial statements.
F-17
In January 2010, the FASB issued amended standards that require additional fair value disclosures.
These disclosure requirements are effective in two phases. Effective in our fiscal year beginning
February 1, 2010, the amended standards will require enhanced disclosures about inputs and
valuation techniques used to measure fair value as well as disclosures about significant transfers
between categories of the fair value measurement hierarchy. Effective in our fiscal year beginning
February 1, 2011, the amended standards will require presentation of disaggregated activity within
the reconciliation for fair value measurements using significant unobservable inputs (Level 3).
These amended standards do not significantly impact our consolidated financial statements.
2. Net Income (Loss) Per Share Attributable to Verint Systems Inc.
The following table summarizes the calculation of basic and diluted net income (loss) per share
attributable to Verint Systems Inc. for the years ended January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net income (loss) |
|
$ |
17,100 |
|
|
$ |
(78,577 |
) |
|
$ |
(197,545 |
) |
Net income attributable to noncontrolling interest |
|
|
1,483 |
|
|
|
1,811 |
|
|
|
1,064 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. |
|
|
15,617 |
|
|
|
(80,388 |
) |
|
|
(198,609 |
) |
Dividends on preferred stock |
|
|
(13,591 |
) |
|
|
(13,064 |
) |
|
|
(8,681 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. common
shares basic and diluted |
|
$ |
2,026 |
|
|
$ |
(93,452 |
) |
|
$ |
(207,290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
32,478 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
33,127 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Verint Systems Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted-average diluted shares outstanding for the year ended January 31, 2010 excludes shares
underlying approximately 4.7 million stock options, since such options have exercise prices in
excess of the average market value of our common stock during the period and are therefore
antidilutive. Due to net losses applicable to common shares reported for the years ended January
31, 2009 and January 31, 2008, the assumed exercise of stock options and assumed settlement of
unvested restricted stock awards and restricted stock units had an antidilutive effect and was
therefore excluded from the computation of weighted-average diluted shares outstanding for those
periods. Such options, awards and units excluded from the computation of weighted-average diluted
shares outstanding totaled 7.1 million and 7.0 million for the years ended January 31, 2009 and
2008, respectively.
Also excluded from the calculation of diluted net income (loss) per share attributable to Verint
Systems Inc. were 10.0 million, 9.6 million, and 9.2 million common shares at January 31, 2010,
2009, and 2008, respectively, issuable from the assumed conversion of our convertible preferred
stock, because such assumed conversion would have an antidilutive effect.
F-18
3. Investments
As of January 31, 2010 and 2009, all of our excess funds are in cash and cash equivalents or
restricted cash. We have historically invested in a variety of securities, including U.S.
Government, corporation, agency bonds, and ARS, which typically provide higher yields than money
market and other cash equivalent investments. Effective in the year ended January 31, 2009, we no
longer invest in ARS as a matter of policy.
As of January 31, 2008, our investments consisted of ARS with a total cost basis (par value) of
$7.0 million and estimated fair value of $2.3 million, which were included within other assets.
At January 31, 2008, the collateral underlying our ARS portfolio consisted of AAA-rated pools of
residential mortgages and corporate debt obligations. These collateralized debt instruments had
long-term underlying maturities, but were historically considered highly liquid because of the
occurrence of regular auctions every 90 days or less that reset the applicable interest and allowed
for purchases and sales. Beginning in the quarter ended October 31, 2007, these ARS failed to
receive sufficient order interest from potential investors to clear successfully, resulting in
failed auctions. Due to continued failures of these auctions, during the year ended January 31,
2008, we concluded our ARS were no longer liquid, and in the event we needed to access these funds,
we would not have been able to do so without realizing a loss of principal. However, we continued
to earn interest on our ARS at the maximum contractual rate.
Prior to the first failed auction, we valued our ARS using quoted market prices because the
securities were highly liquid and there were active markets which generally resulted in valuations
at par. Once the auctions began to fail, we could not value these securities using prices
established by market transactions and we valued these securities in part using estimated values
provided by the firms which underwrote the securities. Accordingly, we concluded that as of
January 31, 2008, our portfolio of three ARS with a cost basis (par value) of $7.0 million had an
estimated fair value of $2.3 million. We therefore concluded that these securities had an
other-than-temporary impairment in market value and recorded a $4.7 million pre-tax charge during
the year ended January 31, 2008 in other income (expense), net in our consolidated statement of
operations.
Additionally, because we could not reliably estimate when a successful auction for the ARS that we
held at January 31, 2008 would occur, we reclassified these securities as long-term assets on our
consolidated balance sheets.
During the year ended January 31, 2009, we sold our ARS to the broker from whom we purchased the
securities at par value plus accrued interest. We are aware that at the time, the broker had
entered into a settlement agreement with the Attorney General of the State of New York and the
North American Securities Administrators Association Task Force. Consequently, we recorded a gain
of $4.7 million in other income (expense), net in our consolidated statement of operations when the
securities were sold to the broker.
Proceeds from sales or maturities of available-for-sale investments were $7.0 million and $328.5
million during the years ended January 31, 2009, and 2008, respectively. We received no such
proceeds during the year ended January 31, 2010, because all of our available operating funds and
our restricted cash were held in the form of cash and cash equivalents during the entire year.
4. Business Combinations
We did not enter into any business combinations during the years ended January 31, 2010 and January
31, 2009.
Business Combinations for the Year Ended January 31, 2008
Witness Systems, Inc.
We acquired Witness Systems, Inc. (Witness), formerly a publicly held company based in Roswell,
Georgia, on May 25, 2007. We acquired Witness, among other objectives, to expand our business in
the enterprise workforce optimization market. We have included the financial results of Witness in
our consolidated financial statements
F-19
since May 25, 2007. The following table sets forth the
components and the allocation of the purchase price of Witness:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
(in thousands) |
|
Amount |
|
|
Useful Lives |
|
Components of Purchase Price: |
|
|
|
|
|
|
|
|
common stock of Witness at $27.50 per share in cash, net of interest
earned |
|
$ |
966,518 |
|
|
|
|
|
Settlement of vested and accelerated Witness stock options in cash |
|
|
93,225 |
|
|
|
|
|
Fair value of unvested Witness stock options exchanged |
|
|
4,717 |
|
|
|
|
|
arrangements |
|
|
5,802 |
|
|
|
|
|
Direct transaction costs |
|
|
14,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
1,085,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Purchase Price: |
|
|
|
|
|
|
|
|
Net tangible assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
139,777 |
|
|
|
|
|
Other current assets |
|
|
71,045 |
|
|
|
|
|
Deferred income taxes current |
|
|
1,823 |
|
|
|
|
|
Other assets |
|
|
15,028 |
|
|
|
|
|
Current liabilities |
|
|
(65,130 |
) |
|
|
|
|
Deferred income taxes long-term |
|
|
(12,042 |
) |
|
|
|
|
Other liabilities |
|
|
(7,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets |
|
|
142,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets: |
|
|
|
|
|
|
|
|
Developed technology |
|
|
43,000 |
|
|
6 years |
Trademark and trade name |
|
|
10,000 |
|
|
2-4 years |
Customer relationships |
|
|
206,000 |
|
|
10 years |
Non-competition agreements |
|
|
1,300 |
|
|
1 year |
|
|
|
|
|
|
|
|
Total identifiable intangible assets (1) |
|
|
260,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process research and development |
|
|
6,440 |
|
|
|
|
|
Goodwill |
|
|
675,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
1,085,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted-average amortization period of all finite-lived identifiable intangible assets is 9.0 |
Purchase Price
We paid $967.1 million in cash to acquire all of the 35.2 million outstanding shares of Witness
common stock on May 25, 2007 at $27.50 per share. The amount was reduced by $0.6 million of
interest earned on funds deposited with the paying agent for which settlement with Witness
stockholders did not occur within one day.
In accordance with the terms of the acquisition agreement and the underlying Witness stock option
agreements, at the acquisition date all vested Witness stock options, in lieu of being exercised,
were exchanged for a cash payment equal to the excess, if any, of $27.50 over the exercise price
per share of the options. In addition, pursuant to their terms, certain unvested Witness stock
options were deemed vested as a result of the acquisition and were also settled
F-20
in cash, in the
same manner. These payments, including applicable payroll taxes, totaled $93.2 million and are
included within the purchase price.
Unvested Witness stock options were exchanged for options to purchase our common stock using a
conversion formula that maintained the option holders intrinsic value. The fair value of the
unvested options exchanged, $4.7 million of which was attributable to past service and included
within the purchase price, was determined using a Black-Scholes valuation model with the following
assumptions: expected lives ranging from 1.4 years to 3.9 years, a risk-free interest rate of
approximately 4.9%, expected volatility of 40.5%, and no dividend yield.
We assumed several contingent consideration arrangements related to businesses previously acquired
by Witness. One such arrangement provided for potential additional consideration of up to $18.5
million, to be earned quarterly through July 31, 2009, based upon the previously acquired business
achieving certain performance metrics. During the years ended January 31, 2009 and 2008, $1.1
million and $2.7 million of this contingent consideration was earned, respectively, and was
recorded as additional goodwill. We also paid $2.0 million of additional consideration during the
year ended January 31, 2008 related to a separate business previously acquired by Witness, and
recorded the payment as additional goodwill. No further contingent consideration was earned
through the completion of the contingent consideration periods of these arrangements.
Direct transaction costs include investment banking, legal, and accounting fees, and other external
costs directly related to the acquisition.
In-Process Research and Development
We expensed the fair value of Witness in-process research and development (IPR&D) upon
acquisition, as it represents incomplete research and development projects that had not yet reached
technological feasibility and had no known alternative future use as of the date of the
acquisition. IPR&D is presented as a separate line item on our consolidated statement of
operations. Technological feasibility is generally established when an enterprise completes all
planning, designing, coding, and testing activities that are necessary to establish that a product
can be produced to meet its design specifications, including functions, features, and technical
performance requirements. The value assigned to IPR&D of $6.4 million was determined by
considering the importance of each project to our overall future development plans, estimating
costs to develop the purchased IPR&D into commercially viable products, estimating the resulting
net cash flows from each project when completed, and discounting the net cash flows to their
present values.
The revenue estimates used to value the IPR&D were based on estimates of the relevant market sizes
and growth factors, expected trends in technology, and the nature and expected timing of new
product introductions. The rates used to discount the cash flows to their present values were
based on the weighted-average cost of capital. The weighted-average cost of capital was adjusted
to reflect the difficulties and uncertainties in completing each project and thereby achieving
technical feasibility, the percentage of completion of each project, anticipated market acceptance
and penetration, market growth rates, and risks related to the impact of potential changes in
future target markets. Based on these factors, a discount rate of 17% was deemed appropriate for
valuing the IPR&D.
Goodwill and Identifiable Intangible Assets
Among the factors that contributed to the recognition of goodwill in this transaction were the
significant expansion of our market share in the enterprise workforce optimization market, a
broader available suite of products and services, the addition of a talented assembled workforce,
and opportunities for future efficiencies and cost savings. This goodwill has been assigned to our
Workforce Optimization segment, and is not deductible for income tax purposes.
Deferred Revenue
Included within the net tangible assets of Witness at May 25, 2007 is the fair value of support
obligations assumed from Witness in connection with the acquisition. We based our determination of
the fair value of the support obligations, in part, on a valuation completed by a third-party
valuation firm using estimates and assumptions
F-21
provided by management. The estimated fair value of
the support obligations was determined utilizing a cost build-up approach. The cost build-up
approach determines fair value by estimating the costs relating to fulfilling the obligations plus
a reasonable profit margin. The sum of the costs and operating profit is used to approximate the
amount that we would pay a third party to assume the support obligations. The estimated costs to
fulfill the support obligations were based on the historical direct costs related to providing the
support services. We did not include any costs associated with selling efforts or research and
development or the related fulfillment margins on these costs. Profit associated with selling
effort is excluded because Witness had concluded the selling effort on the support contracts prior
to the acquisition date. The estimated research and development costs have not been included in
the fair value determination, as these costs do not represent a legal obligation at the time of
acquisition. As a result, in our purchase price allocation, we recorded an adjustment to reduce
the historical carrying value of Witness May 25, 2007 deferred support revenue by $38.9 million,
to reflect our estimate of the fair value of the support obligations assumed.
ViewLinks Euclipse, Ltd.
We acquired Israel-based ViewLinks Euclipse Ltd. (ViewLinks), a privately held provider of data
mining and link analysis software solutions, on February 1, 2007. We have included the financial
results of ViewLinks in our consolidated financial statements since February 1, 2007. The total
purchase price for ViewLinks was $7.7 million, which consisted of $5.7 million in cash paid to
acquire ViewLinks remaining outstanding common stock, $1.9 million of contingent consideration
earned by and substantially paid to the former ViewLinks shareholders, and $0.1 million of direct
transaction costs. No further contingent consideration is available to the former ViewLinks
shareholders as of January 31, 2010. Our purchase price allocation for ViewLinks, based on
estimated fair values, consisted of $5.0 million of goodwill, $1.8 million of identifiable
intangible assets, $0.7 million of net tangible assets, and $0.2 million of IPR&D. The intangible
assets acquired in this transaction are being amortized over estimated useful lives of one to five
years. The goodwill recorded in this acquisition has been assigned to our Communications
Intelligence segment, and is not deductible for income tax purposes.
Unaudited Pro Forma Financial Information
The unaudited financial information presented in the table below summarizes the combined results of
our operations and the operations of Witness on a pro forma basis, as though the companies had been
combined as of February 1, 2007. The pro forma impact of the ViewLinks acquisition is not material
to our overall consolidated operating results and therefore is not presented.
Pro forma financial information is subject to various assumptions and estimates and is presented
for informational purposes only. This pro forma information does not purport to represent or be
indicative of the consolidated operating results that would have been reported had the transactions
been completed as described herein, and the data should not be taken as indicative of future
consolidated operating results.
No pro forma financial information is presented for the years ended January 31, 2010 and January
31, 2009, as we did not enter into any business combinations during those periods.
Pro forma financial information for the year ended January 31, 2008 is as follows:
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
Revenue |
|
$ |
601,833 |
|
|
|
|
|
Net loss |
|
$ |
(229,224 |
) |
|
|
|
|
Net loss attributable to Verint Systems Inc. |
|
$ |
(230,288 |
) |
|
|
|
|
Net loss
attributable to Verint Systems Inc. common shares |
|
$ |
(243,310 |
) |
|
|
|
|
Basic and diluted net loss per share attributable
to Verint Systems Inc. |
|
$ |
(7.55 |
) |
|
|
|
|
F-22
5. Intangible Assets and Goodwill
Acquisition-related intangible assets consist of the following as of January 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
(in thousands) |
|
Cost |
|
|
Amortization |
|
|
Net |
|
Customer relationships |
|
$ |
198,084 |
|
|
$ |
(54,825 |
) |
|
$ |
143,259 |
|
Acquired technology |
|
|
54,629 |
|
|
|
(28,419 |
) |
|
|
26,210 |
|
Trade names |
|
|
9,551 |
|
|
|
(7,989 |
) |
|
|
1,562 |
|
Non-competition agreements |
|
|
3,429 |
|
|
|
(2,203 |
) |
|
|
1,226 |
|
Distribution network |
|
|
2,440 |
|
|
|
(864 |
) |
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
268,133 |
|
|
$ |
(94,300 |
) |
|
$ |
173,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
(in thousands) |
|
Cost |
|
|
Amortization |
|
|
Net |
|
Customer relationships |
|
$ |
194,076 |
|
|
$ |
(34,420 |
) |
|
$ |
159,656 |
|
Acquired technology |
|
|
53,781 |
|
|
|
(20,134 |
) |
|
|
33,647 |
|
Trade names |
|
|
9,350 |
|
|
|
(5,926 |
) |
|
|
3,424 |
|
Non-competition agreements |
|
|
3,416 |
|
|
|
(1,760 |
) |
|
|
1,656 |
|
Distribution network |
|
|
2,440 |
|
|
|
(620 |
) |
|
|
1,820 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
263,063 |
|
|
$ |
(62,860 |
) |
|
$ |
200,203 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents net acquisition-related intangible assets by segment as of
January 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Workforce Optimization |
|
$ |
171,133 |
|
|
$ |
196,483 |
|
Video Intelligence |
|
|
1,149 |
|
|
|
1,427 |
|
Communications Intelligence |
|
|
1,551 |
|
|
|
2,293 |
|
|
|
|
|
|
|
|
Total |
|
$ |
173,833 |
|
|
$ |
200,203 |
|
|
|
|
|
|
|
|
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 $30.3 million,
$34.3 million, and $27.2 million for the years ended January 31, 2010, 2009, and 2008,
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.
F-23
Estimated future finite-lived acquisition-related intangible asset amortization expense is as
follows:
|
|
|
|
|
(in thousands) |
|
Amount |
|
For the Years Ended January 31, |
|
|
|
2011 |
|
$ |
29,320 |
|
2012 |
|
|
28,395 |
|
2013 |
|
|
27,612 |
|
2014 |
|
|
22,660 |
|
2015 |
|
|
20,082 |
|
2016 and thereafter |
|
|
45,764 |
|
|
|
|
|
Total |
|
$ |
173,833 |
|
|
|
|
|
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, 2010 and January 31, 2009. We
recorded impairments of finite-lived intangible assets of $2.7 million in the fourth quarter of the
year ended January 31, 2008 related to our Video Intelligence business in the Asia Pacific region.
The impairment charge of $2.7 million in the year ended January 31, 2008 was due to a change in
business strategy, which resulted in a decline in our distribution business in the region. For
this impairment, $0.4 million is related to acquired technology and is reported within cost of
revenue, and $2.3 million is related to customer-related intangible assets and is reported within
operating expenses.
F-24
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, 2010 and 2009, in total and by reportable segment, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment |
|
|
|
|
|
|
|
Workforce |
|
|
Video |
|
|
Communications |
|
(in thousands) |
|
Total |
|
|
Optimization |
|
|
Intelligence |
|
|
Intelligence |
|
For the Year Ended January 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross, at January 31, 2008 |
|
$ |
825,918 |
|
|
$ |
728,066 |
|
|
$ |
68,106 |
|
|
$ |
29,746 |
|
Accumulated impairment losses at January 31, 2008 |
|
|
(40,904 |
) |
|
|
(17,142 |
) |
|
|
(23,762 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at January 31, 2008 |
|
|
785,014 |
|
|
|
710,924 |
|
|
|
44,344 |
|
|
|
29,746 |
|
Additional consideration previous acquisitions (1) |
|
|
1,303 |
|
|
|
1,066 |
|
|
|
|
|
|
|
237 |
|
Income tax-related adjustments |
|
|
(398 |
) |
|
|
(398 |
) |
|
|
|
|
|
|
|
|
Goodwill impairment |
|
|
(25,961 |
) |
|
|
(13,649 |
) |
|
|
(12,312 |
) |
|
|
|
|
Foreign currency translation and other |
|
|
(49,974 |
) |
|
|
(47,594 |
) |
|
|
(2,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at January 31, 2009 |
|
$ |
709,984 |
|
|
$ |
650,349 |
|
|
$ |
29,652 |
|
|
$ |
29,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended January 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross, at January 31, 2009 |
|
$ |
776,849 |
|
|
$ |
681,140 |
|
|
$ |
65,726 |
|
|
$ |
29,983 |
|
Accumulated impairment losses at January 31, 2009 |
|
|
(66,865 |
) |
|
|
(30,791 |
) |
|
|
(36,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at January 31, 2009 |
|
|
709,984 |
|
|
|
650,349 |
|
|
|
29,652 |
|
|
|
29,983 |
|
Additional consideration previous acquisitions (1) |
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
89 |
|
Foreign currency translation and other |
|
|
14,597 |
|
|
|
13,325 |
|
|
|
1,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at January 31, 2010 |
|
$ |
724,670 |
|
|
$ |
663,674 |
|
|
$ |
30,924 |
|
|
$ |
30,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross, at January 31, 2010 |
|
$ |
791,535 |
|
|
$ |
694,465 |
|
|
$ |
66,998 |
|
|
$ |
30,072 |
|
Accumulated impairment losses at January 31, 2010 |
|
|
(66,865 |
) |
|
|
(30,791 |
) |
|
|
(36,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at January 31, 2010 |
|
$ |
724,670 |
|
|
$ |
663,674 |
|
|
$ |
30,924 |
|
|
$ |
30,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Contingent consideration for acquisitions completed in prior years. |
For purposes of performing our impairment testing, we assign goodwill to multiple reporting
units at one level below our operating segments, primarily based on types of products sold or
services provided and in certain cases by products sold in a particular industry or vertical
market.
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, 2009, 2008, and 2007.
The results of step one of our testing as of November 1, 2009 indicated that the fair values of all
of our reporting units significantly exceeded their net carrying values, and therefore no goodwill
impairment was identified for the year ended January 31, 2010.
The results of step one of our testing as of November 1, 2008 indicated that the net carrying value
of two of our reporting units exceeded their fair values. We performed the required step two
analysis and recorded impairment charges of $13.7 million in our Workforce Optimization segment and
$12.3 million in our Video Intelligence segment in the fourth quarter of the year ended January 31,
2009, which represented the excess of the carrying value of the impaired reporting units goodwill
over their implied fair values. These charges are recorded in impairments of goodwill and other
acquired intangible assets on the accompanying consolidated statements of operations. The
impairment in our Workforce Optimization segment related to our performance management consulting
business in the United States, and was due primarily to overall lower than anticipated demand for
our consulting services, which resulted in a decline in projected future revenue and cash flow. We
fully impaired the remaining goodwill balance
F-25
of $12.3 million in one reporting unit of our Video
Intelligence segment in the Asia Pacific region, due to our decision in the fourth quarter to
discontinue the development of a product line as a result of continued decline in our distribution
business in that region.
The results of step one of our testing as of November 1, 2007 indicated that the net carrying value
of four of our reporting units exceeded their fair values. We performed the required step two
analysis and recorded impairment charges of $14.0 million in our Workforce Optimization segment and
$6.6 million in our Video Intelligence segment in the fourth quarter of the year ended January 31,
2008, which represented the excess of the carrying value of the impaired reporting units goodwill
over their implied fair values. These charges are recorded in impairments of goodwill and other
intangible assets on the accompanying consolidated statements of operations. The impairment in our
Workforce Optimization segment related to our performance management consulting businesses in the
United States and Europe, and was due primarily to overall lower than anticipated demand for our
consulting services, which resulted in a decline in projected future revenue and cash flow. The
impairment in our Video Intelligence segment related to our distribution business in the Asia
Pacific region, where revenue declined due to a change in business strategy.
6. Long-term Debt
The following is a summary of our outstanding financing arrangements as of January 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Term loan facility |
|
$ |
605,912 |
|
|
$ |
610,000 |
|
Revolving credit facility |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
620,912 |
|
|
|
625,000 |
|
|
|
|
|
|
|
|
Less: current portion |
|
|
22,678 |
|
|
|
4,088 |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
598,234 |
|
|
$ |
620,912 |
|
|
|
|
|
|
|
|
On May 25, 2007, to partially finance the acquisition of Witness, we entered into a $675.0
million secured credit facility comprised of a $650.0 million seven-year term loan facility and a
$25.0 million six-year revolving credit facility.
Borrowings under the credit facility bear interest at a rate of, at our election, (a) the higher of
(i) the prime rate and (ii) the federal funds rate plus 0.50% plus, in either case, a margin of
1.75% or (b) the applicable London Interbank Offered Rate (LIBOR) plus a margin of 2.75%. Such
margins were subject to increase by 0.25% if we failed to receive corporate credit ratings from
both of Moodys Investors Service, Inc. (Moodys) and Standard & Poors Ratings Services (S&P)
or failed to deliver certain financial statements to the credit facility administrative agent by
February 25, 2008, and an additional 0.25% if we failed to do so by August 25, 2008. Because we
did not timely comply with these conditions, the above-referenced applicable margins increased by
0.25% on February 25, 2008 and another 0.25% on August 25, 2008 to 2.25% and 3.25%, respectively.
