Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended January 31, 2010
Commission File Number 000-49790
VERINT SYSTEMS INC.
(Exact name of registrant as specified in its charter)
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Delaware
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11-3200514 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
330 South Service Road, Melville, New York 11747
(Address of principal executive offices) (Zip code)
Registrants telephone number, including area code: (631) 962-9600
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange |
Title of each class |
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on which registered |
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None
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None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
Title of class
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 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 definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).
Yes o No þ
The aggregate market value of common stock held by non-affiliates of the registrant, based on the
closing price for the registrants common stock on the Pink OTC Markets Inc. on the last business
day of the registrants most recently completed second fiscal quarter (July 31, 2009) was
approximately $164,374,652.
There were 32,802,402 shares of the registrants common stock outstanding on April 30, 2010.
Cautionary Note on Forward-Looking Statements
Certain statements discussed in this report constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, the provisions of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act) (which Sections were adopted as part of the Private Securities
Litigation Reform Act of 1995). Forward-looking statements 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:
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risks relating to the filing of our Securities and Exchange Commission (SEC) reports,
including the occurrence of known contingencies or unforeseen events that could delay our
plan for completion of our outstanding and future financial statements, management
distraction, and significant expense; |
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risk associated with the SECs initiation of an administrative proceeding on March 3,
2010 to suspend or revoke the registration of our common stock under the Exchange Act due
to 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; |
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risks related to the announcement by Standard & Poors (S&P) on January 29, 2010 that
our credit rating had been placed on CreditWatch Developing, or that S&P could downgrade
our credit rating; |
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risks associated with being a consolidated, controlled subsidiary of Comverse
Technology, Inc. (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 net operating loss carryforwards (NOLs) for our
financial statements; |
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uncertainty regarding the impact of general economic conditions, particularly in
information technology spending, on our business; |
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risk 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; |
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risk 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; |
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risk 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; |
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uncertainty regarding the future impact on our business of our internal investigation,
restatement, extended filing delay, and the SECs administrative proceeding, including
customer, partner, employee, and investor concern and potential customer and partner
transaction deferrals or losses; |
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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; |
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risks relating to our implementation and maintenance of adequate systems and internal
controls for our current and future operations and reporting needs; |
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risk of possible future restatements if the special processes used to prepare the
financial statements contained in this report or the regular recurring processes that will
be used to produce future SEC reports are inadequate; |
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risk associated with current or future regulatory actions or private litigations
relating to our internal investigation, restatement, or delay in timely making required SEC
filings; |
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risk that we will be unable to re-list our common stock on NASDAQ or another national
securities exchange and maintain such listing; |
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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); |
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risks associated with significant leverage, resulting from our current debt position; |
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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; |
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risks created by continued consolidation of competitors or introduction of large
competitors in our markets with greater resources than us; |
iii
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risks associated with significant foreign and international operations, including
exposure to fluctuations in exchange rates; |
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risks associated with complex and changing local and foreign regulatory environments; |
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risks associated with our ability to recruit and retain qualified personnel in all
geographies in which we operate; |
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challenges in accurately forecasting revenue and expenses; |
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risks associated with acquisitions and related system integrations; |
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risks relating to our ability to improve our infrastructure to support growth; |
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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; |
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risks associated with a significant amount of our business coming from domestic and
foreign government customers; |
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risk that we improperly handle sensitive or confidential information or perception of
such mishandling; |
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risks associated with dependence on a limited number of suppliers for certain components
of our products; |
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risk that we are unable to maintain and enhance relationships with key resellers,
partners, and systems integrators; and |
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risk that use of our NOLs or other tax benefits may be restricted or eliminated in the
future. |
These risks and uncertainties, as well as other factors, are discussed in greater detail in Risk
Factors under Item 1A of this report. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect our managements view only as of the filing date of this
report. We make no commitment to revise or update any forward-looking statements in order to
reflect events or circumstances after the date any such statement is made, except as otherwise
required under the federal securities laws. If we were in any particular instance to update or
correct a forward-looking statement, investors and others should not conclude that we would make
additional updates or corrections thereafter except as otherwise required under the federal
securities laws.
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PART I
Item 1. Business
Our Company
Verint® Systems Inc. (together with its consolidated subsidiaries, Verint, the
Company, we, us, and our, unless the context indicates otherwise) is a global leader in
Actionable Intelligence® solutions and value-added services. Our solutions enable
organizations of all sizes to make 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 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.
Headquartered in Melville, New York, we support our customers around the globe directly and with an
extensive network of selling and support partners.