If we both obtain the above-referenced corporate ratings and deliver to the credit facility
administrative agent the requisite financial statements, the applicable margins will subsequently
range from 1.00% to 1.75% and 2.00% to 2.75%, respectively, depending on our corporate ratings from
Moodys and S&P.
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 LIBOR). The loans
are also subject to mandatory prepayment requirements based upon certain asset sales, excess cash
flow, and certain other events.
The term loan originally amortized in 27 consecutive quarterly installments of $1.6 million each,
beginning August 1, 2007, followed by a final amortization payment of the remaining outstanding
principal amount when the loan
F-26
matures. In July 2007, we made an optional prepayment of $40.0
million, $13.0 million of which was applied to the eight immediately following principal payments
and $27.0 million of which was applied pro rata to the remaining principal payments. In May 2009,
we made a $4.1 million mandatory excess cash flow prepayment, which was applied to the three
immediately following principal payments. Our mandatory excess cash flow payment for the year
ended January 31, 2010, to be paid in May 2010, has been calculated to be $22.1 million, $12.4
million of which will be applied to the eight immediately following principal payments and $9.7
million of which will be applied pro rata to the remaining principal payments. As of January 31,
2010, the interest rate on the term loan was 3.49%.
Our $25.0 million revolving line of credit facility was reduced to $15.0 million during the quarter
ended October 31, 2008 as a result of the bankruptcy of Lehman Brothers. During the quarter ended
January 31, 2009, we borrowed the full $15.0 million available under the revolving credit facility.
Repayment of these borrowings is required upon expiration of the facility in May 2013. As of
January 31, 2010, the interest rate on the revolving line of credit borrowings was 3.49%.
Our obligations under our credit facility are guaranteed by certain of our domestic subsidiaries
(including Witness) and are secured by substantially all of our and their assets. We paid debt
issuance costs of $13.6 million associated with the credit facility, which we have deferred and are
classified within other assets. We are amortizing these deferred debt issuance costs over the life
of the credit facility. Amortization of deferred costs associated with the term loan is recorded
using the effective interest rate method, while amortization of deferred costs associated with the
revolving credit facility is recorded on a straight-line basis.
On May 25, 2007, concurrently with entry into our credit facility, we entered into a
receive-variable/pay-fixed interest rate swap agreement with a multinational financial institution
on a notional amount of $450.0 million to mitigate a portion of the risk associated with variable
interest rates on the term loan. This interest rate swap
agreement terminates in May 2011. See Note 13, Fair Value Measurements and Derivative Financial
Instruments for further details regarding the interest rate swap agreement.
During the years ended January 31, 2010, 2009, and 2008, we incurred $22.6 million, $35.2 million
and $34.4 million of interest expense, respectively, on borrowings under our credit facilities. We
also recorded $1.9 million, $1.7 million, and $1.9 million during the years ended January 31, 2010,
2009, and 2008, respectively, for amortization of our deferred debt issuance costs, which is
reported within interest expense. Included in the deferred debt issuance cost amortization for the
years ended January 31, 2010 and January 31, 2008 were $0.1 million and $0.8 million, respectively,
of additional amortization associated with the principal prepayments in those years.
Future scheduled annual principal payments on indebtedness as of January 31, 2010 are as follows:
|
|
|
|
|
(in thousands) |
|
Amount |
|
Year Ended January 31, |
|
|
|
2011 |
|
$ |
22,678 |
|
2012 |
|
|
|
|
2013 |
|
|
4,593 |
|
2014 |
|
|
21,123 |
|
2015 |
|
|
572,518 |
|
|
|
|
|
Total |
|
$ |
620,912 |
|
|
|
|
|
The credit facility agreement contains customary affirmative and negative covenants for credit
facilities of its type, including limitations on us and our subsidiaries with respect to
indebtedness, liens, dividends and distributions, acquisitions and dispositions of assets,
investments and loans, transactions with affiliates, and nature of business. It also prohibits us
from exceeding a specified consolidated leverage ratio, tested over rolling four-quarter periods.
F-27
The agreement also includes a requirement that we submit audited consolidated financial statements
to the lenders within 90 days of the end of each fiscal year, beginning with the financial
statements for the year ended January 31, 2010. Should we fail to deliver such audited
consolidated financial statements as required, the agreement provides a thirty day period to cure
such default, or an event of default occurs.
The credit facility agreement contains customary events of default with corresponding grace
periods. If an event of default occurs and is continuing, the lenders may terminate and/or suspend
their obligations to make loans and issue letters of credit under the credit facility and/or
accelerate amounts due and/or exercise other rights and remedies. In the case of certain events of
default related to insolvency and receivership, the commitments of the lenders will be
automatically terminated and all outstanding loans will become immediately due and payable.
7. Balance Sheet Information
Inventories consist of the following as of January 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Raw materials |
|
$ |
5,987 |
|
|
$ |
6,389 |
|
Work-in-process |
|
|
4,649 |
|
|
|
5,070 |
|
Finished goods |
|
|
3,737 |
|
|
|
8,996 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
14,373 |
|
|
$ |
20,455 |
|
|
|
|
|
|
|
|
Property and equipment, net consist of the following as of January 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Land |
|
$ |
3,903 |
|
|
$ |
3,595 |
|
Buildings |
|
|
2,250 |
|
|
|
2,250 |
|
Leasehold improvements |
|
|
9,617 |
|
|
|
9,289 |
|
Software |
|
|
20,862 |
|
|
|
18,298 |
|
Equipment, furniture, and other |
|
|
45,168 |
|
|
|
41,935 |
|
|
|
|
|
|
|
|
|
|
|
81,800 |
|
|
|
75,367 |
|
Less: accumulated depreciation and amortization |
|
|
(57,347 |
) |
|
|
(44,823 |
) |
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
24,453 |
|
|
$ |
30,544 |
|
|
|
|
|
|
|
|
Depreciation expense on property and equipment was $12.4 million, $15.0 million, and $14.4
million for the years ended January 31, 2010, 2009, and 2008, respectively.
F-28
Other assets consist of the following as of January 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Deferred debt issuance costs, net |
|
$ |
8,474 |
|
|
$ |
10,207 |
|
Other |
|
|
8,363 |
|
|
|
8,609 |
|
|
|
|
|
|
|
|
Total other assets |
|
$ |
16,837 |
|
|
$ |
18,816 |
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities consist of the following as of January 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Compensation and benefits |
|
$ |
52,151 |
|
|
$ |
34,821 |
|
Billings in excess of costs and estimated earnings
on uncompleted contracts |
|
|
26,102 |
|
|
|
42,250 |
|
Professional fees and consulting |
|
|
17,204 |
|
|
|
7,157 |
|
Derivative financial instruments current portion |
|
|
21,624 |
|
|
|
16,851 |
|
Distributor and agent commissions |
|
|
9,193 |
|
|
|
5,446 |
|
Taxes other than income |
|
|
7,034 |
|
|
|
5,417 |
|
Interest on indebtedness |
|
|
416 |
|
|
|
2,398 |
|
Other |
|
|
21,211 |
|
|
|
31,998 |
|
|
|
|
|
|
|
|
Total accrued expenses and other liabilities |
|
$ |
154,935 |
|
|
$ |
146,338 |
|
|
|
|
|
|
|
|
Other liabilities consist of the following as of January 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Unrecognized tax benefits |
|
$ |
18,609 |
|
|
$ |
17,602 |
|
Derivative financial instruments long-term portion |
|
|
8,824 |
|
|
|
18,263 |
|
Obligation for severance compensation |
|
|
3,259 |
|
|
|
3,305 |
|
Other |
|
|
13,501 |
|
|
|
13,810 |
|
|
|
|
|
|
|
|
Total other liabilities |
|
$ |
44,193 |
|
|
$ |
52,980 |
|
|
|
|
|
|
|
|
F-29
8. Convertible Preferred Stock
On May 25, 2007, in connection with our acquisition of Witness, 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 the acquisition. 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 has 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, 2010 and January 31, 2009,
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 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 none 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, 2010, there is no indication that the occurrence of a
fundamental change and the associated redemption of the preferred stock were probable. We therefore
have not adjusted the carrying amount of the preferred stock to its redemption amount, which is its
liquidation preference, at January 31, 2010. Through January 31, 2010, cumulative, undeclared
dividends on the preferred stock were $32.9 million and as a result, the liquidation preference of
the preferred stock was $325.9 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. As of
January 31, 2008, the fair value of the embedded derivative instrument had increased to $8.1
million, driven by declining market interest rates which increased the likelihood that the dividend
rate might be reduced. This $7.2 million increase in fair value was reflected within other income
(expense), net.
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 described below, the preferred stock
dividend rate was reset to 3.875% per annum and upon occurrence of this dividend rate reset, the
embedded derivative has been 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:
F-30
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 now only subject to
future change in the event we are unable to obtain approval of the issuance of common shares
underlying the preferred stocks conversion feature.
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, 2010, no dividends had been declared or paid on the preferred stock.
Voting and Conversion
The preferred stock does not have voting or conversion rights until the underlying shares of common
stock are approved for issuance by a vote of holders of a majority of our common stock. Following
receipt of stockholder approval for the issuance of the underlying common shares, each share of
preferred stock will be entitled to a number of votes equal to the number of shares of common stock
into which the preferred stock would be convertible at the conversion rate (as defined below) in
effect on the date the preferred stock was issued to Comverse. In addition, following receipt of
stockholder approval for the issuance of the underlying common shares, each share of preferred
stock will be 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. The conversion price is subject to periodic adjustment upon the
occurrence of certain dilutive events. If it were convertible at January 31, 2010, the preferred
stock could be converted into approximately 10.0 million shares of our common stock.
At any time on or after May 25, 2009, we have the right, provided approval of the issuance of the
underlying shares of common stock has been obtained, 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) 150%, if the
conversion is on or after May 25, 2009 but prior to May 25, 2010, (b) 140%, if the conversion is on
or after May 25, 2010 but prior to May 25, 2011, or (c) 135%, if the conversion is on or after May
25, 2011.
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), commencing 180 days after
we regain compliance with SEC reporting requirements, and provided that the underlying shares of
our common stock have been approved for issuance by our common stockholders, Comverse will be
entitled to two demands to require us to register the preferred stock and the shares of common
stock underlying the preferred stock for resale under the Securities Act of 1933, as amended (the
Securities Act).
F-31
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.
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.
Comverses 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 a later date. Under the Original Registration Rights
Agreement, Comverse is entitled to unlimited demand registrations of its shares on Form S-3. If we
are not eligible to use Form S-3, Comverse is also entitled to one demand registration on Form S-1.
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 Deficit
Dividends on Common Stock
We did not declare or pay any dividends on our common stock during the years ended January 31,
2010, 2009, and 2008. 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, 2010,
we held 103,000 shares of treasury stock with a cost of $2.5 million, and at January 31, 2009, we
held 88,000 shares of treasury stock with a cost of $2.4 million.
Shares of restricted stock awards that are forfeited when recipients separate their employment
prior to the lapsing of the awards restrictions are recorded as treasury stock.
Our board of directors has approved a program to repurchase shares of our common stock from our
independent directors, and such other directors as may from time to time be designated by the board
of directors upon vesting of restricted stock grants during our extended filing delay period, in
order to provide funds to the recipient for the payment of associated income taxes. From time to
time, our board of directors has also approved repurchases from executive officers for the same
purpose when a vesting has occurred during a blackout period. These repurchases of common stock
occur at prevailing market prices and are recorded as treasury stock.
F-32
Accumulated Other Comprehensive Income (Loss)
In addition to net income (loss), accumulated other comprehensive income (loss) includes items such
as foreign currency translation adjustments and unrealized gains and losses on certain marketable
securities, investments and derivative financial instruments designated as hedges. Accumulated
other comprehensive income (loss) is presented as a separate line item in the stockholders 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 (loss) 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. Income tax effects on unrealized gains and losses on available-for-sale
marketable securities and derivative financial instruments were insignificant.
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Foreign currency translation losses, net |
|
$ |
(43,245 |
) |
|
$ |
(58,476 |
) |
Unrealized gains on derivative financial instruments |
|
|
106 |
|
|
|
101 |
|
Unrealized gains (losses) on available-for-sale marketable securities |
|
|
5 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(43,134 |
) |
|
$ |
(58,404 |
) |
|
|
|
|
|
|
|
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 the acquisition of Witness.
Total other comprehensive income (loss) was $32.4 million, $(136.4) million, and $(197.4) million
for the years ended January 31, 2010, 2009, and 2008, respectively. Total other comprehensive
income (loss) attributable to Verint Systems Inc. was $30.9 million, $(138.2) million, and $(198.4)
million, and total other comprehensive income attributable to the noncontrolling interest was $1.5
million, $1.8 million, and $1.0 million for the years ended January 31, 2010, 2009, and 2008,
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. On February 1, 2009, we adopted a newly issued accounting standard for noncontrolling
interests that requires classification of noncontrolling interests as a component of stockholders
equity (deficit). The presentation and disclosure requirements of the new accounting standard are
applied retrospectively for all periods presented, as required by the standard. Further details
regarding the new disclosure requirements for noncontrolling interests appear in Note 1, Summary
of Significant Accounting Policies.
F-33
10. Integration, Restructuring and Other, Net
Integration, restructuring and other, net, is comprised of the following for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Restructuring expenses |
|
$ |
141 |
|
|
$ |
5,685 |
|
|
$ |
3,308 |
|
Integration expenses |
|
|
|
|
|
|
3,261 |
|
|
|
10,980 |
|
Other legal expenses (recoveries), net |
|
|
|
|
|
|
(4,292 |
) |
|
|
8,708 |
|
|
|
|
|
|
|
|
|
|
|
Total integration, restructuring and other, net |
|
$ |
141 |
|
|
$ |
4,654 |
|
|
$ |
22,996 |
|
|
|
|
|
|
|
|
|
|
|
Integration, restructuring and other, net are reported as unallocated items for segment
reporting purposes, as more fully described in Note 17, Segment, Geographic, and Significant
Customer Information.
Restructuring and Integration Costs
We continually review our business model and carefully manage our cost structure. When considered
necessary, we have periodically implemented plans to reduce costs and better align our resources
with market demand.
The following table summarizes our restructuring costs for the years ended January 31, 2010, 2009,
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Restructuring activity: |
|
|
|
|
|
|
|
|
|
|
|
|
Global cost reduction plan |
|
$ |
25 |
|
|
$ |
3,193 |
|
|
$ |
|
|
Consulting business in Europe |
|
|
|
|
|
|
1,370 |
|
|
|
|
|
Acquisition of Witness |
|
|
116 |
|
|
|
858 |
|
|
|
1,501 |
|
Video Intelligence segment |
|
|
|
|
|
|
264 |
|
|
|
1,807 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
141 |
|
|
$ |
5,685 |
|
|
$ |
3,308 |
|
|
|
|
|
|
|
|
|
|
|
Restructuring Costs Related to our Global Cost Reduction Plan
In the quarter ended January 31, 2009, we implemented a global cost reduction plan in order to
reduce our operating costs in response to uncertainty in the global economic environment. These
cost reduction initiatives included a restructuring plan which included the elimination of
approximately 90 positions throughout all functional areas of our global workforce, reducing our
utilization of outside contractors and consultants, and the closing of one leased facility. The
associated restructuring charges consisted predominantly of severance and related employee payments
resulting from terminations. We recorded the majority of these restructuring expenses with charges
of $3.2 million in the quarter ended January 31, 2009, including $2.8 million for severance and
related benefits and $0.4 million for the exit from the leased facility and other costs.
F-34
The following table summarizes the activity during the years ended January 31, 2010 and 2009
associated with the restructuring charges related to our global cost reduction plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and |
|
|
|
|
|
|
|
(in thousands) |
|
Related Costs |
|
|
Other Costs |
|
|
Total |
|
Accrued restructuring costs January 31, 2008 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Expenses accrued |
|
|
2,795 |
|
|
|
398 |
|
|
|
3,193 |
|
Payments and settlements |
|
|
(2,264 |
) |
|
|
(398 |
) |
|
|
(2,662 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs January 31, 2009 |
|
|
531 |
|
|
|
|
|
|
|
531 |
|
Expenses accrued |
|
|
25 |
|
|
|
|
|
|
|
25 |
|
Payments and settlements |
|
|
(556 |
) |
|
|
|
|
|
|
(556 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs January 31, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Throughout the implementation and execution phase of this restructuring plan, the scope would
periodically be reevaluated, resulting in revisions to the number of personnel impacted, and the
amounts paid under the plan.
Restructuring Costs Related to our Consulting Services in Europe
In the quarter ended July 31, 2008, as a result of reduced demand for our consulting services in
Europe, we implemented a cost reduction plan in this sector of our Workforce Optimization business.
The plan resulted in the elimination of approximately 30 positions and was substantially completed
by the end of October 2008. The associated restructuring charges consisted predominantly of
severance and related employee payments resulting from terminations. We recorded these
restructuring expenses with charges of $0.5 million and $0.9 million in the quarters ended July 31,
2008 and October 31, 2008, respectively.
The following table summarizes the activity during the year ended January 31, 2009 associated with
the restructuring charges related to our consulting services in Europe.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and |
|
|
|
|
|
|
|
(in thousands) |
|
Related Costs |
|
|
Other Costs |
|
|
Total |
|
Accrued restructuring costs January 31, 2008 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Expenses accrued |
|
|
1,345 |
|
|
|
25 |
|
|
|
1,370 |
|
Payments and settlements |
|
|
(1,345 |
) |
|
|
(25 |
) |
|
|
(1,370 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs January 31, 2009 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and Integration Costs Related to our Acquisition of Witness
In conjunction with the acquisition of Witness in May 2007, as more fully described in Note 4,
Business Combinations, we took several actions, primarily during the years ended January 31, 2008
and January 31, 2009, to reduce fixed costs, eliminate redundancies, strengthen operational focus,
and better position us to respond to market pressures or unfavorable economic conditions. As a
result, we incurred restructuring and integration charges from acquiring Witness and integrating
Witness into our Workforce Optimization segment. Following the acquisition of Witness in May 2007,
we immediately formulated and approved a plan to integrate the Witness business with our existing
Workforce Optimization segment in all regions. We implemented certain staff reductions, and
streamlined and improved operations and processes necessary to restructure, integrate, and combine
the Witness and Verint businesses, primarily in the following operational areas and functions: (a)
products integrate products and platforms marketed to clients; (b) sales, marketing, and services
centralize and train sales and field marketing
F-35
personnel, create a dedicated channel and OEM
sales group, leverage and increase the combined business services helpdesk expertise, and
transition to a single global services organization; and (c) general and administrative -
transition finance, human resources, and legal support to our facilities in New York and Georgia,
and combine information technology and communications organizations, processes, and systems.
The following table summarizes the activity during the three years ended January 31, 2010
associated with the restructuring charges related to the acquisition of Witness.
|
|
|
|
|
(in thousands) |
|
Total |
|
Accrued restructuring costs January 31, 2007 |
|
$ |
|
|
Expenses accrued |
|
|
1,501 |
|
Payments and settlements |
|
|
(1,081 |
) |
|
|
|
|
Accrued restructuring costs January 31, 2008 |
|
|
420 |
|
Expenses accrued |
|
|
858 |
|
Payments and settlements |
|
|
(1,278 |
) |
|
|
|
|
Accrued restructuring costs January 31, 2009 |
|
|
|
|
Expenses accrued |
|
|
116 |
|
|
|
|
|
Accrued restructuring costs January 31, 2010 |
|
$ |
116 |
|
|
|
|
|
Restructuring expenses associated with the acquisition of Witness consisted of severance and
related costs recorded during the years ended January 31, 2009 and 2008 for global workforce
reductions of Verint personnel, primarily as a result of redundancies, in sales and marketing,
research and development, and administration and support. Throughout the implementation and
execution phase of this restructuring plan, the scope would periodically be reevaluated, resulting
in revisions to the number of personnel impacted, and the amounts paid under the plan. The $0.1
million of remaining obligations under this plan as of January 31, 2010 are included within accrued
expenses and other liabilities on the accompanying consolidated balance sheet as of January 31,
2010, and are expected to be settled during the year ended January 31, 2011.
In addition to the aforementioned restructuring charges, we also incurred integration costs of $3.2
million and $11.0 million during the years ended January 31, 2009 and January 31, 2008,
respectively, resulting from the Witness acquisition and the subsequent integration of the Witness
and Verint businesses. These costs included $5.6 million of legal, accounting, consulting, and
other professional fees, $2.4 million of travel and related costs associated with the integration
efforts, $4.2 million of marketing, systems integration and other costs, and $2.0 million of
incremental compensation and personnel costs, primarily for employees temporarily retained
following the acquisition solely to assist in integration and knowledge transfer activities. These
personnel had no other significant day-to-day responsibilities outside of the integration effort
and were generally retained for periods no longer than twelve months. Professional fees primarily
relate to legal, accounting, and consulting advice associated with efforts to optimize the legal
and tax structure of our global entities, since both Witness and Verint conduct operations in
common locations. The process of integrating the Witness and Verint businesses was substantially
complete as of January 31, 2009.
Restructuring Costs Related to our Video Intelligence Segment
During the year ended January 31, 2008, we established and approved a plan to perform a
comprehensive assessment of our Video Intelligence business operations, predominantly in our North
American and Hong Kong locations. As a result, we implemented certain restructuring initiatives
and activities intended to reduce our overall cost structure, improve operations by building areas
of more centralized expertise, adjust our organization structure to improve scalability, and
enhance our competitive position.
In the years ended January 31, 2009 and 2008, we recorded $0.3 million and $1.8 million,
respectively, of restructuring costs under this plan, arising from the elimination of certain
positions in finance, customer service,
F-36
sales and marketing, and research and development and, in
certain instances, migrating certain positions to lower cost markets, areas of more concentrated
expertise, or to corporate locations. Certain staff changes resulted from combining our call
centers and customer support sites in Colorado, and better aligning and leveraging our worldwide
research and development activities in Hong Kong. Throughout the execution of this restructuring
plan, the scope would periodically be reevaluated, resulting in revisions to the number of
personnel impacted, and the amounts paid under the plan.
These restructuring costs included $1.8 million of severance and related costs and $0.3 million of
consulting and temporary personnel costs.
The following table summarizes the activity for the three years ended January 31, 2010 related to
our Video Intelligence segment restructuring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and |
|
|
Consulting and |
|
|
|
|
(in thousands) |
|
Related Costs |
|
|
Temporary Staff |
|
|
Total |
|
Accrued restructuring costs January 31, 2007 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Expenses accrued |
|
|
1,513 |
|
|
|
294 |
|
|
|
1,807 |
|
Payments and settlements |
|
|
(597 |
) |
|
|
(294 |
) |
|
|
(891 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs January 31, 2008 |
|
|
916 |
|
|
|
|
|
|
|
916 |
|
Expenses accrued |
|
|
240 |
|
|
|
24 |
|
|
|
264 |
|
Payments and settlements |
|
|
(1,146 |
) |
|
|
(24 |
) |
|
|
(1,170 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs January 31, 2009 |
|
|
10 |
|
|
|
|
|
|
|
10 |
|
Payments and settlements |
|
|
(10 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
Accrued restructuring costs January 31, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
The activity under this plan was substantially complete by October 31, 2008.
Costs associated with our restructuring activities have been recognized when they were incurred,
rather than at the date of a commitment to an exit or disposal plan. Such costs were exclusive of
certain costs directly associated with the acquisition of Witness, which were recorded as part of
the purchase price. We continually evaluate the adequacy of liabilities accrued under these
restructuring initiatives. Although we believe that these estimates accurately reflect the
remaining costs of our restructuring plans, actual results may differ, which may require us to
record adjustments to the liabilities.
Other Legal Costs
During the year ended January 31, 2008, we incurred $8.7 million of legal fees related to an
ongoing patent infringement litigation matter, which we are reporting within integration,
restructuring and other, net. This litigation was subsequently settled in our favor during the
year ended January 31, 2009. The $9.7 million settlement amount received was partially offset by
$5.4 million of related legal fees incurred during the year ended January 31, 2009, resulting in a
net recovery of $4.3 million. No legal fees were incurred during the year ended January 31, 2010
for this matter.
11. Research and Development, Net
Our gross research and development expenses for the years ended January 31, 2010, 2009, and 2008,
were approximately $86.7 million, $91.3 million, and $91.4 million, respectively. OCS grants
amounted to approximately $2.1 million, $2.2 million, and $2.5 million for the years ended January
31, 2010, 2009, and 2008, respectively, which were recorded as a reduction of gross research and
development expenses. We recorded other
F-37
reimbursements of research and development expenses
amounting to approximately $0.8 million, $0.8 million, and $1.2 million for the years ended January
31, 2010, 2009, and 2008, 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 three years ended January 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Capitalized software development costs, net, beginning of year |
|
$ |
10,489 |
|
|
$ |
10,272 |
|
|
$ |
9,762 |
|
Software development costs capitalized during the year |
|
|
2,715 |
|
|
|
4,547 |
|
|
|
4,624 |
|
Amortization of capitalized software development costs |
|
|
(4,717 |
) |
|
|
(4,135 |
) |
|
|
(3,268 |
) |
Foreign currency translation and other |
|
|
43 |
|
|
|
(195 |
) |
|
|
(846 |
) |
|
|
|
|
|
|
|
|
|
|
Capitalized software development costs, net, end of year |
|
$ |
8,530 |
|
|
$ |
10,489 |
|
|
$ |
10,272 |
|
|
|
|
|
|
|
|
|
|
|
The adjustment of $0.8 million in the year ended January 31, 2008 primarily reflects a charge
recorded to recognize the impairment of certain capitalized software development costs determined
to be redundant as a result of the May 2007 acquisition of Witness.
12. Income Taxes
The components of income (loss) before income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Domestic |
|
$ |
(47,139 |
) |
|
$ |
(68,109 |
) |
|
$ |
(116,844 |
) |
Foreign |
|
|
71,347 |
|
|
|
9,203 |
|
|
|
(52,972 |
) |
|
|
|
|
|
|
|
|
|
|
Total income (loss) before income taxes |
|
$ |
24,208 |
|
|
$ |
(58,906 |
) |
|
$ |
(169,816 |
) |
|
|
|
|
|
|
|
|
|
|
F-38
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Current income tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(835 |
) |
|
$ |
(11,266 |
) |
|
$ |
847 |
|
State |
|
|
415 |
|
|
|
(755 |
) |
|
|
398 |
|
Foreign |
|
|
7,590 |
|
|
|
13,924 |
|
|
|
6,492 |
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision |
|
|
7,170 |
|
|
|
1,903 |
|
|
|
7,737 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
500 |
|
|
|
11,805 |
|
|
|
26,056 |
|
State |
|
|
777 |
|
|
|
1,088 |
|
|
|
1,748 |
|
Foreign |
|
|
(1,339 |
) |
|
|
4,875 |
|
|
|
(7,812 |
) |
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision (benefit) |
|
|
(62 |
) |
|
|
17,768 |
|
|
|
19,992 |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
7,108 |
|
|
$ |
19,671 |
|
|
$ |
27,729 |
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of the U.S. federal statutory rate to our effective tax rate on income
(loss) before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
U.S. federal statutory income tax rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Income tax provision (benefit) at the U.S. statutory rate |
|
$ |
8,471 |
|
|
$ |
(20,618 |
) |
|
$ |
(59,436 |
) |
State tax provision (benefit) |
|
|
756 |
|
|
|
(5,086 |
) |
|
|
(5,747 |
) |
Foreign taxes at rates different from U.S. federal
statutory rate |
|
|
(16,929 |
) |
|
|
(5,887 |
) |
|
|
7,305 |
|
Valuation allowance |
|
|
7,737 |
|
|
|
30,233 |
|
|
|
73,404 |
|
Foreign exchange |
|
|
(1,702 |
) |
|
|
2,920 |
|
|
|
(860 |
) |
Stock-based and other compensation |
|
|
3,262 |
|
|
|
2,808 |
|
|
|
2,831 |
|
Non-deductible expenses |
|
|
882 |
|
|
|
745 |
|
|
|
1,063 |
|
Tax credits |
|
|
(2,019 |
) |
|
|
(221 |
) |
|
|
(2,260 |
) |
Tax contingencies |
|
|
1,102 |
|
|
|
(997 |
) |
|
|
5,495 |
|
Impairment of goodwill and intangible assets |
|
|
|
|
|
|
9,127 |
|
|
|
4,716 |
|
Fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
(2,837 |
) |
In-process research and development |
|
|
|
|
|
|
|
|
|
|
2,253 |
|
Change in tax rates |
|
|
1,227 |
|
|
|
3,873 |
|
|
|
751 |
|
U.S. tax effects of foreign operations |
|
|
4,750 |
|
|
|
3,394 |
|
|
|
711 |
|
Other, net |
|
|
(429 |
) |
|
|
(620 |
) |
|
|
340 |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
7,108 |
|
|
$ |
19,671 |
|
|
$ |
27,729 |
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
29.4 |
% |
|
|
-33.4 |
% |
|
|
-16.3 |
% |
F-39
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 40.3%, 8.4%, and 1.4% for the years ended January
31, 2010, 2009, and 2008, respectively.
Deferred tax assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accrued expenses |
|
$ |
4,891 |
|
|
$ |
5,943 |
|
Allowance for doubtful accounts |
|
|
672 |
|
|
|
1,438 |
|
Deferred revenue |
|
|
42,511 |
|
|
|
56,707 |
|
Inventory |
|
|
757 |
|
|
|
2,701 |
|
Depreciation of property and equipment |
|
|
3,498 |
|
|
|
2,807 |
|
Loss carryforwards |
|
|
92,336 |
|
|
|
81,859 |
|
Tax credits |
|
|
7,164 |
|
|
|
11,105 |
|
Stock-based and other compensation |
|
|
30,182 |
|
|
|
19,465 |
|
Capitalized research and development expenses |
|
|
4,712 |
|
|
|
2,433 |
|
Fair value of derivatives |
|
|
9,720 |
|
|
|
13,184 |
|
Other long-term liabilities |
|
|
2,157 |
|
|
|
2,323 |
|
Other, net |
|
|
605 |
|
|
|
2,234 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
199,205 |
|
|
|
202,199 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred cost of revenue |
|
|
(10,106 |
) |
|
|
(12,612 |
) |
Prepaid expenses |
|
|
(1,025 |
) |
|
|
(1,401 |
) |
Goodwill and other intangible assets |
|
|
(56,809 |
) |
|
|
(64,404 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(67,940 |
) |
|
|
(78,417 |
) |
|
|
|
|
|
|
|
Valuation allowance |
|
|
(124,568 |
) |
|
|
(116,817 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
6,697 |
|
|
$ |
6,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as: |
|
|
|
|
|
|
|
|
Current deferred tax assets |
|
$ |
21,140 |
|
|
$ |
14,314 |
|
Long-term deferred tax assets |
|
|
7,469 |
|
|
|
6,478 |
|
Current deferred tax liabilities |
|
|
(487 |
) |
|
|
(403 |
) |
Long-term deferred tax liabilities |
|
|
(21,425 |
) |
|
|
(13,424 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
6,697 |
|
|
$ |
6,965 |
|
|
|
|
|
|
|
|
At January 31, 2010 and 2009, we had U.S. federal NOLs of approximately $252.8 million and
$230.8 million, respectively. These losses expire in various years ending from January 31, 2016 to
2030. We had state NOLs of approximately $169.2 million and $150.2 million in the same respective
years, expiring in years ending from January 31, 2011 to 2030. We had foreign NOLs of
approximately $29.6 million and $24.0 million in the same
F-40
respective years. At January 31, 2010,
all but $4.3 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 NOLs
for tax return purposes are different from the NOLs for financial statement purposes, primarily due
to the reduction of NOLs for financial statement purposes under the authoritative guidance on
accounting for uncertainty in income taxes. We have U.S. federal, state and foreign tax credit
carryforwards of approximately $7.7 million and $9.6 million at January 31, 2010 and 2009,
respectively, the utilization of which is subject to limitation. At January 31, 2010,
approximately $1.5 million of these tax credit carryforwards may be carried forward indefinitely.
The balance of $6.2 million expires in various years ending from January 31, 2011 to 2030.
We provide income and withholding taxes on undistributed earnings of foreign subsidiaries unless
they are indefinitely reinvested. Cumulatively, indefinitely reinvested foreign earnings total
approximately $98.1 million at January 31, 2010. 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 $124.6 million and $116.8 million at January 31, 2010 and 2009, respectively. The $7.8
million increase in the valuation allowance between January 31, 2009 and January 31, 2010 arose
primarily as a result of an overall increase in net deferred tax assets, primarily related to NOLs
in jurisdictions where we maintain a valuation allowance.
The recorded valuation allowance consists of the following:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Valuation allowance, beginning of year |
|
$ |
(116,817 |
) |
|
$ |
(89,060 |
) |
Provision for (benefit from) income taxes |
|
|
(7,737 |
) |
|
|
(30,233 |
) |
Additional paid in capital |
|
|
1,264 |
|
|
|
786 |
|
Cumulative translation adjustment |
|
|
(1,278 |
) |
|
|
1,690 |
|
|
|
|
|
|
|
|
Valuation allowance, end of year |
|
$ |
(124,568 |
) |
|
$ |
(116,817 |
) |
|
|
|
|
|
|
|
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, 2010, January 31, 2009, and January 31, 2008.
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
F-41
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, 2010, January 31, 2009, and January 31, 2008, the aggregate changes
in the balance of gross unrecognized tax benefits were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Gross unrecognized tax benefits, beginning of year |
|
$ |
35,172 |
|
|
$ |
46,903 |
|
|
$ |
27,073 |
|
Increases as a result of acquisitions |
|
|
|
|
|
|
|
|
|
|
13,619 |
|
Increases related to tax positions taken during the current year |
|
|
2,715 |
|
|
|
6,355 |
|
|
|
5,755 |
|
Increases (decreases) related to foreign currency exchange
rate fluctuations |
|
|
1,545 |
|
|
|
(2,011 |
) |
|
|
1,039 |
|
Reductions for tax positions of prior years |
|
|
(152 |
) |
|
|
(14,912 |
) |
|
|
|
|
Reduction for settlements with taxing authorities |
|
|
(508 |
) |
|
|
(125 |
) |
|
|
|
|
Lapses of statutes of limitation |
|
|
(1,277 |
) |
|
|
(1,038 |
) |
|
|
(583 |
) |
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits, end of year |
|
$ |
37,495 |
|
|
$ |
35,172 |
|
|
$ |
46,903 |
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2010, we had $37.5 million of unrecognized tax benefits, of which $32.6
million represents the amount that, if recognized, would impact the effective income tax rate in
future periods. We recorded $0.3 million, $0.1 million, and $1.6 million of interest and penalties
related to uncertain tax positions in our provision for income taxes for the years ended January
31, 2010, January 31, 2009, and January 31, 2008, respectively. The accrued liability for interest
and penalties was $7.2 million, $6.6 million, and $6.4 million at January 31, 2010, January 31,
2009, and January 31, 2008, respectively. Interest and penalties are recorded as a component of
the provision for income taxes in the 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, 2007. 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, 2004
through January 31, 2010 due to our restated results of operations. As of January 31, 2010, income
tax returns are under examination in the following major tax jurisdictions:
|
|
|
Jurisdiction |
|
Tax Years |
Canada
|
|
January 31, 2004 January 31, 2008 |
United Kingdom
|
|
December 31, 2005 |
Hong Kong
|
|
March 31, 2003 March 31, 2005, January 31, 2006 January 31, 2007 |
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,
2010 could decrease by approximately $1.4 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.
F-42
In December 2007, the FASB issued revised guidance on accounting for business combinations. We
adopted the provisions of this guidance effective February 1, 2009. Subsequent to adoption,
adjustments related to valuation allowances or reserves for uncertain tax positions that were
established in connection with prior acquisitions will impact earnings, rather than goodwill.
13. Fair Value Measurements and Derivative Financial Instruments
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
instruments 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. |
F-43
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, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
|
Using Input Types |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
82,593 |
|
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
82,593 |
|
|
$ |
140 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
636 |
|
|
$ |
|
|
Interest rate swap agreement |
|
|
|
|
|
|
29,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
30,448 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
Using Input Types |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
34,292 |
|
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
34,292 |
|
|
$ |
146 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
2,000 |
|
|
$ |
|
|
Interest rate swap agreement |
|
|
|
|
|
|
33,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
35,114 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
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 counter-party. 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.
Interest Rate Swap Agreement The fair value of our interest rate swap agreement is based in part
on data received from a third party financial institution. These fair values represent the
estimated amount we would receive or pay to settle the swap agreement, taking into consideration
current and projected interest rates as well as the creditworthiness of the parties.
F-44
Derivative Financial Instruments
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. 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 have maturities of no longer than twelve months.
We enter into these foreign currency forward contracts in the normal course of business to mitigate
risks and not for speculative purposes.
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
counterpartys non-performance, the risk would be limited to the unrealized gains on such affected
contracts. We do not anticipate any such losses.
Certain of these foreign currency forward contracts are not designated as hedging instruments under
derivative accounting guidance, and gains and losses from changes in their fair values are
therefore reported in other income (expense), net. Changes in the fair value 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 statement
of operations when the effects of the item being hedged are recognized in the statement of
operations.
The total notional amounts for outstanding derivatives (recorded at fair value) as of January 31,
2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Foreign currency forward contracts |
|
$ |
50,437 |
|
|
$ |
35,900 |
|
Interest rate swap agreement |
|
|
450,000 |
|
|
|
450,000 |
|
|
|
|
|
|
|
|
|
|
$ |
500,437 |
|
|
$ |
485,900 |
|
|
|
|
|
|
|
|
F-45
Fair Values of Derivative Instruments
The fair values of our derivative instruments as of January 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
|
Assets |
|
|
Liabilities |
|
|
|
Balance Sheet |
|
|
|
|
|
Balance Sheet |
|
|
|
(in thousands) |
|
Classification |
|
Fair Value |
|
|
Classification |
|
Fair Value |
|
Derivative instruments designated as
hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Prepaid expenses
and other current
assets
|
|
$ |
140 |
|
|
Accrued expenses and other liabilities
|
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments
|
|
|
|
$ |
140 |
|
|
|
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
$ |
|
|
|
Accrued expenses and other liabilities
|
|
$ |
598 |
|
Interest rate swap current portion
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
20,988 |
|
Interest rate swap long-term portion
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
8,824 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments
|
|
|
|
$ |
|
|
|
|
|
$ |
30,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
|
Assets |
|
|
Liabilities |
|
|
|
Balance Sheet |
|
|
|
|
|
Balance Sheet |
|
|
|
(in thousands) |
|
Classification |
|
Fair Value |
|
|
Classification |
|
Fair Value |
|
Derivative instruments designated as
hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Prepaid expenses
and other current
assets
|
|
$ |
146 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging
instruments
|
|
|
|
$ |
146 |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments not designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
|
$ |
|
|
|
Accrued expenses and other liabilities
|
|
$ |
2,000 |
|
Interest rate swap current portion
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
14,851 |
|
Interest rate swap long-term portion
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
18,263 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as
hedging instruments
|
|
|
|
$ |
|
|
|
|
|
$ |
35,114 |
|
|
|
|
|
|
|
|
|
|
|
|
F-46
The effects of derivative instruments in cash flow hedging relationships for the years ended
January 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification of Gains |
|
|
|
|
|
Gains Recognized in |
|
|
Reclassified from Other |
|
|
|
|
|
Accumulated Other |
|
|
Comprehensive Income |
|
Gains Reclassified from Other |
|
|
|
Comprehensive Income |
|
|
(Loss) into the Statements of |
|
Comprehensive Income (Loss) into |
|
|
|
(Loss) |
|
|
Operations |
|
the Statements of Operations |
|
|
|
January 31, |
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
|
|
2010 |
|
|
2009 |
|
Foreign currency forward contracts |
|
$ |
106 |
|
|
$ |
101 |
|
|
Operating Expenses |
|
$ |
3,042 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no gains or losses from ineffectiveness of these hedges recorded for the years
ended January 31, 2010 and 2009.
Gains (losses) recognized on derivative instruments not designated as hedging instruments in our
consolidated statements of operations for the years ended January 31, 2010, 2009, and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification in |
|
|
|
|
|
Statement of |
|
Year Ended January 31, |
|
(in thousands) |
|
Operations |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Interest rate swap agreement |
|
Other expense, net |
|
$ |
(13,591 |
) |
|
$ |
(11,490 |
) |
|
$ |
(29,226 |
) |
Foreign currency forward contracts |
|
Other expense, net |
|
|
(1,118 |
) |
|
|
(3,101 |
) |
|
|
(307 |
) |
Embedded derivative |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
7,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(14,709 |
) |
|
$ |
(14,591 |
) |
|
$ |
(22,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreement
The interest rates applicable to borrowings under our credit facilities are variable, and we are
exposed to risk from changes in the underlying index interest rates, which affect our cost of
borrowing. To partially mitigate this risk, and in part because we were required to do so by the
lenders, when we entered into our credit facilities in May 2007, we executed a pay-fixed,
receive-variable interest rate swap with a high credit-quality multinational financial institution
under which we pay fixed interest at 5.18% and receive variable interest of three-month LIBOR on a
notional amount of $450.0 million. This instrument is settled with the counterparty on a quarterly
basis, and matures on May 1, 2011. As of January 31, 2010, of the $605.9 million of borrowings
which were outstanding under the term loan facility, the interest rate on $450.0 million of such
borrowings was substantially fixed by utilization of this interest rate swap. Interest on the
remaining $155.9 million of borrowings was variable.
The net losses recorded on our interest rate swap agreement reflect the decline in market interest
rates that occurred during the second half of the year ended January 31, 2008 and have generally
persisted through January 31, 2010.
Embedded Derivative Preferred Stock
As discussed in more detail within Note 8, Convertible Preferred Stock, we determined that the
variable dividend feature of our preferred stock qualified for accounting as an embedded derivative
financial instrument, subject to bifurcation from the preferred stock host contract. For the year
ended January 31, 2008, the embedded derivative financial instrument was valued using a Monte Carlo
simulation model. A Monte Carlo simulation model calculates a probabilistic approximation to the
solution of a problem containing multiple variables using repeated statistical
F-47
random sampling
techniques. This feature was determined to be an asset because the variable rate feature
potentially provided for a lower dividend rate than the initial preferred stock dividend rate, and
was assigned an initial fair value of $0.9 million at the May 25, 2007 issue date of the preferred
stock. Subsequent changes in the fair value of the derivative financial instrument through January
31, 2008 are reflected within other income (expense), net. As of January 31, 2008, the fair value
of the embedded derivative instrument had increased to $8.1 million. This $7.2 million increase in
fair value was reflected within other income (expense), net for the year ended January 31, 2008.
On February 1, 2008, the preferred stock dividend rate was reset to 3.875% per annum and upon
occurrence of this dividend rate reset, the embedded derivative has been 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.
Other Financial Instruments
The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate
fair value due to their short maturities.
As of January 31, 2010, the estimated fair values of our term loan facility and revolving credit
facility outstanding were $572.6 million and $15.0 million, respectively. As of January 31, 2009,
the estimated fair values of our term loan and revolving credit borrowings outstanding were $359.9
million and $15.0 million, respectively. 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. The fair value of the revolving credit facility
is assumed to equal the principal amount outstanding for both January 31, 2010 and January 31,
2009.
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 assets
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.
14. Employee Benefit Plans
401(k) Plan and Other Retirement Plans
We maintain a 401(k) Plan and similar type plans for our full-time employees in the United States
and certain non-U.S. employees of our foreign subsidiaries. The plan in the United States 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.
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.
The plans in foreign subsidiaries are similar to a 401(k) plan, and provide benefits consistent
with customary local practices.
During the years ended January 31, 2010, 2009, and 2008, our contributions to our worldwide
retirement plans amounted to approximately $5.1 million, $4.8 million, and $4.0 million,
respectively.
F-48
Cash Bonus Retention Program
On February 1, 2007, our board of directors initiated a special retention program for certain of
our employees, other than executive officers and directors. The program provided for bonuses to be
earned on July 31, 2007 and January 31, 2008. The amount recognized as compensation expense during
the year ended January 31, 2008 totaled $15.0 million.
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 payments. 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, 2010, 2009, and 2008, were $3.4 million, $3.5
million, and $2.9 million, respectively.
Stock-Based Compensation and Purchase Plans
Plan Summaries
Our stock-based incentive awards are provided to employees under the terms of our multiple
outstanding stock benefit plans (the Plans or Stock Plans) 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 number of shares
reserved under the 1996 Plan may from time to time be reduced to the extent that a corresponding
number of issued and outstanding shares of the common stock are purchased by us and set aside for
issuance pursuant to awards. The 1996 Plan allows 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. If any
award expires or terminates for any reason without having been exercised in full, the outstanding
shares subject thereto shall again be available for the purposes of the 1996 Plan. The 1996 Plan
will terminate on March 10, 2012 or at such earlier time as the board of directors may determine.
Awards may be granted under the 1996 Plan at any time and from time to time prior to its
termination. Any awards outstanding under the 1996 Plan at the time of the termination of the 1996
Plan shall remain in effect until such awards shall have been exercised or shall have expired in
accordance with their terms.
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 contains an evergreen provision, which allows 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, we assumed certain new-hire inducement grants made by Witness
outside of its shareholder-approved equity plans prior to May 25, 2007.
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
F-49
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.
The table below summarizes key information for the Plans as of January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Number of |
|
|
Number of Shares |
|
|
|
Reserved for |
|
|
Shares |
|
|
Available for |
|
(in thousands) |
|
Grant |
|
|
Outstanding |
|
|
Grant |
|
The 1996 Plan |
|
|
5,000 |
|
|
|
1,867 |
|
|
|
188 |
|
The 1997 Plan |
|
|
6,400 |
|
|
|
2,587 |
|
|
|
|
|
The 1997 Blue Pumpkin inducement grants |
|
|
158 |
|
|
|
|
|
|
|
|
|
The 2004 Plan |
|
|
3,000 |
|
|
|
2,372 |
|
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
14,558 |
|
|
|
6,826 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
We have granted restricted stock units for approximately 1.3 million shares to our employees
outside of our shareholder approved equity plans due to capacity restraints under our existing
approved plans. All grants issued outside of our existing shareholder approved plans have included
certain performance conditions which require us having sufficient available capacity under one or
more shareholder approved equity plans (either currently existing or adopted in the future) to
vest.
Awards are generally subject to multi-year vesting periods and generally expire 10 years or less
after the date of grant. Awards granted under award agreements contain vesting conditions which
require available share capacity under the plans or a new stockholder approved plan for the awards
to vest. 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 will issue authorized but unissued
common stock unless treasury shares are available.
As described in Note 1, Summary of Significant Accounting Policies, we recognize compensation
expense based on the grant date fair value of stock based awards granted to employees and others.
Accordingly, we recognized stock-based compensation expense of $44.2 million, $36.0 million, and
$31.0 million for the years ended January 31, 2010, 2009, and 2008, respectively. The total income
tax benefit recognized for stock-based compensation arrangements was $11.7 million, $9.0 million,
and $7.8 million, for the years ended January 31, 2010, 2009, and 2008, respectively. We
capitalized stock-based compensation cost of $4.7 million for the fair value of the vested portion
of options issued in connection with the acquisition of Witness on May 25, 2007, and included as
part of the net assets (goodwill) of Witness.