Actionable Intelligence 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.
1
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.
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, today, Comverse holds
approximately a 67% ownership position in us (assuming conversion of all of our Series A
Convertible Preferred Stock, par value $0.001 per share (preferred stock), into common stock).
Since our IPO, we have acquired a number of companies that have strengthened our position in both
the enterprise workforce optimization and security intelligence markets. Our largest acquisition
was of Witness Systems, Inc. (Witness) in May 2007, which strengthened our leadership position in
the enterprise workforce optimization market.
We participate in the enterprise workforce optimization and security intelligence markets through
three operating segments: Enterprise Workforce Optimization Solutions (Workforce Optimization),
Video Intelligence Solutions (Video Intelligence), and Communications Intelligence and
Investigative Solutions (Communications Intelligence), each of which is described in greater
detail below and in Managements Discussion and Analysis of Financial Condition and Results of
Operations under Item 7. See also Note 17, Segment, Geographic, and Significant Customer
Information to the consolidated financial statements included in Item 15 for additional
information and financial data about each of our operating segments and geographic regions.
Through our website at www.verint.com, we will make available our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as amendments to those
reports filed or furnished by us pursuant to Section 13(a) or Section 15(d) of the Exchange Act,
free of charge, as soon as reasonably practicable after we file such materials with the SEC. Any
documents that we file with the SEC can also be read and copied at the SECs Public Reference Room
located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information. Our filings are also available at the SECs website at www.sec.gov. Our
website address set forth above is not intended to be an active link and information on our website
is not incorporated in, and should not be construed to be a part of, this report.
2
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 Internet Protocol
(IP) and legacy Time-Division Multiplexing (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.
The Workforce Optimization Market and Trends
We believe that customer service is being 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 organizations seek
solutions that enable them to strike a balance between 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 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.
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For example:
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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; |
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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 |
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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.
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Migration to Voice over Internet Protocol (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.
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.
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Solution |
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Description |
Quality Monitoring
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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. |
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Full-Time and Compliance Recording
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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. |
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Workforce Management
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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. |
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Customer Interaction Analytics
(Speech, Data, and Customer
Feedback)
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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. |
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Solution |
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Description |
Performance Management
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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. |
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eLearning and Coaching
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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. |
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Desktop and Process Analytics
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Captures information from customer
service employee interactions with
their desktop applications to
provide insights into productivity,
training issues, process adherence,
and bottlenecks. |
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Workforce Optimization for
Small-to-Medium Sized Businesses
(SMB)
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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. |
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Public Safety
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Includes quality monitoring, speech
analytics, and full-time and
compliance recording solutions under
the brand Impact 360 for Public
Safety Powered by Audiolog. Our
public safety solution allows first
responders (police, fire
departments, emergency medical
services, etc.) in the Security
Intelligence market to deploy
workforce optimization solutions to
record, manage, and act on incoming
assistance requests and related
data. |
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 networked digital video recorders (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 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.
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.
6
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 recording and viewing capabilities, 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 feature
analytics. We believe 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 inter-operability 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.
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Solution |
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Description |
IP Video Management Software
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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 inter-operability with other
enterprise systems. |
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Edge Devices
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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. |
7
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Solution |
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Description |
Video Analytics
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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. |
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Networked DVRs
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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 and Investigative Solutions Segment
We are a leading provider of Communications Intelligence solutions that help law enforcement,
national security, intelligence, and other 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, financial crime investigation, Web intelligence, integrated video monitoring, 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 and Investigative 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 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.
8
Growing Demand for Advanced Intelligence and Investigative Solutions
Investigations related to criminal and terrorist networks, drugs, financial crimes, and other
illegal activities are highly complex and often involve collecting and analyzing information from
multiple sources. We believe that law enforcement, national security, intelligence, and other
government agencies are seeking advanced solutions that enable them to integrate and analyze
information from multiple sources and collaborate more efficiently with various other agencies in
order to unearth suspicious activity, optimize investigative workflows, and make investigations
more effective.
Legal and Regulatory Compliance Requirements
In many countries, communications service providers are mandated by government regulation to
satisfy certain technical requirements for delivering communication content and data to law
enforcement and government authorities. For example, in the United States, requirements have been
established under the Communications Assistance for Law Enforcement Act (CALEA). In Europe,
similar requirements have been adopted by the European Telecommunications Standards Institute
(ETSI). In addition, many law enforcement and government agencies around the world are mandated
to ensure compliance with laws and regulations related to criminal activities, such as financial
crime. We believe these laws and regulations are creating demand for our Communications
Intelligence solutions.