F-50
We recognized stock-based compensation expense in the following line items on the consolidated
statement of operations for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Component of income (loss) before provision for income
taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue product |
|
$ |
1,302 |
|
|
$ |
540 |
|
|
$ |
223 |
|
Cost of revenue service and support |
|
|
4,543 |
|
|
|
4,886 |
|
|
|
4,329 |
|
Research and development, net |
|
|
7,960 |
|
|
|
6,813 |
|
|
|
4,831 |
|
Selling, general and administrative |
|
|
30,422 |
|
|
|
23,751 |
|
|
|
21,665 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
44,227 |
|
|
|
35,990 |
|
|
|
31,048 |
|
Income tax benefits related to stock-based compensation
(before
consideration of valuation allowance) |
|
|
11,716 |
|
|
|
9,027 |
|
|
|
7,750 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation, net of taxes |
|
$ |
32,511 |
|
|
$ |
26,963 |
|
|
$ |
23,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on
net income (loss) per share attributable to Verint Systems Inc: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.00 |
|
|
$ |
0.83 |
|
|
$ |
0.72 |
|
Diluted |
|
$ |
0.98 |
|
|
$ |
0.83 |
|
|
$ |
0.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Component of stock-based compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Verint stock options |
|
$ |
7,332 |
|
|
$ |
15,977 |
|
|
$ |
22,011 |
|
Verint restricted stock awards and
restricted stock units |
|
|
23,917 |
|
|
|
15,948 |
|
|
|
9,229 |
|
Comverse stock options |
|
|
|
|
|
|
15 |
|
|
|
(487 |
) |
Verint phantom stock units |
|
|
12,978 |
|
|
|
4,050 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
$ |
44,227 |
|
|
$ |
35,990 |
|
|
$ |
31,048 |
|
|
|
|
|
|
|
|
|
|
|
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 $0.2 million, $0.7 million, and $1.7 million for the years ended January
31, 2010, 2009, and 2008, respectively. Participants in the Plans are currently restricted from
exercising options due to our inability to use our Registration Statement on Form S-8 during our
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 54, 74, and 103 for the
years ended January 31, 2010, 2009, and 2008, respectively.
Excess tax benefits were not recognized for the years ended January 31, 2010, 2009, and 2008 as we
incurred taxable losses. The excess tax benefits represent the 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
F-51
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 have not granted stock options subsequent to January 31, 2006. However, in connection with our
acquisition of Witness on May 25, 2007, options to purchase Witness common stock were converted
into options to purchase approximately 3.1 million shares of our common stock. The fair value of
the option grants was estimated using the Black-Scholes option-pricing model with the
weighted-average assumptions presented in the following table:
|
|
|
|
|
|
|
As of May 25, 2007 |
Expected life (in years) |
|
|
2.62 |
|
Risk-free interest rate |
|
|
4.88 |
% |
Expected volatility |
|
|
40.50 |
% |
Dividend yield |
|
|
0 |
% |
Based on the above assumptions, the weighted-average fair value of the stock options on the date of
acquisition was $15.02.
See Note 4, Business Combinations, for additional information concerning the acquisition of
Witness.
The following table summarizes stock option activity under the Plans for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
Stock |
|
Exercise |
|
Stock |
|
Exercise |
|
Stock |
|
Exercise |
(in thousands, except exercise prices) |
|
Options |
|
Price |
|
Options |
|
Price |
|
Options |
|
Price |
Beginning balance |
|
|
5,225 |
|
|
$ |
22.36 |
|
|
|
5,735 |
|
|
$ |
21.77 |
|
|
|
3,003 |
|
|
$ |
23.56 |
|
Assumed in acquisition (1) |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
3,065 |
|
|
$ |
20.24 |
|
Exercised |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Forfeited |
|
|
(30 |
) |
|
$ |
21.69 |
|
|
|
(296 |
) |
|
$ |
22.40 |
|
|
|
(326 |
) |
|
$ |
24.16 |
|
Expired |
|
|
(464 |
) |
|
$ |
14.23 |
|
|
|
(214 |
) |
|
$ |
5.94 |
|
|
|
(7 |
) |
|
$ |
8.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
4,731 |
|
|
$ |
23.16 |
|
|
|
5,225 |
|
|
$ |
22.36 |
|
|
|
5,735 |
|
|
$ |
21.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable |
|
|
4,499 |
|
|
$ |
23.24 |
|
|
|
4,461 |
|
|
$ |
22.42 |
|
|
|
3,663 |
|
|
$ |
21.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On May 25, 2007, 3.3 million non-vested stock options of Witness were converted to 3.1 million
options for our stock using the purchase conversion ratio of .9335 shares of Verint common stock
for every 1.0 share of Witness stock. |
As of January 31, 2010, the aggregate intrinsic value for the options vested and exercisable
was $4.7 million with a weighted-average remaining contractual life of 2.19 years. Additionally,
there were 4.7 million options vested and expected to vest with a weighted-average exercise price
of $23.16 and an aggregate intrinsic value of $4.7 million with a weighted-average remaining
contractual life of 2.15 years.
F-52
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, 2010 was approximately $3.1
million and is expected to be recognized over a weighted-average period of 0.84 years.
The following table summarizes information about stock options as of January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except exercise prices) |
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
Number of |
|
Remaining |
|
Average |
|
Number of |
|
Average |
|
|
Options |
|
Contractual |
|
Exercise |
|
Options |
|
Exercise |
Range of Exercise Prices |
|
Outstanding |
|
Term |
|
Price |
|
Exercisable |
|
Price |
$4.46 - $16.00 |
|
|
580 |
|
|
|
1.29 |
|
|
$ |
11.36 |
|
|
|
580 |
|
|
$ |
11.36 |
|
$17.00 - $18.00 |
|
|
800 |
|
|
|
1.63 |
|
|
$ |
17.47 |
|
|
|
760 |
|
|
$ |
17.45 |
|
$18.62 - $19.83 |
|
|
480 |
|
|
|
1.47 |
|
|
$ |
18.90 |
|
|
|
414 |
|
|
$ |
18.92 |
|
$20.04 - $21.75 |
|
|
577 |
|
|
|
0.75 |
|
|
$ |
21.20 |
|
|
|
571 |
|
|
$ |
21.20 |
|
$22.11 - $23.00 |
|
|
437 |
|
|
|
2.69 |
|
|
$ |
22.85 |
|
|
|
437 |
|
|
$ |
22.85 |
|
$23.95 - $23.95 |
|
|
489 |
|
|
|
1.66 |
|
|
$ |
23.95 |
|
|
|
390 |
|
|
$ |
23.95 |
|
$25.01 - $32.16 |
|
|
313 |
|
|
|
2.64 |
|
|
$ |
28.83 |
|
|
|
292 |
|
|
$ |
28.84 |
|
$34.40 - $34.40 |
|
|
147 |
|
|
|
5.57 |
|
|
$ |
34.40 |
|
|
|
147 |
|
|
$ |
34.40 |
|
$35.11 - $35.11 |
|
|
884 |
|
|
|
3.64 |
|
|
$ |
35.11 |
|
|
|
884 |
|
|
$ |
35.11 |
|
$37.99 - $37.99 |
|
|
24 |
|
|
|
5.64 |
|
|
$ |
37.99 |
|
|
|
24 |
|
|
$ |
37.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4.46 - $37.99 |
|
|
4,731 |
|
|
|
2.15 |
|
|
$ |
23.16 |
|
|
|
4,499 |
|
|
$ |
23.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key data points for exercised options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
(in thousands) |
|
2010 |
|
2009 |
|
2008 |
The intrinsic value of options exercised |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cash received from the exercise of stock options |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The tax benefit realized from stock options
exercised |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The fair value of options vested |
|
$ |
69,575 |
|
|
$ |
68,250 |
|
|
$ |
52,661 |
|
Restricted Stock Awards and Restricted Stock Units
Stock awards are granted in the form of RSAs and RSUs. 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 with performance vesting conditions that require that we become current with
our filings with the SEC and be re-listed on a nationally recognized exchange for the awards to
vest. Some awards also require that additional stockholders approved plan capacity be available
for the awards to vest. In addition, we have granted RSUs to executive officers and certain
members of senior management 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 cost.
F-53
During the year ended January 31, 2010, we removed all 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 equity award agreements. The removal
of the performance vesting conditions is being accounted for as modification based on our
assessment. As a result of the modification of the vesting conditions, additional compensation
expense of $1.9 million was recognized on May 21, 2009, and $0.7 million was recognized on November
19, 2009.
RSUs that settle, or are expected to settle, with cash payments upon vesting are reflected as
liabilities on our consolidated balance sheet.
The following table summarizes RSA and RSU activity under the Plans for the years ended January 31,
2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
|
|
2010 |
|
2009 |
|
2008 |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant-Date |
|
|
|
|
|
Grant-Date |
|
|
|
|
|
Grant-Date |
(in thousands, except grant-date fair value) |
|
Shares |
|
Fair Value |
|
Shares |
|
Fair Value |
|
Shares |
|
Fair Value |
Beginning balance |
|
|
1,830 |
|
|
$ |
24.48 |
|
|
|
1,267 |
|
|
$ |
29.39 |
|
|
|
354 |
|
|
$ |
33.88 |
|
Granted |
|
|
1,812 |
|
|
$ |
6.50 |
|
|
|
865 |
|
|
$ |
18.07 |
|
|
|
1,215 |
|
|
$ |
28.64 |
|
Released |
|
|
(116 |
) |
|
$ |
29.93 |
|
|
|
(85 |
) |
|
$ |
33.98 |
|
|
|
(203 |
) |
|
$ |
32.85 |
|
Forfeited |
|
|
(114 |
) |
|
$ |
19.94 |
|
|
|
(217 |
) |
|
$ |
23.91 |
|
|
|
(99 |
) |
|
$ |
29.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
3,412 |
|
|
$ |
14.92 |
|
|
|
1,830 |
|
|
$ |
24.48 |
|
|
|
1,267 |
|
|
$ |
29.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrecognized compensation expense related to 3.4 million unvested RSAs and RSUs expected
to vest as of January 31, 2010 was approximately $10.3 million, with remaining weighted-average
vesting periods of approximately 0.29 years and 0.71 years, respectively, over which such expense
is expected to be recognized. The total fair value of restricted stock awards and units vested
during the years ended January 31, 2010, 2009, and 2008 is $3.5 million, $2.9 million, and $6.7
million, respectively.
Phantom Stock Units
During the year ended January 31, 2007, we began issuing 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. 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 performance vesting conditions as equity awards granted. We
recognize compensation expense for phantom stock units on a straight-line basis, reduced by
estimated forfeitures. The 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 $14.5 million, $4.0 million, and $0.3
million as of January 31, 2010, 2009, and 2008, respectively. Total cash payments made upon
vesting of phantom stock units were $2.5 million and $0.3 million for the years ended January 31,
2010 and 2009, respectively.
F-54
The following table summarizes phantom stock unit activity for the years ended January 31, 2010,
2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended January 31, |
(in thousands) |
|
2010 |
|
2009 |
|
2008 |
Beginning balance, in units |
|
|
1,239 |
|
|
|
85 |
|
|
|
19 |
|
Granted |
|
|
421 |
|
|
|
1,323 |
|
|
|
87 |
|
Released |
|
|
(482 |
) |
|
|
(33 |
) |
|
|
(17 |
) |
Forfeited |
|
|
(72 |
) |
|
|
(136 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, in units |
|
|
1,106 |
|
|
|
1,239 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The phantom stock units granted during the years ended January 31, 2010, 2009, and 2008
primarily vest over three-year periods, subject to applicable performance conditions.
The unrecognized compensation expense related to 1.1 million unvested phantom stock units expected
to vest as of January 31, 2010 was approximately $5.0 million, based on our stock price of $18.3 at
January 31, 2010 with a remaining weighted-average vesting period of approximately 0.73 years over
which such expense is expected to be recognized.
Tandem Awards
We issued grants known as tandem awards to certain of our Israeli employees during the year ended
January 31, 2009. These tandem awards include 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 are structured so that, on any given vesting date, only one
component of the awards vests. The tandem awards are 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 vest in restricted stock units upon the achievement of certain performance conditions
that have been set by our board of directors. In the event that any of the stock-settle conditions
are not satisfied on the vesting date, no shares of common stock will be issued and instead we will
settle these awards with cash payments equal to the fair market value (as defined in the award
agreement) of the vested restricted stock units. These hybrid awards are being accounted as
liabilities based on our assessment that the hybrid awards would likely be settled in cash upon
vesting.
Comverse Stock Options
One component of our stock-based compensation cost is related to stock options granted to Verint
employees who were employed with Comverse when the stock options were issued by Comverse. For the
year ended January 31, 2010, we did not record any expenses related to Comverse stock options
issued to Verint employees. We recorded expenses of $15 thousand related to Comverse stock options
issued to Verint employees for the years ended January 31, 2009 and a reduction to expenses of $0.5
million for the year ended January 31, 2008.
ESPP
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.
F-55
The number of shares available under the ESPP is 1.0 million, of which approximately 260,000 have
been issued as of the date the ESPP was suspended in March 2006, due to our inability to use our
Registration Statement on Form S-8 during our extended filing delay period.
No expense related to the ESPP was recorded during the years ended January 31, 2010, 2009, and 2008
due to the suspension of the ESPP during these periods resulting from our extended filing delay
status.
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. Proceeds from the issuance of the
preferred stock were used to partially finance the acquisition of Witness. 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 has 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 expenses and indemnify Comverse from liabilities that may
arise from sale of shares registered pursuant to the Original Registration Rights Agreement.
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. As of January 31, 2010
and 2009, we had liabilities to Comverse for services under these agreements of $1.7 million and
$1.4 million, respectively, 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:
Corporate Services Agreement
Under the Corporate Services Agreement, Comverse formerly provided us with maintenance services for
general liability and other insurance policies held by Comverse under which we were covered. As of
calendar 2007, we obtained our own insurance policies, including our own directors and officers
insurance policy. In the past, we also received certain administration services with respect to
employee benefit plans, legal support, and public relations support under this agreement.
Following a period of transition, responsibility for these activities was fully transferred to us
and we now handle all of these functions ourselves. For the year ended January 31, 2008, we
recorded expenses of $0.3 million for the services provided by Comverse under this agreement.
There were no such expenses incurred for the years ended January 31, 2010 and January 31, 2009, as
this agreement was terminated effective July 31, 2007.
F-56
Enterprise Resource Planning Software Sharing Agreement
Under the Enterprise Resource Planning Software Sharing Agreement, Comverse Ltd., a subsidiary of
Comverse, formerly provided us with shared access to its enterprise resource planning (ERP) and
customer relationship management (CRM) software for the operation of our business. During the
quarter ended October 31, 2007, we completed a separation from Comverses ERP/CRM system and fully
transitioned to our own internal ERP/CRM system. No expenses were incurred under this agreement
for the years ended January 31, 2010 and January 31, 2009. For the years ended January 31, 2008,
we recorded expenses of $0.4 million for the services under this agreement.
Satellite Services Agreement
Under the Satellite Services Agreement, Comverse Inc., a subsidiary of Comverse, provides us with
the exclusive use of the services of specified employees and facilities of Comverse Inc. located in
countries where we do not have our own legal presence or facilities. The fee for this service is
equal to the expenses Comverse Inc. incurs in providing these services plus ten percent. For the
years ended January 31, 2010, 2009, and 2008, we recorded expenses of $0.3 million, $0.6 million,
and $1.1 million, respectively, for the services provided by Comverse Inc. under this agreement.
We anticipate that we will continue to use some level of 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 Comverses 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 Comverses 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 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
groups 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 $0.4
million, $0.3 million, and $0.3 million for the years ended January 31, 2010, 2009, and 2008,
respectively. The joint venture also recognized $0.7 million of revenue from this noncontrolling
shareholder for the year ended January 31, 2010. Such revenue was negligible for the year ended
January 31, 2009, and no such revenue was recognized for the year ended January 31, 2008.
16. Commitments and Contingencies
Operating Leases
We lease office, manufacturing, and warehouse space, as well as certain equipment, under
non-cancelable operating lease agreements. 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
F-57
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 $13.1 million, $13.9 million, and $12.5
million for the years ended January 31, 2010, 2009, and 2008, respectively.
As of January 31, 2010, our minimum future rentals under non-cancelable operating leases were as
follows:
|
|
|
|
|
(in thousands) |
|
|
|
For the Years Ended January 31, |
|
Amount |
|
2011 |
|
$ |
12,536 |
|
2012 |
|
|
11,315 |
|
2013 |
|
|
9,673 |
|
2014 |
|
|
6,245 |
|
2015 |
|
|
3,749 |
|
2016 and thereafter |
|
|
2,655 |
|
|
|
|
|
Total |
|
$ |
46,173 |
|
|
|
|
|
During the year ended January 31, 2008, we entered into a non-cancelable operating sublease
with a third party to rent space in a location previously utilized by us as a warehouse facility.
We received rental payments totaling $0.1 million during each of the years ended January 31, 2010
and 2009, and expect to receive $0.1 million during the year ended January 31, 2011.
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, 2010, our unconditional purchase obligations totaled approximately $33.8 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, 2010.
F-58
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,
2010, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
Warranty liability, beginning of year |
|
$ |
1,188 |
|
|
$ |
1,874 |
|
|
$ |
2,521 |
|
Provision charged to expenses |
|
|
220 |
|
|
|
483 |
|
|
|
266 |
|
Warranty charges |
|
|
(42 |
) |
|
|
(1,115 |
) |
|
|
(989 |
) |
Foreign currency translation and
other |
|
|
(74 |
) |
|
|
(54 |
) |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
Warranty liability, end of year |
|
$ |
1,292 |
|
|
$ |
1,188 |
|
|
$ |
1,874 |
|
|
|
|
|
|
|
|
|
|
|
We accrue for warranty costs as part of our cost of revenue based on associated product costs,
labor costs, and associated overhead. Our Workforce Optimization 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 of 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 charges.
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 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, 2010, we had approximately $7.4 million of outstanding letters of credit and surety
bonds relating to these performance guarantees. As of January 31, 2010, 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
F-59
adverse affect 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 no one on our board is a director or employee of Comverse.
Litigation
Comverse Investigation-Related Matters
On December 17, 2009, Comverse entered into agreements to settle the following lawsuits previously
disclosed by Comverse relating to the matters involved in the Comverse special committee
investigation which had been brought against Comverse and certain former officers and directors of
Comverse: (a) a consolidated shareholder class action before the U.S. District Court for the
Eastern District of New York, In re Comverse Technology, Inc. Securities Litigation; (b) a
shareholder derivative action before the U.S. District Court for the Eastern District of New York,
In re Comverse Technology, Inc. Derivative Litigation; and (c) a shareholder derivative action
before the New York State Supreme Court, Appellate Division, First Department, In re Comverse
Technology, Inc. Derivative Litigation.
On April 2, 2010, the U.S. District Court for the Eastern District of New York issued orders in the
shareholder class action and derivative action granting preliminary approval of the settlement
agreements in those actions. The court has scheduled a settlement hearing to be held on June 21,
2010 that will, among other things, consider orders and final judgments dismissing those actions
with prejudice.
Verint was not named as a defendant in any of these suits. Igal Nissim, our former Chief Financial
Officer, was named as a defendant in the federal and state shareholder derivative actions in his
capacity as the former Chief Financial Officer of Comverse, and Dan Bodner, our Chief Executive
Officer, was named as a defendant in the federal and state shareholder derivative actions in his
capacity as the Chief Executive Officer of Verint (i.e., as the president of a significant
subsidiary of Comverse). Mr. Nissim and Mr. Bodner were not named in the shareholder class action
suit.
The federal shareholder derivative suit alleged that the defendants breached their fiduciary duties
beginning in 1994 by: (a) allowing and participating in a scheme to backdate the grant dates of
employee stock options to improperly
F-60
benefit Comverses executives and certain directors; (b) allowing insiders, including certain of
the defendants, to personally profit by trading Comverses stock while in possession of material
inside information; (c) failing to properly oversee or implement procedures to detect and prevent
such improper practices; (d) causing Comverse to issue materially false and misleading proxy
statements, as well as causing Comverse to file other false and misleading documents with the SEC;
and (e) exposing Comverse to civil liability. The plaintiffs originally filed suit on April 20,
2006. The Consolidated, Amended, and Verified Shareholder Derivative Complaint, filed on October
6, 2006, sought unspecified damages, injunctive relief, including restricting the proceeds of the
defendants trading activities and other assets, setting aside the election of the defendant
directors to the Comverse board of directors, and costs and attorneys fees. On December 21, 2007,
motions to dismiss the federal shareholder derivative suit were fully briefed on behalf of Comverse
as well as the individual defendants, including Mr. Nissim and Mr. Bodner. No decision had been
rendered on these motions to dismiss as of the signing of the settlement agreements or as of the
date of this prospectus.
The state shareholder derivative suit made similar allegations to the federal shareholder
derivative suit. The plaintiffs first filed suit on April 11, 2006. The Consolidated and Amended
Shareholder Derivative Complaint, which was filed on September 18, 2006, sought unspecified
damages, injunctive relief, such as restricting the proceeds of the defendants trading activities
and other assets, and costs and attorneys fees.
The agreements in settlement of the above-mentioned actions are subject to notice to Comverses
shareholders and approval by the federal and state courts in which such proceedings are pending.
Neither we nor Mr. Nissim or Mr. Bodner is responsible for making any payments or relinquishing any
equity holdings under the terms of the settlement.
Comverse was also the subject of an SEC investigation and resulting civil action regarding the
improper backdating of stock options and other accounting practices, including the improper
establishment, maintenance, and release of reserves, the reclassification of certain expenses, and
the calculation of backlog of sales orders. On June 18, 2009, Comverse announced that it had
reached a settlement with the SEC on these matters without admitting or denying the allegations of
the SEC complaint.
Verint Investigation-Related Matters
On July 20, 2006, we announced that, in connection with the SEC investigation into Comverses past
stock option grants that was in process at that time, we had received a letter requesting that we
voluntarily provide to the SEC certain documents and information related to our own stock option
grants and practices. We voluntarily responded to this request. On April 9, 2008, as we
previously reported, we received a Wells Notice from the staff of the SEC arising from the
staffs investigation of our past stock option grant practices and certain unrelated accounting
matters. These accounting matters were also the subject of our internal investigation. On March
3, 2010, the SEC filed a settled enforcement action against us in the United States District Court
for the Eastern District of New York relating to certain of our accounting reserve practices.
Without admitting or denying the allegations in the SECs Complaint, we consented to the issuance
of a Final Judgment permanently enjoining us from violating Section 17(a) of the Securities Act,
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, (the Exchange
Act), and Rules 13a-1 and 13a-13 thereunder. The settled SEC action did not require us to pay any
monetary penalty and sought no relief beyond the entry of a permanent injunction. The SECs
related press release noted that, in accepting the settlement offer, the SEC considered our
remediation and cooperation in the SECs investigation. The settlement was approved by the United
States District Court for the Eastern District of New York on March 9, 2010.
On December 23, 2009, as we previously reported, we received an additional Wells Notice from the
staff of the SEC relating to our failure to timely file periodic reports under the Exchange Act.
Under the SECs Wells process, recipients of a Wells Notice have the opportunity to make a Wells
Submission before the SEC staff makes a recommendation to the SEC regarding what action, if any,
should be brought by the SEC. After considering our Wells Submission, on March 3, 2010, the SEC
issued an Order Instituting Proceedings (OIP) pursuant to Section 12(j) of the Exchange Act to
suspend or revoke the registration of our common stock because of our previous failure to file an
annual report on either Form 10-K or Form 10-KSB since April 25, 2005 or quarterly reports on
either Form 10-Q or Form 10-QSB since December 12, 2005. An Administrative Law Judge will consider
the evidence in the Section 12(j) proceeding and has been directed in the OIP to issue an initial
decision within 120 days of service
F-61
of the OIP. On March 26, 2010, we filed our Answer to the OIP. On March 30, 2010, the
Administrative Law Judge issued an amended procedural order scheduling the completion of briefing
on the SECs motion for summary disposition for June 1, 2010. We are currently evaluating all
available procedural remedies, and intend to defend against the possible suspension or revocation
of the registration of our common stock.
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.
The Labor Motion and the Labor Class Action both claim that we are responsible for the alleged
damages due to our status as employer and that the blocking of Verint options from being exercised
constitutes default of the employment agreements between the members of the class and VSL. 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. A preliminary session was held on July 12, 2009. Ms. Deutsch filed her response to our
response on November 10, 2009. On February 8, 2010, the Tel Aviv Labor Court dismissed the case
for lack of material jurisdiction and ruled that it will be transferred to the District Court in
Tel Aviv. There can be no assurance that we will not in the future become subject to additional
litigation or threatened litigation from current or former personnel as a result of our suspension
of option exercises during our extended filing delay period, the expiration of equity awards during
such period, or other employment-related matters relating to our internal investigation,
restatement, or extended filing delay.
Witness Investigation-Related Matters
At the time of our May 25, 2007 acquisition of Witness, Witness was subject to a number of
proceedings relating to a stock options backdating internal investigation undertaken and publicly
disclosed by Witness prior to the acquisition. The following is a summary of those proceedings and
developments since the date of the acquisition.
On August 29, 2006, A. Edward Miller filed a shareholder derivative lawsuit in the U.S. District
Court for the Northern District of Georgia, Atlanta Division, naming Witness as a nominal defendant
and naming all of Witness directors and a number of its officers as defendants (Miller v. Gould,
et al., Civil Action No. 1:06-CV-2039 (N.D. Ga.)). The complaint alleged purported violations of
federal and state law, and violations of certain anti-fraud provisions of the federal securities
laws (including Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5 and 14a-9 thereunder)
in connection with certain stock option grants made by Witness. The complaint sought monetary
damages in unspecified amounts, disgorgement of profits, an accounting, rescission of stock option
grants, imposition of a constructive trust over the defendants stock options and proceeds derived
therefrom, punitive damages, reimbursement of attorneys fees and other costs and expenses, an
order directing Witness to adopt or put to a stockholder vote various proposals relating to
corporate governance, and other relief as determined by the court. On March 11, 2009, the Court
granted defendants motion to dismiss the complaint in its entirety, with prejudice. Plaintiff did
not file an appeal and the time to do so under the federal rules has elapsed.
On October 27, 2006, Witness received notice from the SEC of an informal non-public inquiry
relating to the stock option grant practices of Witness from February 1, 2000 through the date of
the notice. On July 12, 2007, we received a copy of the Formal Order of Investigation from the SEC
relating to substantially the same matter as the informal inquiry. We and Witness have fully
cooperated, and intend to continue to fully cooperate, if called upon to do so, with the SEC
regarding this matter. In addition, the U.S. Attorneys Office for the Northern District of
Georgia was also given access to the documents and information provided by Witness to the SEC. Our
last communication with the SEC with respect to the matter was in June 2008.
Verint General Litigation Matters
On October 18, 2005, the Administrative Court of Appeals of Athens entered a final, non-appealable
verdict against our wholly owned subsidiary, Verint Systems UK Ltd. (formerly Comverse Infosys UK
Limited) (Verint UK), in a dispute between Verint UK and its former customer, the Greek Civil
Aviation Authority, which began in June 1999. The Greek Civil Aviation Authority had claimed that
the equipment provided to it by Verint UK did not
F-62
operate properly. The verdict did not contain a calculation of the monetary judgment, however, we
estimated the amount at approximately $2.6 million based on an earlier decision in the case,
exclusive of any interest which may be assessed on the judgment based on the passage of time. The
Greek government must seek enforcement of this judgment in the United Kingdom. To date this
judgment has not been enforced and we have made no payments.
From time to time we or our subsidiaries may be involved in other legal proceedings and/or
litigation arising in the ordinary course of our business that might impact our financial position,
our results of operations, or our 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 enterprises 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 Workforce Optimization Solutions
(Workforce Optimization), Video Intelligence Solutions (Video Intelligence), and Communications
Intelligence and Investigative Solutions (Communications Intelligence).
Our Workforce Optimization solutions enable 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.
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 and integration expenses. 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.
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.
F-63
Operating results by segment for the years ended January 31, 2010, 2009, and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce |
|
|
Video |
|
|
Communications |
|
|
|
|
(in thousands) |
|
Optimization |
|
|
Intelligence |
|
|
Intelligence |
|
|
Total |
|
Year Ended January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
374,778 |
|
|
$ |
144,970 |
|
|
$ |
183,885 |
|
|
$ |
703,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution |
|
$ |
178,674 |
|
|
$ |
57,200 |
|
|
$ |
62,348 |
|
|
|
298,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,289 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,227 |
|
Integration, restructuring and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141 |
|
Other unallocated expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,679 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
352,367 |
|
|
$ |
127,012 |
|
|
$ |
190,165 |
|
|
$ |
669,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue adjustment |
|
|
5,890 |
|
|
|
|
|
|
|
|
|
|
|
5,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue |
|
$ |
358,257 |
|
|
$ |
127,012 |
|
|
$ |
190,165 |
|
|
$ |
675,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution |
|
$ |
139,375 |
|
|
$ |
28,013 |
|
|
$ |
65,987 |
|
|
|
233,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,273 |
|
Impairments
of goodwill and other acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,961 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,990 |
|
Integration, restructuring and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,654 |
|
Other unallocated expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,026 |
) |
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,880 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(58,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
260,938 |
|
|
$ |
147,225 |
|
|
$ |
126,380 |
|
|
$ |
534,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue adjustment |
|
|
37,254 |
|
|
|
|
|
|
|
|
|
|
|
37,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment revenue |
|
$ |
298,192 |
|
|
$ |
147,225 |
|
|
$ |
126,380 |
|
|
$ |
571,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution |
|
$ |
112,856 |
|
|
$ |
37,213 |
|
|
$ |
40,173 |
|
|
|
190,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,249 |
|
Impairments
of goodwill and other acquired intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,370 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,048 |
|
Integration, restructuring and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,996 |
|
Other unallocated expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,630 |
) |
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(169,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Optimization segment revenue reviewed by the CODM includes $5.9 million for the year
ended January 31, 2009 and $37.3 million for the year ended January 31, 2008, of additional
revenue, primarily related to deferred maintenance and service revenue not recognizable in our GAAP
revenue as a result of purchase accounting
F-64
following our May 2007 acquisition of Witness. We include this additional revenue within our
segment revenue because it better reflects our ongoing maintenance and service revenue stream. For
additional details, see Note 4, Business Combinations.
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 to unaffiliated customers by geographic
area for the years ended January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
328,420 |
|
|
$ |
304,602 |
|
|
$ |
245,836 |
|
United Kingdom |
|
|
65,793 |
|
|
|
77,213 |
|
|
|
73,437 |
|
Other |
|
|
309,420 |
|
|
|
287,729 |
|
|
|
215,270 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
703,633 |
|
|
$ |
669,544 |
|
|
$ |
534,543 |
|
|
|
|
|
|
|
|
|
|
|
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 consists of the following as of January 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
United States |
|
$ |
9,096 |
|
|
$ |
10,566 |
|
Israel |
|
|
9,148 |
|
|
|
12,274 |
|
Germany |
|
|
2,581 |
|
|
|
2,537 |
|
United Kindgom |
|
|
1,014 |
|
|
|
1,494 |
|
Canada |
|
|
660 |
|
|
|
1,405 |
|
Other |
|
|
1,954 |
|
|
|
2,268 |
|
|
|
|
|
|
|
|
Total property and equipment, net |
|
$ |
24,453 |
|
|
$ |
30,544 |
|
|
|
|
|
|
|
|
Significant Customers
No single customer accounted for more than 10% of our total revenue during any of the years ended
January 31, 2010, 2009, and 2008.
F-65
18. Subsequent Events
Wells Notices
On April 9, 2008, as we previously reported, we received a Wells Notice from the staff of the SEC
arising from the staffs investigation of our past stock option grant practices and certain
unrelated accounting matters. These accounting matters were also the subject of our internal
investigation. On March 3, 2010, the SEC filed a settled enforcement action against us in the
United States District Court for the Eastern District of New York relating to certain of our
accounting reserve practices. Without admitting or denying the allegations in the SECs Complaint,
we consented to the issuance of a Final Judgment permanently enjoining us from violating Section
17(a) of the Securities Act, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and
Rules 13a-1 and 13a-13 thereunder. The settled SEC action did not require us to pay any monetary
penalty and sought no relief beyond the entry of a permanent injunction. The SECs related press
release noted that, in accepting the settlement offer, the SEC considered our remediation and
cooperation in the SECs investigation. The settlement was approved by the United States District
Court for the Eastern District of New York on March 9, 2010.
On December 23, 2009, as we previously reported, we received an additional Wells Notice from the
staff of the SEC relating to our failure to timely file periodic reports under the Exchange Act.
Under the SECs Wells process, recipients of a Wells Notice have the opportunity to make a Wells
Submission before the SEC staff makes a recommendation to the SEC regarding what action, if any,
should be brought by the SEC. After considering our Wells Submission, on March 3, 2010, the SEC
issued an OIP pursuant to Section 12(j) of the Exchange Act to suspend or revoke the registration
of our common stock because of our previous failure to file an annual report on either Form 10-K or
Form 10-KSB since April 25, 2005 or quarterly reports on either Form 10-Q or Form 10-QSB since
December 12, 2005. An Administrative Law Judge will consider the evidence in the Section 12(j)
proceeding and has been directed in the OIP to issue an initial decision within 120 days of service
of the OIP. On March 26, 2010, we filed our Answer to the OIP. On March 30, 2010, the
Administrative Law Judge issued an amended procedural order scheduling the completion of briefing
for June 1, 2010. We are currently evaluating the Section 12(j) OIP, including available
procedural remedies, and intend to defend against the possible suspension or revocation of the
registration of our common stock.
Business Combination
On February 4, 2010, our wholly owned subsidiary, Verint Americas Inc., acquired all of the
outstanding shares of Iontas Limited (Iontas), a privately held provider of desktop analytics
solutions. Prior to this acquisition, we licensed certain technology from Iontas, whose solutions
measure application usage and analyze workflows to help improve staff performance in contact
center, branch, and back-office operations environments. We acquired Iontas for approximately
$15.2 million in cash (net of cash acquired) and potential additional earn-out payments of up to
$3.8 million, tied to certain targets being achieved over the next two years. The initial purchase
price allocation for this acquisition is not yet available, as we have not completed the appraisals
necessary to assess the fair values of the tangible and identified intangible assets acquired and
liabilities assumed, the assets and liabilities arising from contingencies (if any), and the amount
of goodwill to be recognized as of the acquisition date.
Amendment to Credit Agreement
On April 27, 2010, we entered into an amendment to our credit agreement to extend the due date for
delivery of audited consolidated financial statements and related documentation for the year ended
January 31, 2010 from May 1, 2010 to June 1, 2010. In consideration for this amendment, we paid
$0.9 million to our lenders. This payment will be amortized as additional interest expense over
the remaining term of the credit agreement using the effective interest method. Legal fees and
other out-of-pocket costs directly relating to the amendment, which are expensed as incurred, were
not significant.
F-66
19. Selected Quarterly Financial Information
(Unaudited)
Summarized consolidated quarterly financial information for the years ended January 31, 2010 and
2009 appears in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
April 30, |
|
|
July 31, |
|
|
October 31, |
|
|
January 31, |
|
(in thousands, except per share data) |
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
Revenue |
|
$ |
175,148 |
|
|
$ |
169,269 |
|
|
$ |
186,480 |
|
|
$ |
172,736 |
|
Gross profit |
|
|
118,079 |
|
|
|
110,202 |
|
|
|
122,970 |
|
|
|
112,447 |
|
Income (loss) before provision for (benefit
from) income taxes |
|
|
24,840 |
|
|
|
4,332 |
|
|
|
15,118 |
|
|
|
(20,082 |
) |
Net income (loss) |
|
|
20,572 |
|
|
|
1,482 |
|
|
|
13,315 |
|
|
|
(18,269 |
) |
Net income (loss) attributable to Verint
Systems Inc. |
|
|
19,634 |
|
|
|
1,598 |
|
|
|
13,176 |
|
|
|
(18,791 |
) |
Net income
(loss) attributable to Verint Systems Inc. common shares, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for basic net income (loss) per share |
|
|
16,372 |
|
|
|
(1,808 |
) |
|
|
9,733 |
|
|
|
(22,271 |
) |
for diluted net income (loss) per share |
|
|
19,634 |
|
|
|
(1,808 |
) |
|
|
9,733 |
|
|
|
(22,271 |
) |
Net income
(loss) per share attributable to Verint Systems Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.50 |
|
|
$ |
(0.06 |
) |
|
$ |
0.30 |
|
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.47 |
|
|
$ |
(0.06 |
) |
|
$ |
0.29 |
|
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
April 30, |
|
|
July 31, |
|
|
October 31, |
|
|
January 31, |
|
(in thousands, except per share data) |
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
Revenue |
|
$ |
154,954 |
|
|
$ |
166,025 |
|
|
$ |
157,867 |
|
|
$ |
190,698 |
|
Gross profit |
|
|
91,766 |
|
|
|
99,883 |
|
|
|
96,085 |
|
|
|
123,560 |
|
Loss before provision for (benefit from)
income
taxes |
|
|
(23,071 |
) |
|
|
(14,974 |
) |
|
|
(11,000 |
) |
|
|
(9,861 |
) |
Net loss |
|
|
(24,777 |
) |
|
|
(14,714 |
) |
|
|
(20,441 |
) |
|
|
(18,645 |
) |
Net loss attributable to Verint Systems Inc. |
|
|
(25,297 |
) |
|
|
(15,087 |
) |
|
|
(21,136 |
) |
|
|
(18,868 |
) |
Net loss attributable to Verint Systems Inc.
common shares |
|
|
(28,458 |
) |
|
|
(18,353 |
) |
|
|
(24,437 |
) |
|
|
(22,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
attributable
to Verint Systems Inc. |
|
$ |
(0.88 |
) |
|
$ |
(0.57 |
) |
|
$ |
(0.75 |
) |
|
$ |
(0.68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per 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
share amounts may not equal the amounts reported for the years.
The computation of diluted net income per share attributable to Verint Systems Inc. for the quarter
ended April 30, 2009 assumes the conversion of our convertible preferred stock into approximately
9.7 million shares of common stock.
F-67
Quarterly operating results for the year ended January 31, 2010 include the following:
|
|
|
Professional fees and related expenses associated with our restatement of previously
filed financial statements for periods through January 31, 2005 and extended filing delay
status of approximately $7 million, $10 million, $12 million, and $25 million for the four
quarterly periods ended January 31, 2010, respectively; and |
|
|
|
|
Realized and unrealized losses on our interest rate swap of $3.7 million, $2.9 million,
$4.4 million, and $2.6 million for the four quarterly periods ended January 31, 2010,
respectively. |
Quarterly operating results for the year ended January 31, 2009 include the following:
|
|
|
Non-cash charges to recognize impairments of goodwill of $26.0 million during the
quarter ended January 31, 2009; |
|
|
|
|
Integration costs incurred to support and facilitate the combination of Verint and
Witness into a single organization, of $1.2 million, $0.9 million, $0.8 million, and $0.3
million for the four quarterly periods ended January 31, 2009, respectively; |
|
|
|
|
Legal fees associated with pre-existing litigation between Witness and a competitor of
$3.5 million, $1.7 million, and $0.2 million for the three quarterly periods ended October
31, 2008, respectively, and a $9.7 million recovery pursuant to the settlement of this
litigation in the quarter ended July 31, 2008; |
|
|
|
|
Professional fees and related expenses associated with our restatement of previously
filed financial statements for periods through January 31, 2005 and our extended filing
delay status of approximately $7 million, $9 million, $8 million, and $4 million for the
four quarterly periods ended January 31, 2009, respectively; and |
Realized and unrealized gains (losses), net on our interest rate swap of $4.4 million, $2.5
million, $(8.2) million, and $(10.2) million for the four quarterly periods ended January 31, 2009,
respectively.
F-68
VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
July 31, 2010 and January 31, 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
January 31, |
|
(in thousands, except share and per share data) |
|
2010 |
|
|
2010 |
|
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
128,199 |
|
|
$ |
184,335 |
|
Restricted cash and bank time deposits |
|
|
14,893 |
|
|
|
5,206 |
|
Accounts receivable, net |
|
|
132,553 |
|
|
|
127,826 |
|
Inventories |
|
|
16,271 |
|
|
|
14,373 |
|
Deferred cost of revenue |
|
|
8,536 |
|
|
|
11,232 |
|
Prepaid expenses and other current assets |
|
|
59,263 |
|
|
|
64,554 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
359,715 |
|
|
|
407,526 |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
22,683 |
|
|
|
24,453 |
|
Goodwill |
|
|
733,046 |
|
|
|
724,670 |
|
Intangible assets, net |
|
|
164,716 |
|
|
|
173,833 |
|
Capitalized software development costs, net |
|
|
7,148 |
|
|
|
8,530 |
|
Deferred cost of revenue |
|
|
25,702 |
|
|
|
33,019 |
|
Other assets |
|
|
29,134 |
|
|
|
24,306 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,342,144 |
|
|
$ |
1,396,337 |
|
|
|
|
|
|
|
|
Liabilities, Preferred Stock, and Stockholders Equity (Deficit) |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
45,923 |
|
|
$ |
46,570 |
|
Accrued expenses and other liabilities |
|
|
153,311 |
|
|
|
155,422 |
|
Current maturities of long-term debt |
|
|
|
|
|
|
22,678 |
|
Deferred revenue |
|
|
153,203 |
|
|
|
183,719 |
|
Liabilities to affiliates |
|
|
1,751 |
|
|
|
1,709 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
354,188 |
|
|
|
410,098 |
|
|
|
|
|
|
|
|
Long-term debt |
|
|
598,234 |
|
|
|
598,234 |
|
Deferred revenue |
|
|
44,724 |
|
|
|
51,412 |
|
Other liabilities |
|
|
57,814 |
|
|
|
65,618 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,054,960 |
|
|
|
1,125,362 |
|
|
|
|
|
|
|
|
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 $332,196 at
July 31, 2010. |
|
|
285,542 |
|
|
|
285,542 |
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit): |
|
|
|
|
|
|
|
|
Common stock $0.001 par value; authorized 120,000,000 shares. Issued 34,911,000 and 32,687,000 shares,
respectively; outstanding 34,651,000 and 32,584,000 shares, as of July 31, 2010 and January 31, 2010,
respectively |
|
|
35 |
|
|
|
33 |
|
Additional paid-in capital |
|
|
478,031 |
|
|
|
451,166 |
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost 260,000 and 103,000 shares as of July 31, 2010 and January 31, 2010, respectively |
|
|
(6,639 |
) |
|
|
(2,493 |
) |
Accumulated deficit |
|
|
(425,071 |
) |
|
|
(420,338 |
) |
Accumulated other comprehensive loss |
|
|
(46,432 |
) |
|
|
(43,134 |
) |
|
|
|
|
|
|
|
Total Verint Systems Inc. stockholders deficit |
|
|
(76 |
) |
|
|
(14,766 |
) |
Noncontrolling interest |
|
|
1,718 |
|
|
|
199 |
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
1,642 |
|
|
|
(14,567 |
) |
|
|
|
|
|
|
|
Total liabilities, preferred stock, and stockholders equity (deficit) |
|
$ |
1,342,144 |
|
|
$ |
1,396,337 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-69
VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Six Months Ended July 31, 2010 and 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
$ |
93,103 |
|
|
$ |
88,107 |
|
|
$ |
185,173 |
|
|
$ |
185,178 |
|
Service and support |
|
|
87,573 |
|
|
|
81,162 |
|
|
|
168,116 |
|
|
|
159,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
180,676 |
|
|
|
169,269 |
|
|
|
353,289 |
|
|
|
344,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
31,909 |
|
|
|
30,900 |
|
|
|
60,255 |
|
|
|
62,957 |
|
Service and support |
|
|
26,217 |
|
|
|
26,190 |
|
|
|
53,445 |
|
|
|
49,103 |
|
Amortization of acquired technology |
|
|
2,220 |
|
|
|
1,977 |
|
|
|
4,453 |
|
|
|
4,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
60,346 |
|
|
|
59,067 |
|
|
|
118,153 |
|
|
|
116,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
120,330 |
|
|
|
110,202 |
|
|
|
235,136 |
|
|
|
228,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development, net |
|
|
22,049 |
|
|
|
20,638 |
|
|
|
48,481 |
|
|
|
39,539 |
|
Selling, general and administrative |
|
|
69,144 |
|
|
|
70,258 |
|
|
|
156,161 |
|
|
|
127,484 |
|
Amortization of other acquired intangible assets |
|
|
5,338 |
|
|
|
5,586 |
|
|
|
10,677 |
|
|
|
11,516 |
|
Restructuring |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
96,531 |
|
|
|
96,493 |
|
|
|
215,319 |
|
|
|
178,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
23,799 |
|
|
|
13,709 |
|
|
|
19,817 |
|
|
|
49,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
117 |
|
|
|
98 |
|
|
|
200 |
|
|
|
245 |
|
Interest expense |
|
|
(5,936 |
) |
|
|
(6,369 |
) |
|
|
(11,884 |
) |
|
|
(12,722 |
) |
Other expense, net |
|
|
(2,448 |
) |
|
|
(3,106 |
) |
|
|
(6,146 |
) |
|
|
(8,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(8,267 |
) |
|
|
(9,377 |
) |
|
|
(17,830 |
) |
|
|
(20,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
15,532 |
|
|
|
4,332 |
|
|
|
1,987 |
|
|
|
29,172 |
|
Provision for income taxes |
|
|
3,141 |
|
|
|
2,850 |
|
|
|
5,212 |
|
|
|
7,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
12,391 |
|
|
|
1,482 |
|
|
|
(3,225 |
) |
|
|
22,054 |
|
Net income (loss) attributable to noncontrolling interest |
|
|
916 |
|
|
|
(116 |
) |
|
|
1,508 |
|
|
|
822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. |
|
|
11,475 |
|
|
|
1,598 |
|
|
|
(4,733 |
) |
|
|
21,232 |
|
Dividends on preferred stock |
|
|
(3,554 |
) |
|
|
(3,406 |
) |
|
|
(6,957 |
) |
|
|
(6,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. common
shares |
|
$ |
7,921 |
|
|
$ |
(1,808 |
) |
|
$ |
(11,690 |
) |
|
$ |
14,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Verint Systems Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.23 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
33,272 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
35,006 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-70
VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders Equity (Deficit)
Six Months Ended July 31, 2010 and 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verint Systems Inc. Stockholders Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Total Verint |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Systems Inc. |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Par |
|
|
Paid-in |
|
|
Treasury |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Stockholders |
|
|
Noncontrolling |
|
|
Stockholders |
|
(in thousands) |
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Loss |
|
|
Deficit |
|
|
Interest |
|
|
Equity (Deficit) |
|
Balances as of January 31, 2009 |
|
|
32,535 |
|
|
$ |
32 |
|
|
$ |
419,937 |
|
|
$ |
(2,353 |
) |
|
$ |
(435,955 |
) |
|
$ |
(58,404 |
) |
|
$ |
(76,743 |
) |
|
$ |
673 |
|
|
$ |
(76,070 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,232 |
|
|
|
|
|
|
|
21,232 |
|
|
|
822 |
|
|
|
22,054 |
|
Unrealized gains on derivative
financial instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,439 |
|
|
|
1,439 |
|
|
|
|
|
|
|
1,439 |
|
Unrealized gains on available for
sale securities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
9 |
|
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,417 |
|
|
|
24,417 |
|
|
|
13 |
|
|
|
24,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,232 |
|
|
|
25,865 |
|
|
|
47,097 |
|
|
|
835 |
|
|
|
47,932 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
15,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,532 |
|
|
|
|
|
|
|
15,532 |
|
Common stock issued for stock
awards |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted stock
awards |
|
|
(3 |
) |
|
|
|
|
|
|
23 |
|
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of July 31, 2009 |
|
|
32,544 |
|
|
$ |
32 |
|
|
$ |
435,492 |
|
|
$ |
(2,426 |
) |
|
$ |
(414,723 |
) |
|
$ |
(32,539 |
) |
|
$ |
(14,164 |
) |
|
$ |
1,508 |
|
|
$ |
(12,656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 31, 2010 |
|
|
32,584 |
|
|
$ |
33 |
|
|
$ |
451,166 |
|
|
$ |
(2,493 |
) |
|
$ |
(420,338 |
) |
|
$ |
(43,134 |
) |
|
$ |
(14,766 |
) |
|
$ |
199 |
|
|
$ |
(14,567 |
) |
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,733 |
) |
|
|
|
|
|
|
(4,733 |
) |
|
|
1,508 |
|
|
|
(3,225 |
) |
Unrealized losses on derivative
financial instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
(5 |
) |
Currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,293 |
) |
|
|
(3,293 |
) |
|
|
11 |
|
|
|
(3,282 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
(loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,733 |
) |
|
|
(3,298 |
) |
|
|
(8,031 |
) |
|
|
1,519 |
|
|
|
(6,512 |
) |
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
15,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,636 |
|
|
|
|
|
|
|
15,636 |
|
Exercises of stock options |
|
|
726 |
|
|
|
1 |
|
|
|
11,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,935 |
|
|
|
|
|
|
|
11,935 |
|
Common stock issued for stock
awards |
|
|
1,498 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
|
(157 |
) |
|
|
|
|
|
|
|
|
|
|
(4,146 |
) |
|
|
|
|
|
|
|
|
|
|
(4,146 |
) |
|
|
|
|
|
|
(4,146 |
) |
Tax effects from stock award plans |
|
|
|
|
|
|
|
|
|
|
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(704 |
) |
|
|
|
|
|
|
(704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of July 31, 2010 |
|
|
34,651 |
|
|
$ |
35 |
|
|
$ |
478,031 |
|
|
$ |
(6,639 |
) |
|
$ |
(425,071 |
) |
|
$ |
(46,432 |
) |
|
$ |
(76 |
) |
|
$ |
1,718 |
|
|
$ |
1,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-71
VERINT SYSTEMS INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended July 31, 2010 and 2009
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(3,225 |
) |
|
$ |
22,054 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
23,952 |
|
|
|
25,507 |
|
Equity-based compensation |
|
|
15,636 |
|
|
|
15,532 |
|
Non-cash losses on derivative financial instruments, net |
|
|
3,347 |
|
|
|
7,035 |
|
Other non-cash items, net |
|
|
867 |
|
|
|
(1,816 |
) |
Changes in operating assets and liabilities, net of effects of business combination: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(5,447 |
) |
|
|
(2,513 |
) |
Inventories |
|
|
(2,124 |
) |
|
|
3,430 |
|
Deferred cost of revenue |
|
|
9,273 |
|
|
|
6,165 |
|
Accounts payable and accrued expenses |
|
|
(3,798 |
) |
|
|
(11,321 |
) |
Deferred revenue |
|
|
(33,273 |
) |
|
|
(518 |
) |
Prepaid expenses and other assets |
|
|
2,936 |
|
|
|
(8,759 |
) |
Other, net |
|
|
(2,632 |
) |
|
|
(2,616 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
5,512 |
|
|
|
52,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Cash paid for business combination, net of cash acquired, and payments of contingent
consideration associated with business combinations in prior periods |
|
|
(15,292 |
) |
|
|
(96 |
) |
Purchases of property and equipment |
|
|
(3,550 |
) |
|
|
(2,019 |
) |
Settlements of derivative financial instruments not designated as hedges |
|
|
(11,997 |
) |
|
|
(8,261 |
) |
Cash paid for capitalized software development costs |
|
|
(858 |
) |
|
|
(1,258 |
) |
Change in restricted cash and bank time deposits |
|
|
(9,720 |
) |
|
|
223 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(41,417 |
) |
|
|
(11,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repayments of borrowings and other financing obligations |
|
|
(22,679 |
) |
|
|
(5,988 |
) |
Proceeds from exercises of stock options |
|
|
11,650 |
|
|
|
|
|
Dividends paid to noncontrolling interest |
|
|
|
|
|
|
(2,142 |
) |
Purchases of treasury stock |
|
|
(4,146 |
) |
|
|
|
|
Other financing activities |
|
|
(3,688 |
) |
|
|
(202 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(18,863 |
) |
|
|
(8,332 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(1,368 |
) |
|
|
5,349 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(56,136 |
) |
|
|
37,786 |
|
Cash and cash equivalents, beginning of period |
|
|
184,335 |
|
|
|
115,928 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
128,199 |
|
|
$ |
153,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
10,236 |
|
|
$ |
13,184 |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
3,244 |
|
|
$ |
4,991 |
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions: |
|
|
|
|
|
|
|
|
Accrued but unpaid purchases of property and equipment |
|
$ |
936 |
|
|
$ |
329 |
|
|
|
|
|
|
|
|
Inventory transfers to property and equipment |
|
$ |
87 |
|
|
$ |
347 |
|
|
|
|
|
|
|
|
Stock options exercised, proceeds received subsequent to period end |
|
$ |
285 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Accrued but unpaid debt fees |
|
$ |
310 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Supplier financing arrangments |
|
$ |
1,480 |
|
|
$ |
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
F-72
VERINT SYSTEMS INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Condensed Consolidated Financial Statements Preparation
The condensed consolidated financial statements included herein have been prepared in accordance
with accounting principles generally accepted in the United States of America (GAAP) and on the
same basis as the audited consolidated financial statements included in our Annual Report on Form
10-K filed with the SEC for the year ended January 31, 2010. The condensed consolidated statements
of operations, stockholders equity (deficit) and cash flows for the periods ended July 31, 2010
and 2009, and the condensed consolidated balance sheet as of July 31, 2010, are not audited but
reflect all adjustments that are of a normal recurring nature and that are considered necessary for
a fair presentation of the results of the periods shown. The condensed consolidated balance sheet
as of January 31, 2010 is derived from the audited consolidated balance sheet presented in our
Annual Report on Form 10-K for the year ended January 31, 2010. Certain information and
disclosures normally included in annual consolidated financial statements have been omitted
pursuant to the rules and regulations of the SEC. Because the condensed consolidated interim
financial statements do not include all of the information and disclosures required by GAAP for a
complete set of financial statements, they should be read in conjunction with the audited
consolidated financial statements and notes included in our Annual Report on Form 10-K filed with
the SEC for the year ended January 31, 2010. The results for interim periods are not necessarily
indicative of a full years results.
Unless the context otherwise requires, the terms Verint, we, our, and us and words of
similar import as used in these notes to the condensed consolidated financial statements include
Verint Systems Inc. and its consolidated subsidiaries.
Principles of Consolidation
The accompanying condensed 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. 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 include the results of operations of acquired companies from the date of acquisition. All
significant intercompany transactions and balances are eliminated.
F-73
Use of Estimates
The preparation of financial statements in conformity with 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.
Recent Accounting Pronouncements
Standards Implemented:
In May 2009, the Financial Accounting Standards Board (FASB) issued a new accounting standard
that establishes general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. In February 2010, the FASB issued
an amendment to this guidance that removed the requirement for an SEC filer to disclose a date
through which subsequent events have been evaluated in both issued and revised financial
statements. The adoption of this standard, as amended, did not have a material impact on our
condensed consolidated financial statements.
In June 2009, the FASB issued a new accounting standard related to the consolidation of variable
interest entities, requiring a company to perform an analysis to determine whether its variable
interests give it a controlling financial interest in a variable interest entity. This analysis
requires a company to assess whether it has the power to direct the activities of the variable
interest entity and if it has the obligation to absorb losses or the right to receive benefits that
could potentially be significant to the variable interest entity. This standard requires an
ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity,
eliminates the quantitative approach previously required for determining the primary beneficiary of
a variable interest entity, and significantly enhances disclosures. The standard may be applied
retrospectively to previously issued financial statements with a cumulative-effect adjustment to
retained earnings as of the beginning of the first year restated. This standard was effective for
us for the fiscal year beginning on February 1, 2010. The adoption of this standard did not impact
our condensed consolidated financial statements.
In January 2010, the FASB issued amended standards that require additional fair value disclosures.
These disclosure requirements are effective in two phases. The initial phase, 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 adoption of this
standard did not have a material impact on our condensed consolidated financial statements. The
second phase, effective for us as of February 1, 2011, is further discussed below.
F-74
New Standards to be Implemented:
In October 2009, the FASB issued guidance that applies to multiple-deliverable revenue
arrangements. This guidance also provides principles and application guidance on whether a revenue
arrangement contains multiple deliverables, how the arrangement should be separated, and how the
arrangement consideration should be allocated. The guidance requires an entity to allocate revenue
in a multiple-deliverable arrangement using estimated selling prices of the deliverables if a
vendor does not have vendor specific objective evidence of fair value (VSOE) or third-party
evidence of selling price. It eliminates the use of the residual method and, instead, requires an
entity to allocate revenue using the relative selling price method. It also expands disclosure
requirements with respect to multiple-deliverable revenue arrangements.
Also in October 2009, the FASB issued guidance related to multiple-deliverable revenue arrangements
that contain both software and hardware elements, focusing on determining which revenue
arrangements are within the scope of existing software revenue guidance. This additional guidance
removes tangible products from the scope of the software revenue guidance and provides guidance on
determining whether software deliverables in an arrangement that includes a tangible product are
within the scope of the software revenue guidance. This revenue recognition guidance, and the
guidance discussed in the preceding paragraph, should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. It will be effective for us in our fiscal year beginning February 1, 2011, although early
adoption is permitted. Alternatively, an entity can elect to adopt the provisions of these issues
on a retrospective basis. We are assessing the impact that the application of this new guidance,
and the guidance discussed in the preceding paragraph, may have on our consolidated financial
statements.
In January 2010, the FASB issued amended standards that require additional fair value disclosures.
These disclosure requirements are effective in two phases. The initial phase, as previously
discussed, was effective for us in our fiscal year beginning February 1, 2010. The second phase,
effective for us as of February 1, 2011, will require presentation of disaggregated activity within
the reconciliation for fair value measurements using significant unobservable inputs (Level 3). We
are assessing the impact that the application of this new guidance may have on our consolidated
financial statements.
F-75
2. Net Income (Loss) Per Share Attributable to Verint Systems Inc.
The following table summarizes the calculation of basic and diluted net income (loss) per share
attributable to Verint Systems Inc. for the three and six months ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands, except per share amounts) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income (loss) |
|
$ |
12,391 |
|
|
$ |
1,482 |
|
|
$ |
(3,225 |
) |
|
$ |
22,054 |
|
Net income (loss) attributable to noncontrolling interest |
|
|
916 |
|
|
|
(116 |
) |
|
|
1,508 |
|
|
|
822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. |
|
|
11,475 |
|
|
|
1,598 |
|
|
|
(4,733 |
) |
|
|
21,232 |
|
Dividends on preferred stock |
|
|
(3,554 |
) |
|
|
(3,406 |
) |
|
|
(6,957 |
) |
|
|
(6,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. for
basic net income (loss) per share |
|
|
7,921 |
|
|
|
(1,808 |
) |
|
|
(11,690 |
) |
|
|
14,564 |
|
Dilutive effect of dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Verint Systems Inc. for
diluted net income (loss) per share |
|
$ |
7,921 |
|
|
$ |
(1,808 |
) |
|
$ |
(11,690 |
) |
|
$ |
14,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
33,272 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,462 |
|
Dilutive effect of employee equity award plans |
|
|
1,734 |
|
|
|
|
|
|
|
|
|
|
|
144 |
|
Dilutive effect of assumed conversion of preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
35,006 |
|
|
|
32,465 |
|
|
|
32,972 |
|
|
|
32,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to Verint Systems Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.23 |
|
|
$ |
(0.06 |
) |
|
$ |
(0.35 |
) |
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We excluded the following weighted-average shares underlying stock-based awards and
convertible preferred stock from the calculations of diluted net income (loss) per share because
their inclusion would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Shares excluded from calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock-based awards |
|
|
3,484 |
|
|
|
8,530 |
|
|
|
6,842 |
|
|
|
5,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock |
|
|
10,171 |
|
|
|
9,787 |
|
|
|
10,123 |
|
|
|
9,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-76
3. Inventories
Inventories consist of the following as of July 31, 2010 and January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2010 |
|
Raw materials |
|
$ |
8,370 |
|
|
$ |
5,987 |
|
Work-in-process |
|
|
5,374 |
|
|
|
4,649 |
|
Finished goods |
|
|
2,527 |
|
|
|
3,737 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
16,271 |
|
|
$ |
14,373 |
|
|
|
|
|
|
|
|
4. Business Combination
On February 4, 2010, our wholly owned subsidiary, Verint Americas Inc., acquired all of the
outstanding shares of Iontas Limited (Iontas), a privately held provider of desktop analytics
solutions. Prior to this acquisition, we licensed certain technology from Iontas, whose solutions
measure application usage and analyze workflows to help improve staff performance in contact
center, branch, and back-office operations environments. We acquired Iontas, among other
objectives, to expand the desktop analytical capabilities of our workforce optimization solutions.
We have included the financial results of Iontas in our condensed consolidated financial statements
since February 4, 2010.
We acquired Iontas for total consideration valued at $21.9 million, including cash consideration of
$17.9 million, and additional milestone-based contingent payments of up to $3.8 million, tied to
certain performance targets being achieved over the next two years.
We recorded the acquisition-date estimated fair value of the contingent consideration of
$3.2 million as a component of the purchase price of Iontas. The acquisition-date fair value of
the contingent consideration was measured based on the probability-adjusted present value of the
contingent consideration expected to be earned and transferred. The fair value of the contingent
consideration was remeasured as of July 31, 2010 at $3.3 million, and the change in the fair value
of the contingent consideration between the acquisition date and July 31, 2010 is recorded within
selling, general and administrative expenses in our condensed consolidated statements of
operations.
Our purchase price to acquire Iontas also includes $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.
F-77
The following table sets forth the components and the preliminary allocation of the purchase price
of Iontas. We are continuing to evaluate certain assets and liabilities of Iontas using
information known to us at the acquisition date, and therefore may adjust the preliminary purchase
price allocation after obtaining additional information regarding, among other things, asset
valuations, liabilities assumed and revisions of previous estimates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
(in thousands) |
|
Amount |
|
|
Useful Lives |
|
Components of Purchase Price: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
17,861 |
|
|
|
|
|
Fair value of contingent consideration |
|
|
3,224 |
|
|
|
|
|
Prepaid product licenses and support services |
|
|
1,493 |
|
|
|
|
|
Trade accounts payable |
|
|
(712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
21,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of Purchase Price: |
|
|
|
|
|
|
|
|
Net tangible assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,569 |
|
|
|
|
|
Other current assets |
|
|
286 |
|
|
|
|
|
Other assets |
|
|
89 |
|
|
|
|
|
Current liabilities |
|
|
(211 |
) |
|
|
|
|
Deferred income taxes current and long-term |
|
|
(993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets |
|
|
1,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable intangible assets: |
|
|
|
|
|
|
|
|
Developed technology |
|
|
6,949 |
|
|
6 years |
Non-competition agreements |
|
|
278 |
|
|
3 years |
|
|
|
|
|
|
|
|
Total identifiable intangible assets (1) |
|
|
7,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
12,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price |
|
$ |
21,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted-average amortization period of all finite-lived identifiable intangible assets is 5.9 years. |
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 has been assigned to our
Workforce Optimization segment, and is not deductible for income tax purposes.
Transaction costs, primarily professional fees, directly related to the acquisition of Iontas,
totaled $1.3 million, including $0.5 million incurred during the six months ended July 31, 2010,
and were expensed as incurred.
F-78
The pro forma impact of the Iontas acquisition is not material to our historical consolidated
operating results and is therefore not presented. Revenues from Iontas for the three and six
months ended July 31, 2010 were also not material.
5. Intangible Assets and Goodwill
Acquisition-related intangible assets consist of the following as of July 31, 2010 and January 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
(in thousands) |
|
Cost |
|
|
Amortization |
|
|
Net |
|
Customer relationships |
|
$ |
197,206 |
|
|
$ |
(64,314 |
) |
|
$ |
132,892 |
|
Acquired technology |
|
|
60,963 |
|
|
|
(32,795 |
) |
|
|
28,168 |
|
Trade names |
|
|
9,506 |
|
|
|
(8,542 |
) |
|
|
964 |
|
Non-competition agreements |
|
|
3,689 |
|
|
|
(2,451 |
) |
|
|
1,238 |
|
Distribution network |
|
|
2,440 |
|
|
|
(986 |
) |
|
|
1,454 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
273,804 |
|
|
$ |
(109,088 |
) |
|
$ |
164,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
(in thousands) |
|
Cost |
|
|
Amortization |
|
|
Net |
|
Customer relationships |
|
$ |
198,084 |
|
|
$ |
(54,825 |
) |
|
$ |
143,259 |
|
Acquired technology |
|
|
54,629 |
|
|
|
(28,419 |
) |
|
|
26,210 |
|
Trade names |
|
|
9,551 |
|
|
|
(7,989 |
) |
|
|
1,562 |
|
Non-competition agreements |
|
|
3,429 |
|
|
|
(2,203 |
) |
|
|
1,226 |
|
Distribution network |
|
|
2,440 |
|
|
|
(864 |
) |
|
|
1,576 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
268,133 |
|
|
$ |
(94,300 |
) |
|
$ |
173,833 |
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense recorded for acquisition-related intangible assets was $7.6 million
and $15.1 million for the three and six months ended July 31, 2010, respectively, and $7.6 million
and $15.6 million for the three and six months ended July 31, 2009, respectively.
F-79
Estimated future finite-lived acquisition-related intangible asset amortization expense is as follows:
|
|
|
|
|
(in thousands) |
|
|
|
Years Ended January 31, |
|
Amount |
|
2011 (Remainder of year) |
|
$ |
15,188 |
|
2012 |
|
|
29,454 |
|
2013 |
|
|
28,673 |
|
2014 |
|
|
23,658 |
|
2015 |
|
|
21,075 |
|
2016 and thereafter |
|
|
46,668 |
|
|
|
|
|
Total |
|
$ |
164,716 |
|
|
|
|
|
Goodwill activity for the six months ended July 31, 2010, in total and by reportable segment, was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment |
|
|
|
|
|
|
|
Workforce |
|
|
Video |
|
|
Communications |
|
(in thousands) |
|
Total |
|
|
Optimization |
|
|
Intelligence |
|
|
Intelligence |
|
Goodwill, gross, at January 31, 2010 |
|
$ |
791,535 |
|
|
$ |
694,465 |
|
|
$ |
66,998 |
|
|
$ |
30,072 |
|
Accumulated impairment losses through January 31, 2010 |
|
|
(66,865 |
) |
|
|
(30,791 |
) |
|
|
(36,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at January 31, 2010 |
|
|
724,670 |
|
|
|
663,674 |
|
|
|
30,924 |
|
|
|
30,072 |
|
Acquisition of Iontas Limited |
|
|
12,899 |
|
|
|
12,899 |
|
|
|
|
|
|
|
|
|
Foreign currency translation and other |
|
|
(4,523 |
) |
|
|
(3,563 |
) |
|
|
(960 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at July 31, 2010 |
|
$ |
733,046 |
|
|
$ |
673,010 |
|
|
$ |
29,964 |
|
|
$ |
30,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross, at July 31, 2010 |
|
$ |
799,911 |
|
|
$ |
703,801 |
|
|
$ |
66,038 |
|
|
$ |
30,072 |
|
Accumulated impairment losses at July 31, 2010 |
|
|
(66,865 |
) |
|
|
(30,791 |
) |
|
|
(36,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net, at July 31, 2010 |
|
$ |
733,046 |
|
|
$ |
673,010 |
|
|
$ |
29,964 |
|
|
$ |
30,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We test our goodwill for impairment at least annually as of November 1, or more frequently if
an event occurs indicating the potential for impairment. No events or circumstances indicating the
potential for goodwill impairment were identified during either the six months ended July 31, 2010
or the six months ended July 31, 2009.
6. Long-term Debt
On May 25, 2007, to partially finance the acquisition of Witness Systems Inc. (Witness), we
entered into a $675.0 million secured credit agreement comprised of a $650.0 million seven-year
term loan facility and a $25.0 million six-year revolving line of credit. Our $25.0 million
revolving line of credit was effectively reduced to $15.0 million during the quarter ended October
31, 2008, in connection with the bankruptcy of Lehman Brothers and the related termination of its
revolving commitment under the credit agreement in June 2009. During the quarter ended January 31,
2009, we borrowed the full $15.0 million then available under the revolving line of credit. As
discussed further below, the borrowing capacity under the revolving line of credit was increased to
$75.0 million in July 2010. The revolving line of credit and term loan mature in May 2013 and May
2014, respectively.
F-80
The following is a summary of our outstanding financing arrangements as of July 31, 2010 and
January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2010 |
|
Term loan facility |
|
$ |
583,234 |
|
|
$ |
605,912 |
|
Revolving line of credit |
|
|
15,000 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
598,234 |
|
|
|
620,912 |
|
|
|
|
|
|
|
|
Less: current portion |
|
|
|
|
|
|
22,678 |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
598,234 |
|
|
$ |
598,234 |
|
|
|
|
|
|
|
|
In May 2010, we made a $22.1 million mandatory excess cash flow payment of the term loan,
based upon our operating results for the year ended January 31, 2010, $12.4 million of which is
being applied to the eight immediately following principal payments and $9.7 million of which will
be applied pro rata to the remaining principal payments.
The credit agreement includes a requirement that we submit audited consolidated financial
statements to the lenders within 90 days of the end of each fiscal year, beginning with the
financial statements for the year ended January 31, 2010. Should we fail to deliver such audited
consolidated financial statements as required, the agreement provides a thirty day period to cure
such default, or an event of default occurs.
In April 2010, we entered into an amendment to our credit agreement to extend the due date for
delivery of audited consolidated financial statements and related documentation for the year ended
January 31, 2010 from May 1, 2010 to June 1, 2010. In consideration for this amendment, we paid
$0.9 million to our lenders. This payment is being amortized as additional interest expense over
the remaining term of the credit agreement using the effective interest method. Legal fees and
other out-of-pocket costs directly relating to the amendment, which were expensed as incurred, were
not significant.
In July 2010, the credit agreement was further amended to, among other things, (a) change the
calculation of the applicable interest rate margin to be based on our periodic consolidated
leverage ratio, (b) designate a London Interbank Offered Rate (LIBOR) floor of 1.50%, (c) change
certain negative covenants, including providing covenant relief with respect to the permitted
consolidated leverage ratio, and (d) increase the revolving line of credit from $15.0 million to
$75.0 million. The commitment fee for unused capacity under the revolving line of credit was
increased from 0.50% to 0.75% per annum.
The credit agreement contains one financial covenant that requires us to meet a certain
consolidated leverage ratio, defined as our consolidated net total debt divided by consolidated
earnings before interest, taxes, depreciation, and amortization (EBITDA), as defined in the
agreement, for the trailing four quarters. The consolidated leverage ratio could not exceed 3.50:1
F-81
for the period ended July 31, 2010. As amended in July 2010, the consolidated leverage ratio
cannot exceed 3.50:1 for all periods through October 31, 2011, and cannot exceed 3.00:1 for all
quarterly periods thereafter.
In consideration for the July 2010 amendments, we paid $2.6 million to our lenders. These payments
are being amortized as additional interest expense over the remaining term of the credit agreement
using the effective interest method. Legal fees and other out-of-pocket costs directly relating to
these amendments, which were expensed as incurred, were not significant.
Substantial modifications of credit terms require assessment to determine whether the modifications
should be accounted for and reported in the same manner as a formal extinguishment of the prior
arrangement and replacement with a new arrangement, with the potential recognition of a gain or
loss on the extinguishment. The July 2010 credit agreement amendments were assessed under
applicable accounting guidance and determined to be modifications of the prior arrangement, not
requiring extinguishment accounting.
On May 25, 2007, concurrently with entry into our credit facility, we entered into a
receive-variable/pay-fixed interest rate swap agreement with a multinational financial institution
with a notional amount of $450.0 million to mitigate a portion of the risk associated with variable
interest rates on the term loan. The original term of the interest rate swap extended through May
2011. However, on July 30, 2010, we entered into an agreement to terminate the interest rate swap
in exchange for a payment of $21.7 million to the counterparty, representing the approximate
present value of the expected remaining quarterly settlement payments we otherwise would have owed
under the agreement. This payment was made on August 3, 2010. We recorded a $1.5 million loss on
the interest rate swap for the three months ended July 31, 2010. See Note 11, Fair Value
Measurements and Derivative Financial Instruments for further details regarding the interest rate
swap agreement.
We incurred interest expense on borrowings under our credit agreement of $4.9 million and $10.3
million during the three and six months ended July 31, 2010, respectively, and $5.7 million and
$11.5 million during the three and six months ended July 31, 2009, respectively. We also recorded
amortization of our deferred debt issuance costs of $0.8 million and $1.3 million, reported within
interest expense, during the three and six months ended July 31, 2010, respectively, inclusive of a
$0.3 million write-off associated with the $22.1 million term loan principal payment in May 2010.
Amortization of our deferred debt issuance costs during the three and six months ended July 31,
2009 was $0.5 million and $1.0 million, respectively.
As of July 31, 2010, the interest rates on the term loan and the revolving line of credit
borrowings were 5.25% and 6.00%, respectively. The interest rate on the revolving line of credit
borrowings reset to 5.25% as of August 4, 2010. The interest rate on both the term loan and the
revolving line of credit borrowings was 3.49% as of January 31, 2010. The higher interest rates as
of July 31, 2010 reflect, among other things, the impact of the July 2010 amendments discussed
above.
F-82
7. Convertible Preferred Stock
On May 25, 2007, in connection with our acquisition of Witness, we entered into a Securities
Purchase Agreement with Comverse, whereby Comverse purchased, for cash, an aggregate of 293,000
shares of our Series A Convertible Preferred Stock, for an aggregate purchase price of $293.0
million. Proceeds from the issuance of the preferred stock were used to partially finance the
acquisition.
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 condensed consolidated balance sheets as of July 31, 2010 and January
31, 2010, 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.
We concluded that, as of July 31, 2010 and January 31, 2010, there were no indications that the
occurrence of a fundamental change and the associated redemption of the preferred stock were
probable. We therefore have not adjusted the initial carrying amount of the preferred stock to its
redemption amount, which is its liquidation preference. Through July 31, 2010, cumulative,
undeclared dividends on the preferred stock were $39.2 million and as a result, the liquidation
preference of the preferred stock was $332.2 million at that date. If it were convertible at July
31, 2010, the preferred stock could be converted into approximately 10.2 million shares of our
common stock.
8. Stockholders Equity (Deficit)
Treasury Stock
From time to time, our board of directors approves repurchases of our common stock from independent
directors and executive officers upon vesting of restricted stock grants in order to provide funds
for the recipients obligation to pay associated income taxes upon vesting of stock awards.
During the six months ended July 31, 2010, we acquired 157,000 shares of treasury stock from
certain executive officers and directors at a cost of $4.1 million. Treasury stock activity for
the six months ended July 31, 2009 was not significant.
F-83
Accumulated Other Comprehensive Loss
The following table summarizes, as of each balance sheet date, the components of our accumulated
other comprehensive loss. Income tax effects on unrealized gains on available-for-sale marketable
securities and derivative financial instruments were not significant.
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2010 |
|
Foreign currency translation losses, net |
|
$ |
(46,538 |
) |
|
$ |
(43,245 |
) |
Unrealized gains on derivative financial instruments |
|
|
101 |
|
|
|
106 |
|
Unrealized gains on available-for-sale marketable securities |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
$ |
(46,432 |
) |
|
$ |
(43,134 |
) |
|
|
|
|
|
|
|
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 the acquisition of Witness.
9. Restructuring
We continually review our business model and carefully manage our cost structure. When considered
necessary, we have periodically implemented restructuring plans to reduce costs and better align
our resources with market demand. Activities under all historical restructuring plans were
complete at January 31, 2010, with the exception of the restructuring plan related to the May 2007
acquisition of Witness.
Following the acquisition of Witness in May 2007, we implemented a plan to integrate the Witness
business with our existing Workforce Optimization segment, which included actions to reduce fixed
costs and eliminate redundancies. The following table summarizes the activity during the six
months ended July 31, 2010 in accrued expenses related to the Witness restructuring plan.
|
|
|
|
|
(in thousands) |
|
Total |
|
Accrued restructuring costs January 31, 2010 |
|
$ |
116 |
|
Payments and settlements |
|
|
(116 |
) |
|
|
|
|
Accrued restructuring costs July 31, 2010 |
|
$ |
|
|
|
|
|
|
10. Income Taxes
Our quarterly provision for (benefit from) income taxes is measured using an estimated annual
effective tax rate for the period, adjusted for discrete items that occurred within the periods
presented. The comparison of our effective tax rate between periods is significantly impacted by
F-84
the level and mix of earnings and losses by taxing jurisdiction, foreign income tax rate
differentials, relative impact of permanent book to tax differences, and the effects of valuation
allowances on certain loss jurisdictions. For the three months ended July 31, 2010, we recorded an
income tax provision of $3.1 million, which represents an effective tax rate of 20.2%. The
effective tax rate is lower than the U.S. federal statutory rate of 35% primarily due to the mix of
income and losses by jurisdiction. We recorded an income tax provision on income from our foreign
subsidiaries taxed at rates lower than the U.S. federal statutory rate and we did not recognize a
tax benefit on losses incurred by certain domestic and foreign operations where we maintain
valuation allowances.
For the three months ended July 31, 2009, we recorded an income tax provision of $2.9 million,
which represents an effective tax rate of 65.8%. This rate is higher than the U.S. federal
statutory rate of 35% primarily because we recorded an income tax provision on income from certain
profitable foreign subsidiaries while we did not record an income tax benefit on losses incurred by
certain domestic and foreign operations where we maintain valuation allowances.
For the six months ended July 31, 2010, we recorded an income tax provision of $5.2 million, which
represents an effective tax rate of 262.3%. This tax rate is higher than the U.S. federal statutory
rate of 35% primarily due to the mix of income and losses by jurisdiction. We recorded an income
tax provision on income from certain profitable foreign subsidiaries while we did not record an
income tax benefit on losses incurred by certain domestic and foreign operations where we maintain
valuation allowances. The comparison of our effective tax rate between periods is impacted by the
level and mix of earnings and losses by taxing jurisdiction, which is particularly evident for this
period as we recorded an income tax provision of $5.2 million on pre-tax income of $2.0 million.
Other factors, including foreign income tax rate differentials, relative impacts of permanent book
to tax differences, and the effects of valuation allowances on certain loss jurisdictions, also
impact the comparability of the income tax provision between periods.
For the six months ended July 31, 2009, we recorded an income tax provision of $7.1 million, which
represents an effective tax rate of 24.4%. This rate is lower than the U.S. federal statutory rate
of 35% primarily because we did not record significant income tax expense or income tax benefit in
the U.S., but recorded an income tax provision on income from our foreign subsidiaries taxed at
rates lower than the U.S. federal statutory rate.
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 determined that there is
sufficient negative evidence to maintain the valuation allowances against our federal and certain
state and foreign deferred tax assets as a result of historical losses in the most recent three-year period in the
U.S. and certain foreign jurisdictions. We intend to maintain a valuation allowance against these
assets until sufficient positive evidence exists to support its reversal.
F-85
We had unrecognized tax benefits of $38.0 million and $37.5 million (excluding interest and
penalties) as of July 31, 2010 and January 31, 2010, respectively. The accrued liability for
interest and penalties was $7.5 million and $7.2 million at July 31, 2010 and January 31, 2010,
respectively. Interest and penalties are recorded as a component of the provision for income taxes
in the statement of operations. As of July 31, 2010 and January 31, 2010, the total amount of
unrecognized tax benefits that, if recognized, would impact the effective tax rate was
approximately $33.0 million and $32.6 million, respectively. We regularly assess the adequacy of
our provisions for income tax contingencies in accordance with the applicable authoritative
guidance on accounting for income taxes. 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. During the three months ended July 31, 2010, we received
notification from a foreign taxing jurisdiction that an uncertain tax position had been accepted as
filed. As a result, we recognized a tax benefit of approximately $1.5 million (including related
interest and penalties). Further, we believe that it is reasonably possible that the total amount
of unrecognized tax benefits at July 31, 2010 could decrease by approximately $2 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. Our income tax returns are subject to ongoing tax examinations in several jurisdictions
in which we operate. 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.
11. Fair Value Measurements and Derivative Financial Instruments
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
instruments 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
F-86
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.
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 six months ended July 31, 2010.
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 July 31, 2010 and January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
|
Fair Value Hierarchy Category |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash equivalents) |
|
$ |
38,598 |
|
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
38,598 |
|
|
$ |
177 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
151 |
|
|
$ |
|
|
Contingent consideration business combination |
|
|
|
|
|
|
|
|
|
|
3,306 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
151 |
|
|
$ |
3,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2010 |
|
|
|
Fair Value Hierarchy Category |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds (included in cash and cash equivalents) |
|
$ |
82,593 |
|
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts |
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
82,593 |
|
|
$ |
140 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
|
|
|
$ |
636 |
|
|
$ |
|
|
Interest rate swap agreement |
|
|
|
|
|
|
29,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
30,448 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
F-87
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 six
months ended July 31, 2010:
|
|
|
|
|
(in thousands) |
|
Amount |
|
Fair value measurement at January 31, 2010 |
|
$ |
|
|
Contingent consideration liability recorded for business combination |
|
|
3,224 |
|
Change in fair value recorded in operating expenses |
|
|
82 |
|
|
|
|
|
Fair value measurement at July 31, 2010 |
|
$ |
3,306 |
|
|
|
|
|
Our liability for contingent consideration relates to the February 4, 2010 acquisition of Iontas.
Between February 4, 2010 and July 31, 2010, there were no changes in the estimated fair value of
the contingent consideration liability other than accretion related solely to the passage of time.
Changes in fair value of the contingent consideration of $42 thousand and $82 thousand for the
three and six months ended July 31, 2010, respectively, are recorded in the condensed consolidated
statement 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 counterparty. 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.
Interest Rate Swap Agreement The fair value of the interest rate swap represented the estimated
amount we would receive or pay to settle the agreement, taking into consideration current and
projected interest rates using readily observable market prices for similar contracts as well as
the creditworthiness of the parties. On July 30, 2010, we entered into an agreement to terminate
the interest rate swap in exchange for a payment of $21.7 million to the counterparty, as further
described below.
Contingent Consideration Business Combination - The fair value of the contingent consideration
related to our acquisition of Iontas is estimated using a probability-adjusted discounted cash flow
model. This fair value measurement is based on significant inputs not observable in the market.
The key assumptions used in this model are the discount rate and the probability assigned to the
milestone being 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.
F-88
Derivative Financial Instruments
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 with a high credit-quality multinational financial institution
to mitigate a portion of the risk associated with variable interest rates on the term loan, under
which we paid fixed interest at 5.18% and received variable interest of the three-month LIBOR on a
notional amount of $450.0 million. The original term of the interest rate swap extended through
May 2011, and cash settlements with the counterparty occurred on a quarterly basis. On July 30,
2010, we entered into an agreement to terminate the interest rate swap in exchange for a payment of
$21.7 million to the counterparty, representing the approximate present value of the expected
remaining quarterly settlement payments that otherwise would have occurred under the agreement.
This obligation is reflected within accrued expenses and other current liabilities at July 31,
2010, and was paid on August 3, 2010. We recorded a $1.5 million loss on the interest rate swap
during the three months ended July 31, 2010.
The interest rate swap was not designated as a hedging instrument under derivative accounting
guidance, and gains and losses from changes in its fair value were therefore reported in other
income (expense), net.
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
currency 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 currency 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. We currently have several contracts which extend beyond twelve months,
settling at various dates through February 2012. We enter into these foreign currency forward
contracts in the normal course of business to mitigate risks and not for speculative purposes.
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 the
counterpartys non-performance, the risk would be limited to the unrealized gains on such affected
contracts. We do not anticipate any such losses.
Certain of these foreign currency forward contracts are not designated as hedging instruments under
derivative accounting guidance, and gains and losses from changes in their fair values are
therefore reported in other income (expense), net. Changes in the fair value 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 loss, and are reclassified to the statement of
operations when the effects of the item being hedged are recognized in the statement of operations.
The total notional amounts for outstanding derivatives as of July 31, 2010 and January 31, 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
July 31, |
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2010 |
|
Foreign currency forward contracts |
|
$ |
57,471 |
|
|
$ |
50,437 |
|
Interest rate swap agreement |
|
|
|
|
|
|
450,000 |
|
|
|
|
|
|
|
|
|
|
$ |
57,471 |
|
|
$ |
500,437 |
|
|
|
|
|
|
|
|
F-89
Fair Values of Derivative Financial Instruments
The fair values of our derivative financial instruments as of July 31, 2010 and January 31, 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
July 31, 2010 |
|
|
|
Assets |
|
|
Liabilities |
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Classification |
|
|
Fair Value |
|
|
Classification |
|
|
Fair Value |
|
Derivative financial instruments
designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Prepaid expenses and other current assets |
|
$ |
116 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial instruments
designated as hedging instruments |
|
|
|
|
|
$ |
116 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments not
designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Prepaid expenses and other current assets |
|
|
61 |
|
|
Accrued expenses and other liabilities |
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial instruments
not designated as hedging instruments |
|
|
|
|
|
$ |
61 |
|
|
|
|
|
|
$ |
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
January 31, 2010 |
|
|
|
Assets |
|
|
Liabilities |
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Classification |
|
|
Fair Value |
|
|
Classification |
|
|
Fair Value |
|
Derivative financial instruments
designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Prepaid expenses and other current assets |
|
$ |
140 |
|
|
Accrued expenses and other liabilities |
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial instruments
designated as hedging instruments |
|
|
|
|
|
$ |
140 |
|
|
|
|
|
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments not
designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
|
|
|
|
$ |
|
|
|
Accrued expenses and other liabilities |
|
$ |
598 |
|
Interest rate swap current portion |
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
20,988 |
|
Interest rate swap long-term portion |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
8,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative financial instruments
not designated as hedging instruments |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
30,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-90
The effects of derivative financial instruments designated as hedging instruments as of July
31, 2010 and January 31, 2010, and for the three and six months ended July 31, 2010 and 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification of Gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses) Reclassified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss |
|
|
|
|
|
|
Gains Recognized in |
|
|
into the Condensed |
|
|
|
|
|
|
Accumulated Other |
|
|
Statements of |
|
|
Gains (Losses) Reclassified from Other Comprehensive |
|
|
|
Comprehensive Loss |
|
|
Operations |
|
|
Loss into the Condensed Statements of Operations |
|
|
|
July 31, |
|
|
January 31, |
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
2010 |
|
|
2010 |
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Foreign currency forward contracts |
|
$ |
101 |
|
|
$ |
106 |
|
|
Operating Expenses |
|
$ |
(203 |
) |
|
$ |
1,113 |
|
|
$ |
(52 |
) |
|
$ |
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no gains or losses from ineffectiveness of these financial instruments recorded for
the three and six months ended July 31, 2010 and 2009.
Losses recognized on derivative financial instruments not designated as hedging instruments in our
condensed consolidated statements of operations for the three and six months ended July 31, 2010
and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification in |
|
|
|
|
|
|
|
|
|
Condensed Statements |
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
of Operations |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Interest rate swap agreement |
|
Other income (expense), net |
|
$ |
(1,501 |
) |
|
$ |
(2,886 |
) |
|
$ |
(3,102 |
) |
|
$ |
(6,571 |
) |
Foreign currency forward contracts |
|
Other income (expense), net |
|
|
(143 |
) |
|
|
(610 |
) |
|
|
(245 |
) |
|
|
(464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(1,644 |
) |
|
$ |
(3,496 |
) |
|
$ |
(3,347 |
) |
|
$ |
(7,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash and bank time deposits, accounts
receivable, accounts payable and accrued expenses and other liabilities approximate fair value due
to their short maturities.
As of July 31, 2010, the estimated fair values of our outstanding term loan facility and revolving
line of credit were $557.0 million and $15.0 million, respectively. As of January 31, 2010, the
estimated fair values of our outstanding term loan and revolving credit borrowings were $572.6
million and $15.0 million, respectively. The estimated fair values of the term loan facility are
based upon the estimated bid and ask prices for portions of our term loan facility in a relatively
inactive market as determined by the agent responsible for the syndication of our term loan
facility. The fair value of the revolving line of credit is estimated to equal the principal
amount outstanding at July 31, 2010 and January 31, 2010.
F-91
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 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 assets projected
undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is
recognized.
12. Stock-Based Compensation |
We recognized stock-based compensation expense in the following line items on the condensed
consolidated statements of operations for the three and six months ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Cost of revenue product |
|
$ |
235 |
|
|
$ |
329 |
|
|
$ |
866 |
|
|
$ |
447 |
|
Cost of revenue service and support |
|
|
1,000 |
|
|
|
1,228 |
|
|
|
2,778 |
|
|
|
2,027 |
|
Research and development, net |
|
|
817 |
|
|
|
2,129 |
|
|
|
4,302 |
|
|
|
3,204 |
|
Selling, general, and administrative |
|
|
5,983 |
|
|
|
9,454 |
|
|
|
18,059 |
|
|
|
14,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
8,035 |
|
|
$ |
13,140 |
|
|
$ |
26,005 |
|
|
$ |
19,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation by classification was as follows for the three and six months
ended July 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Equity-classified awards |
|
$ |
8,090 |
|
|
$ |
9,275 |
|
|
$ |
15,636 |
|
|
$ |
15,532 |
|
Liability-classified awards |
|
|
(55 |
) |
|
|
3,865 |
|
|
|
10,369 |
|
|
|
4,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
8,035 |
|
|
$ |
13,140 |
|
|
$ |
26,005 |
|
|
$ |
19,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of our liability-classified awards are phantom stock awards which are settled
with cash payments equivalent to the market value of our common stock upon vesting. Their value
tracks the market price of our common stock and is subject to market volatility. 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.
The decline in stock-based compensation expense for liability-classified awards in the three-month
period ended July 31, 2010, compared to the comparable period in the prior year, was due in part to
the impact of the decrease in our stock price during the current-year period. Stock-based
compensation during the period also declined due to a change in the vesting date of certain
performance-based awards that was estimated in prior periods but became known during the quarter.
F-92
The increase in stock based compensation expense in the six month period ended July 31, 2010,
compared to the comparable period in the prior year was primarily due to the impact of the increase
in our stock price on certain stock-based compensation arrangements accounted for as liability
awards, as well as the issuance of restricted stock awards, restricted stock units and stock-based
compensation arrangements granted at a higher market price during the six months ended July 31,
2010.
Stock Options
We have not granted stock options subsequent to January 31, 2006. However, in connection with our
acquisition of Witness on May 25, 2007, options to purchase Witness common stock were converted
into options to purchase approximately 3.1 million shares of our common stock.
Following the completion of certain delayed SEC filings, stock option holders were permitted to
exercise vested stock options. Stock option exercises had been suspended during our extended
filing delay period. During the three months ended July 31, 2010, approximately 726,000 common
shares were issued pursuant to stock option exercises, for total proceeds of $11.9
million. As of July 31, 2010, we have approximately 3.2 million options outstanding, all of which
are exercisable.
Restricted Stock Awards and Restricted Stock Units
We periodically award shares of restricted stock, as well as restricted stock units, to our
directors, officers and other employees. These awards contain various vesting conditions, and are
subject to certain restrictions and forfeiture provisions prior to vesting.
During the six months ended July 31, 2010, we granted 1.0 million combined restricted stock awards
and restricted stock units, all of which were granted during the three months ended April 30, 2010.
During the three and six months ended July 31, 2009, we granted 0.5 million and 1.8 million
combined restricted stock awards and restricted stock units, respectively. Restricted stock awards
and restricted stock units aggregating 0.1 million were forfeited during the six months ended July
31, 2009, and forfeitures were not significant during the six months ended July 31, 2010. As of
July 31, 2010 and 2009, we had 2.9 million and 3.6 million of combined restricted stock awards and
stock units outstanding, respectively.
As of July 31, 2010, there was approximately $21.0 million of total unrecognized compensation cost,
net of estimated forfeitures, related to unvested restricted stock awards and restricted stock
units, which is expected to be recognized over weighted-average periods of 0.8 years for restricted
stock awards and 0.9 years for restricted stock units.
Phantom Stock Units
We issue phantom stock units to certain non-officer employees that settle, or are expected to
settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are
awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting.
During the six months ended July 31, 2010, we granted 0.2 million phantom stock units, all of which
were granted during the three months ended April 30, 2010. For the three and six months
F-93
ended July
31, 2009, we granted 0.1 million and 0.4 million phantom stock units, respectively. Forfeitures in
each period were not significant. Total cash payments made upon vesting of phantom stock units
were $5.2 million and $15.8 million for the three and six months ended July 31, 2010, respectively.
Total cash payments made upon vesting of phantom stock units were $0.1 million and $2.3 million
for the three and six months ended July 31, 2009, respectively. The total accrued liabilities for
phantom stock units were $8.8 million and $14.5 million as of July 31, 2010 and January 31, 2010,
respectively.
13. Legal Proceedings
Material legal proceedings which arose, or in which there were material developments, during the
quarter ended July 31, 2010 are discussed below.
Comverse Investigation-Related Matters
As previously disclosed by Comverse, Comverse and certain of its current and former officers and
directors were named in the following litigation relating to the matters involved in the Comverse
special committee investigation: (a) a consolidated shareholder class action before the U.S.
District Court for the Eastern District of New York, In re Comverse Technology, Inc. Securities
Litigation, No. 06-CV-1825; (b) a consolidated shareholder derivative action before the U.S.
District Court for the Eastern District of New York, In re Comverse Technology, Inc. Derivative
Litigation. No. 06-CV-1849; and (c) a consolidated shareholder derivative action before the Supreme
Court of the State of New York, In re Comverse Technology, Inc. Derivative Litigation, No.
601272/2006.
Verint was not named as a defendant in any of these suits. Igal Nissim, our former Chief Financial
Officer, was named as a defendant in the federal and state shareholder derivative actions in his
capacity as the former Chief Financial Officer of Comverse, and Dan Bodner, our Chief Executive
Officer, was named as a defendant in the federal and state shareholder derivative actions in his
capacity as the Chief Executive Officer of Verint (i.e., as the president of a significant
subsidiary of Comverse). Mr. Nissim and Mr. Bodner were not named in the shareholder class action
suit.
The consolidated complaints in both the state and federal shareholder derivative actions alleged
that the defendants breached certain duties to Comverse and that certain current and former
officers and directors of Comverse were unjustly enriched (and, in the federal action, violated the
federal securities laws) by, among other things: (a) allowing and participating in a scheme to
backdate the grant dates of employee stock options to improperly benefit Comverses executives and
certain directors; (b) allowing insiders, including certain of the defendants, to personally profit
by trading Comverses stock while in possession of material inside information; (c) failing to
properly oversee or implement procedures to detect and prevent such improper practices; (d) causing
Comverse to issue materially false and misleading proxy statements, as well as causing Comverse to
file other false and misleading documents with the SEC; and (e) exposing Comverse to civil
liability. The complaints sought unspecified damages and various forms of equitable relief.
F-94
On December 16, 2009, Comverse entered into agreements, which were subsequently amended, to settle
the consolidated shareholder class action and the consolidated shareholder derivative actions.
Neither we nor Mr. Nissim or Mr. Bodner is responsible for making any payments or relinquishing any
equity holdings under the terms of the settlement.
On June 23, 2010, the U.S. District Court for the Eastern District of New York issued orders in the
shareholder class action and federal shareholder derivative action granting final approval of the
settlement agreements in the respective actions. The Court later amended its order in the federal
derivative action on July 1, 2010 to incorporate ministerial changes. The respective orders
dismissed both actions with prejudice. The parties to the state shareholder derivative action
entered a stipulation of discontinuance in July 2010, referencing the dismissal of the federal
shareholder class action and derivative actions. A conference before the state court is scheduled
for September 14, 2010.
Verint Investigation-Related Matters
We previously reported that on March 3, 2010, the SEC issued an Order Instituting Proceedings
pursuant to Section 12(j) of the Exchange Act to suspend or revoke the registration of our common
stock because of our previous failure to file certain annual and quarterly reports. On May 28,
2010, we entered into an agreement in principle with the SECs Division of Enforcement regarding
the terms of a settlement of the Section 12(j) proceeding, which agreement was subject to approval
by the SEC. On June 18, 2010, we satisfied the requirements of such agreement and subsequently
submitted an Offer of Settlement to the SEC. On July 28, 2010, the SEC issued an Order accepting
our Offer of Settlement and dismissing the Section 12(j) proceeding.
14. Segment Information
We conduct our business in three operating segments Enterprise Workforce Optimization Solutions
(Workforce Optimization), Video Intelligence Solutions (Video Intelligence), and Communications
Intelligence and Investigative Solutions (Communications Intelligence). These segments also
represent our reportable segments.
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 and integration expenses. These expenses
are included in the unallocated expenses section of the table presented below. Revenue from
transactions between our operating segments is not material.
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. There were no material changes in the allocation of goodwill and acquired intangible
F-95
assets by operating segment during the six months ended July 31, 2010 and 2009. The allocation of
goodwill and acquired intangible assets by operating segment appears in Note 5, Intangible Assets
and Goodwill.
Operating results by segment for the three and six months ended July 31, 2010 and 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
Six Months Ended July 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Optimization |
|
$ |
94,795 |
|
|
$ |
88,289 |
|
|
$ |
191,675 |
|
|
$ |
173,603 |
|
Video Intelligence |
|
|
37,060 |
|
|
|
40,885 |
|
|
|
68,605 |
|
|
|
82,563 |
|
Communications Intelligence |
|
|
48,821 |
|
|
|
40,095 |
|
|
|
93,009 |
|
|
|
88,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
180,676 |
|
|
$ |
169,269 |
|
|
$ |
353,289 |
|
|
$ |
344,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce Optimization |
|
$ |
41,770 |
|
|
$ |
41,702 |
|
|
$ |
87,744 |
|
|
$ |
81,966 |
|
Video Intelligence |
|
|
13,114 |
|
|
|
18,323 |
|
|
|
22,380 |
|
|
|
38,157 |
|
Communications Intelligence |
|
|
19,304 |
|
|
|
10,444 |
|
|
|
34,546 |
|
|
|
31,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment contribution |
|
|
74,188 |
|
|
|
70,469 |
|
|
|
144,670 |
|
|
|
151,356 |
|
Unallocated expenses, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of other acquired intangible assets |
|
|
7,558 |
|
|
|
7,563 |
|
|
|
15,130 |
|
|
|
15,592 |
|
Stock-based compensation |
|
|
8,035 |
|
|
|
13,140 |
|
|
|
26,005 |
|
|
|
19,698 |
|
Restructuring |
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
24 |
|
Other unallocated expenses |
|
|
34,796 |
|
|
|
36,046 |
|
|
|
83,718 |
|
|
|
66,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,389 |
|
|
|
56,760 |
|
|
|
124,853 |
|
|
|
101,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
23,799 |
|
|
|
13,709 |
|
|
|
19,817 |
|
|
|
49,718 |
|
Other expense, net |
|
|
(8,267 |
) |
|
|
(9,377 |
) |
|
|
(17,830 |
) |
|
|
(20,546 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
$ |
15,532 |
|
|
$ |
4,332 |
|
|
$ |
1,987 |
|
|
$ |
29,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-96
[back cover graphic to come]
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses expected to be incurred by us in connection with the issuance and distribution of
the securities being registered under this Registration Statement are estimated to be as follows:
|
|
|
|
|
Securities and Exchange Commission Registration Fee |
|
$ |
4,473.93 |
|
FINRA Filing Fee |
|
|
* |
|
Transfer Agent and Registrar Fees |
|
|
* |
|
Printing Fees and Expenses |
|
|
* |
|
Legal Fees and Expenses |
|
|
* |
|
Blue Sky Fees and Expenses |
|
|
* |
|
Accounting Fees and Expenses |
|
|
* |
|
Miscellaneous Expenses |
|
|
* |
|
|
|
|
|
Total Expenses |
|
|
* |
|
|
|
|
* |
|
to be completed by amendment |
Item 14. Indemnification of Directors and Officers
Section 102 of the General Corporation Law of the State of Delaware permits a corporation to
eliminate the personal liability of directors of a corporation to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director, except where the
director breached his duty of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our
amended and restated certificate of incorporation provides that none of our directors shall be
personally liable to Verint or our stockholders for monetary damages for any breach of fiduciary
duty as a director, except (i) for any breach of the directors duty of loyalty to Verint or its
stockholders, or (ii) for acts or omissions which are not taken or omitted to be taken in good
faith or which involve intentional misconduct or knowing violation of the law, or (iii) for any
matter in respect of which such director shall be liable under Section 174 of Title 8 of the DGCL
or any amendment or successor provision thereto, or (iv) for any transaction from which the
director shall have derived an improper personal benefit.
Section 145 of the General Corporation Law of the State of Delaware provides that a corporation has
the power to indemnify a director, officer, employee, or agent of the corporation, or a person
serving at the request of the corporation for another corporation, partnership, joint venture,
trust or other enterprise in related capacities, against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in
connection with an action, suit or proceeding to which he was or is a party or is threatened to be
made a party to any threatened, ending or completed action, suit or proceeding by reason of such
position, if such person acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that, in the case of actions brought
by or in the right of the corporation, no indemnification shall be made with respect to any claim,
issue or matter as to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or other adjudicating court determines
that, despite the adjudication of liability but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Our certificate of incorporation provides that every person who is or was our director, officer,
employee or agent or is or was a director, officer, trustee, employee or agent of any other
enterprise, serving as such at our request, shall be indemnified to the fullest extent permitted by
law for all expenses and liabilities in connection with any
II-1
proceeding involving such person in
this capacity. We entered into an indemnification agreement with each of our directors and
officers under which we agreed to provide indemnification and expense reimbursement as outlined
above.
Each of our directors who is also a director and/or officer of Comverse has an indemnification
agreement with Comverse. Under this agreement, Comverse has agreed to indemnify such person
against losses and expenses, to the extent permitted by law, incurred by such person in connection
with his service as director and/or officer of Comverse or any of its subsidiaries.
Item 15. Recent Sales of Unregistered Securities
As a result of our inability to file required SEC reports during our extended filing delay
period, we ceased using our Registration Statement on Form S-8 to make equity grants to employees.
As a result, on March 27, 2006, we suspended option exercises under our equity incentive plans and
terminated purchases under our employee stock purchase plan for all employees, including executive
officers.
On May 24, 2007, we received a no-action letter from the SEC upon which we relied to make
broad-based equity grants to employees under a no-sale theory. We have also made equity grants to
our directors, executive officers, and certain other executives who qualify as accredited investors
in reliance upon a private placement exemption from the federal securities laws and have made a
small number of equity grants to non-U.S. employees under the exemption provided by Regulation S of
the Securities Act of 1933.
The following summarizes various time-based equity awards approved by the stock option committee on
the dates listed below for approximately the past three years (excluding directors and executive officers) in the
United States and elsewhere throughout the world under the application of the no sale theory or
under the exemption provided by Regulation S of the Securities Act of 1933:
|
|
|
July 2, 2007 and August 23, 2007 equity awards representing an aggregate of
approximately 669,000 shares; |
|
|
|
|
December 7, 2007 equity awards representing approximately 235,000 shares; |
|
|
|
|
April 10, 2008 and May 28, 2008 equity awards representing an aggregate of
approximately 717,000 shares |
|
|
|
|
March 4, 2009 equity awards representing approximately 585,000 shares; |
|
|
|
|
May 20, 2009 equity awards representing approximately 458,000 shares; |
|
|
|
|
March 17, 2010 equity awards representing approximately 283,850 shares; and |
|
|
|
|
April 17, 2010 equity awards representing approximately 209,900 shares. |
The following summarizes various time-based and performance-based equity awards approved by the
board of directors or the stock option committee on the dates listed below for the past three years
under a private placement exemption to directors, executive officers, or other employees qualifying
as accredited investors (with officer performance awards included at target levels):
|
|
|
July 2, 2007 equity awards representing approximately 602,000 shares |
|
|
|
|
December 6, 2007 equity awards representing approximately 262,000 shares |
|
|
|
|
May 28, 2008 equity awards representing approximately 524,000 shares; |
|
|
|
|
March 4, 2009 equity awards representing approximately 708,000 shares; |
II-2
|
|
|
March 19, 2009 equity awards representing approximately 20,000 shares; |
|
|
|
|
May 20, 2009 equity awards representing approximately 72,000 shares; |
|
|
|
|
March 17, 2010 equity awards representing approximately 426,850 shares; |
|
|
|
|
March 18, 2010 equity awards representing approximately 20,000 shares; and |
|
|
|
|
April 17, 2010 equity awards representing approximately 37,600 shares. |
All grants were made under a stockholder-approved equity compensation plan or contain vesting
conditions which require that we receive stockholder approval of a new equity compensation plan or
have additional share capacity under an existing stockholder-approved equity compensation plan for
the awards to stock vest. All grants were compensatory in nature and were issued without cost to
the employee.
Item 16. Exhibits and Financial Statement Schedules.
|
|
|
|
|
Number |
|
Description |
|
Filed Herewith / |
|
|
|
|
Incorporated by Reference |
|
|
|
|
from |
1.1
|
|
Form of Underwriting Agreement
|
|
To be filed by amendment |
|
|
|
|
|
2.1
|
|
Asset Purchase Agreement between Verint Systems Ltd.
and ECtel Ltd. dated as of February 9, 2004
|
|
Form 8-K filed on
March 31, 2004 |
|
|
|
|
|
2.2
|
|
Merger Agreement and Plan of Reorganization by and
among Witness Systems, Inc., Baron Acquisition
Corporation, Blue Pumpkin Software, Inc., and,
solely with respect to Article VIII and Article IX,
Laurence R. Hootnick as Shareholder Agent and The
U.S. Stock Transfer Corporation as Depository Agent
dated December 16, 2004
|
|
Witness Systems,
Inc. Form 8-K
(Commission File
No. 000-29335)
filed on January
27, 2005 |
|
|
|
|
|
2.3
|
|
Agreement and Plan of Merger, dated as of February
11, 2007, among Verint Systems Inc., White
Acquisition Corporation and Witness Systems, Inc.
|
|
Form 8-K filed on
February 15, 2007 |
|
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of
Verint Systems Inc.
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
3.2
|
|
Certificate of Designation, Preferences and Rights
of the Series A Convertible Perpetual Preferred
Stock
|
|
Form 8-K filed on
May 30, 2007 8-K |
|
|
|
|
|
3.3
|
|
Amended and Restated By-laws of Verint Systems Inc.
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
4.1
|
|
Specimen Common Stock certificate
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
4.2
|
|
Specimen Series A Convertible Perpetual Preferred
Stock certificate
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
Registration Rights Agreement, by and between the
Company and Comverse Technology, Inc., dated May 25,
2007
|
|
Form 8-K filed on
May 30, 2007 |
|
|
II-3
|
|
|
|
|
Number |
|
Description |
|
Filed Herewith / |
|
|
|
|
Incorporated by Reference |
|
|
|
|
from |
5.1
|
|
Form of opinion of Jones Day regarding validity of the
common stock being registered
|
|
To be filed by amendment |
|
|
|
|
|
10.1
|
|
Form of Indemnification Agreement
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
10.2
|
|
Federal Income Tax Sharing Agreement, dated as of
January 31, 2002, between Comverse and the Company
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
10.3
|
|
Business Opportunities Agreement dated as of March
19, 2002, between Comverse and the Company
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
10.4
|
|
Offer Letter, dated July 27, 2006, from the Office
of the Chief Scientist of the Ministry of Industry,
Trade and Labor of the State of Israel (regarding
final part of settlement payment) (English
translation)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.5
|
|
Acceptance Letter, dated July 31, 2006, from Verint
Systems Ltd. to the Office of the Chief Scientist of
the Ministry of Industry, Trade and Labor of the
State of Israel (regarding final part of settlement
payment) (English translation)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.6
|
|
Verint Systems Inc. 2002 Employee Stock Purchase Plan
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
10.7
|
|
Verint Systems Inc. Stock Incentive Compensation
Plan (as amended through December 12, 2002)
|
|
Form 10-K filed on
May 1, 2003 |
|
|
|
|
|
10.8
|
|
Amendment No. 1 to Verint Systems Inc. Stock
Incentive Compensation Plan (dated December 23,
2008)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.9
|
|
Amendment No. 2 to Verint Systems Inc. Stock
Incentive Compensation Plan (dated March 4, 2009)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.10
|
|
Verint Systems Inc. 2004 Stock Incentive
Compensation Plan, as amended and restated
|
|
Form 8-K filed on
January 10, 2006 |
|
|
|
|
|
10.11
|
|
Amendment No. 1 to Verint Systems Inc. 2004 Stock
Incentive Compensation Plan, as amended and restated
(dated December 23, 2008)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.12
|
|
Witness Systems Amended and Restated Stock Incentive
Plan
|
|
Witness Systems,
Inc. Form 10-Q for
the period ended
June 30, 2005 |
|
|
|
|
|
10.13
|
|
Amendment No. 1 to Witness Systems Amended and
Restated Stock Incentive Plan (dated May 29, 2001)
|
|
Witness Systems,
Inc. Form 10-K
filed on March 17,
2006 |
|
|
|
|
|
10.14
|
|
Amendment No. 2 to Witness Systems Amended and
Restated Stock Incentive Plan (dated January 15,
2004)
|
|
Witness Systems,
Inc. Form 10-K
filed on March 15,
2004 |
|
|
|
|
|
10.15
|
|
Amendment No. 3 to Witness Systems Amended and
Restated Stock Incentive Plan (dated December 6,
2007)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.16
|
|
Amendment No. 4 to Witness Systems Amended and
Restated Stock Incentive Plan (dated December 23,
2008)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.17
|
|
Verint Systems Inc. 2010 Stock Incentive Plan
|
|
Form S-8
(Commission File
No. 333-169768)
effective on October
5, 2010 |
|
|
|
|
|
10.18
|
|
Form of Stock Option Award Agreement*
|
|
Form 8-K filed on
December 7, 2004 |
|
|
|
|
|
10.19
|
|
Form of Restricted Stock Award Agreement to a U.S.
executive officer*
|
|
Form 8-K filed on
January 10, 2006 |
|
|
|
|
|
10.20
|
|
Form of Restricted Stock Award Agreement to an
Israeli executive officer*
|
|
Form 8-K filed on
January 10, 2006 |
|
|
|
|
|
10.21
|
|
Form of Restricted Stock Award Agreement to an
Independent Director, as amended*
|
|
Form 10-K filed on
March 17, 2010 |
II-4
|
|
|
|
|
Number |
|
Description |
|
Filed Herewith / |
|
|
|
|
Incorporated by Reference |
|
|
|
|
from |
10.22
|
|
Form of Time-Based Restricted Stock Unit Award
Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.23
|
|
Form of Performance-Based Restricted Stock Unit
Award Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.24
|
|
Form of Time-Based Deferred Stock Award Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.25
|
|
Form of Performance-Based Deferred Stock Award
Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.26
|
|
Form of Amendment to Time-Based and
Performance-Based Equity Award Agreements*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.27
|
|
Form of Time-Based Restricted Stock Unit Award
Agreement Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
|
|
|
|
|
10.28
|
|
Form of Performance-Based Restricted Stock Unit
Award Agreement Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
|
|
|
|
|
10.29
|
|
Form of Time-Based Deferred Stock Award Agreement
Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
|
|
|
|
|
10.30
|
|
Form of Performance-Based Deferred Stock Award
Agreement Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
|
|
|
|
|
10.31
|
|
Contribution Agreement, dated as of February 1,
2001, between Comverse and the Company
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
10.32
|
|
Stock Purchase Agreement, dated as of January 31,
2002, between Comverse, Inc. and the Company
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
10.33
|
|
Registration Rights Agreement, dated as of January
31, 2002, between Comverse and the Company
|
|
Form S-1
(Commission File
No. 333-82300)
effective on May
16, 2002 |
|
|
|
|
|
10.34
|
|
Stock Purchase Agreement, dated as of September 7,
2005, by and among Verint Systems Inc., MultiVision
Holdings Limited, and MultiVision Intelligent
Surveillance Limited
|
|
Form 10-Q/A filed
on December 12,
2005 |
|
|
|
|
|
10.35
|
|
Securities Purchase Agreement, by and between the
Company and Comverse Technology, Inc., dated May 25,
2007.
|
|
Form 8-K filed on
May 30, 2007 |
|
|
|
|
|
10.36
|
|
Credit Agreement dated as of May 25, 2007 among the
Company, as Borrower, the Lenders as parties thereto
and Lehman Commercial Paper Inc., as Administrative
Agent
|
|
Form 8-K filed on
May 30, 2007 |
|
|
|
|
|
10.37
|
|
Employment Agreement, dated February 23, 2010,
between Verint Systems Inc. and Dan Bodner*
|
|
Form 8-K filed on
February 23, 2010 |
|
|
|
|
|
10.38
|
|
Employment Agreement, dated August 14, 2006, between
Verint Systems Inc. and Douglas E. Robinson*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.39
|
|
Amendment No. 1, dated July 2, 2007, to Employment
Agreement between Verint Systems and Douglas E.
Robinson*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.40
|
|
Amendment No. 2, dated December 29, 2008, to
Employment Agreement between Verint Systems Inc. and
Douglas E. Robinson*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.41 |
|
Amended and Restated Employment Agreement, dated
October 29, 2009, between Verint Systems Inc. and
Elan Moriah*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.42
|
|
Employment Agreement, dated April 16, 2001, between
Comverse Infosys UK Limited and David Parcell*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.43
|
|
Supplemental Employment Agreement, dated June 13,
2008, between Verint Systems UK Limited and David
Parcell*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.44
|
|
Amended and Restated Employment Agreement, dated
November 10, 2009, between Verint Systems Inc. and
Peter Fante*
|
|
Form 10-K filed on
March 17, 2010 |
II-5
|
|
|
|
|
Number |
|
Description |
|
Filed Herewith / |
|
|
|
|
Incorporated by Reference |
|
|
|
|
from |
10.45
|
|
Employment Offer Letter, dated August 30, 2000,
between Comverse Infosys Ltd. and Meir Sperling*
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.46
|
|
Managers Insurance Policy Letter between Comverse
Infosys Ltd. and Meir Sperling* (English
translation)
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.47
|
|
Summary of the Terms of Verint Systems Inc.
Executive Officer Annual Bonus Plan*
|
|
Form 10-K filed on
May 19, 2010 |
|
|
|
|
|
10.48
|
|
2009 Executive Officer Retention Letter
|
|
Form 10-K filed on
March 17, 2010 |
|
|
|
|
|
10.49
|
|
Amendment, Waiver, and Consent, dated April 27,
2010, to Credit Agreement among the Company, as
Borrower, the Lenders, as parties thereto, and
Credit Suisse AG, Cayman Islands Branch, as
Administrative Agent
|
|
Form 8-K filed on
May 3, 2010 |
|
|
|
|
|
10.50
|
|
Letter Agreement, dated July 16, 2010, between
Comverse Technology, Inc. and Verint Systems Inc.
|
|
Form 8-K filed on
July 19, 2010 |
|
|
|
|
|
10.51
|
|
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 8-K filed on
August 2, 2010 |
|
|
|
|
|
10.52
|
|
Incremental Amendment and Joinder Agreement, dated
July 30, 2010, among Verint Systems Inc., the
additional lenders party thereto, and the
administrative agent.
|
|
Form 8-K filed on
August 2, 2010 |
|
|
|
|
|
21.1
|
|
Subsidiaries of the Company
|
|
Form 10-K filed on
May 19, 2010 |
|
|
|
|
|
23.1
|
|
Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm
|
|
Filed herewith |
|
|
|
|
|
23.2
|
|
Consent of Jones Day (included in Exhibit 5.1)
|
|
To be filed by amendment |
|
|
|
|
|
24.1
|
|
Power of Attorney
|
|
Previously filed |
|
|
|
|
|
24.2
|
|
Power of Attorney
|
|
Previously filed |
|
|
|
* |
|
Denotes a management contract or compensatory plan or arrangement. |
(b) |
|
Financial statement schedule |
None.
Item 17. Undertakings
The undersigned hereby undertakes that:
(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a
director, officer, or controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is
asserted by such director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless, in the opinion of its counsel, the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-6
(b) (1) For purposes of determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly
caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Melville, State of New York, on October 7, 2010.
|
|
|
|
|
|
|
|
|
VERINT SYSTEMS INC. |
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
/s/ Dan Bodner |
|
|
|
|
|
|
Dan Bodner, President and Chief Executive
|
|
|
|
|
|
|
Officer |
|
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this amendment to the Registration
Statement has been signed by the following persons in the capacities on the dates indicated.
|
|
|
/s/ Dan Bodner
Dan Bodner, Chief Executive Officer
|
|
October 7, 2010 |
and President; Director of Verint Systems Inc. |
|
|
(Principal Executive Officer) |
|
|
|
|
|
/s/ Douglas E. Robinson
Douglas E. Robinson, Chief Financial Officer of Verint Systems Inc.
|
|
October 7, 2010 |
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
|
*
Paul D. Baker, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
John Bunyan, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
Andre Dahan, Chairman of the Board of Directors of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
Victor A. DeMarines, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
II-8
|
|
|
*
Kenneth A. Minihan, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
Larry Myers, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
Howard Safir, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
Shefali Shah, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
Stephen M. Swad, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
*
Lauren Wright, Director of Verint Systems Inc.
|
|
October 7, 2010 |
|
|
|
|
|
* |
|
The undersigned, pursuant to a power of attorney, executed by each
of the officers and directors above and filed with the SEC, by
signing his name hereto, does hereby sign and deliver this amendment to the
Registration Statement on behalf of the persons noted above in the
capacities indicated. |
|
|
|
|
|
|
|
|
/s/ Douglas E. Robinson
Douglas E. Robinson
|
|
|
Attorney-in-Fact |
|
|
II-9
exv23w1
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent
to the use in this Amendment No. 1 to Registration Statement No.
333-169025 of our report dated May 18, 2010,
relating to the consolidated financial statements of Verint Systems Inc. (which report expresses an
unqualified opinion and includes an explanatory paragraph relating to the adoption of new
accounting guidance for the reporting and disclosure of noncontrolling interests), and to the
incorporation by reference of our report on the effectiveness of Verint Systems Inc.s internal
control over financial reporting, also dated May 18, 2010 (which report expresses an adverse opinion on the effectiveness of
Verint Systems Inc.s internal control over financial reporting because of material weaknesses),
appearing in the Annual Report on Form 10-K of Verint Systems Inc. for the year ended January 31,
2010, and to the reference to us under the heading Experts in the Prospectus, which is part of
such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
New York, New York
October 7, 2010