Our Communications Intelligence and Investigative 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.
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Solution |
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Description |
Communications Interception
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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. |
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Communications Service Provider
Compliance
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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. |
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Solution |
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Description |
Mobile Location Tracking
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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. |
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Fusion and Investigation Management
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Fuses data gathered from multiple
database sources, with link
analysis, adaptable investigative
workflow, and analytics to improve
investigation efficiency and
productivity. Supports complex
investigations that require
expertise across various domains,
involve multiple government
agencies, and require significant
resources and time. |
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Financial Crime Investigation
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Helps law enforcement and government
financial regulatory agencies
investigate financial fraud, money
laundering, and other financial
crimes, as well as drug- and
terror-related cases. |
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Web Intelligence
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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. |
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Integrated Video Monitoring
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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. |
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Tactical Communications Intelligence
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Provides portable communications
interception and location tracking
capabilities for local use or
integration with centralized
monitoring systems, to support
tactical field operations. |
Customer Services
We offer a range of customer services, including implementation, training, consulting, and
maintenance, to help our customers maximize their return on investment in our solutions.
Implementation, Training, and Consulting
Our solutions are implemented by our service organizations, authorized partners, resellers, or
customers. Our implementation services include project management, system installation, and
commissioning, including integrating our 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.
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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 (VAR), and original equipment manufacturer (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 currently used by more than 10,000 organizations in over 150 countries. 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 year ended January 31, 2010, we derived approximately 55%, 25%, and 20% of our revenue from
sales to end users in the Americas; Europe, the Middle East, and Africa (EMEA); and the Asia
Pacific Region (APAC), respectively. In the year ended January 31, 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 derived
approximately 52%, 33%, and 15% of our revenue from sales to end users in the Americas, EMEA, and
APAC, respectively.
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None of our customers, including system integrators, VARs, various local, regional, and national
governments worldwide, and OEM partners, individually accounted for more than 10% of our revenue in
the years ended January 31, 2010, 2009, and 2008. 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 consolidated financial
statements included in Item 15. 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. For a more detailed discussion of the risks associated with our government customers, see
Risk Factors We are dependent on contracts with governments around the world for a significant
portion of our revenue. These contracts expose us to additional business risks and compliance
obligations under Item 1A and Risk Factors 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 under Item 1A.
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:
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identify and respond to emerging technological trends in our target markets; |
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develop and maintain competitive solutions that meet our customers changing needs; |
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enhance our existing products by adding features and functionality to meet specific
customer needs or differentiate our products from those of our competitors; and |
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attract, recruit, and retain highly skilled and experienced employees. |
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To support these efforts, we make significant investments in research and development every year.
In the years ended January 31, 2010, 2009, and 2008, we spent approximately $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 Office of the Chief Scientist (OCS) of
Israel and certain research and development programs in Canada, for the support of research and
development activities conducted in those countries. The Israeli law under which these OCS grants
are made limits our ability to manufacture products, or transfer technologies, developed using
these grants outside of Israel without permission from the OCS. See Risk Factors 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 Factors Because we
have significant foreign operations, we are subject to geopolitical and other risks that could
materially adversely affect our business under Item 1A 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 Factors 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 under Item 1A
for a discussion of risks associated with our manufacturing operations and suppliers.
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Employees
As of January 31, 2010, we employed approximately 2,500 people, including part-time employees and
certain contractors. Approximately 46%, 38%, 10%, 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.
Patents
As of February 28, 2010, we had more than 460 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.
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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
Factors Our intellectual property may not be adequately protected under Item 1A for a more
detailed discussion regarding the risks associated with the protection of our intellectual
property.
Competition
We face strong competition in all of our markets, and we expect that competition will persist and
intensify. In our 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 believe we compete principally on the basis of:
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product performance and functionality; |
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product quality and reliability; |
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breadth of product portfolio and inter-operability; |
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global presence and high-quality customer service and support; |
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specific industry knowledge, vision, and experience; and |
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 Factors Intense competition in our
markets and competitors with greater resources than us may limit our market share, profitability,
and growth under Item 1A for a more detailed discussion of the competitive risks we face.
Export Regulations
We and our subsidiaries are subject to applicable export control regulations in countries from
which we export goods and services, 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.
Recent Developments
The following summaries describe the significant developments that occurred subsequent to January
31, 2010.
Acquisition of Iontas
On February 4, 2010, our wholly owned subsidiary, Verint Americas Inc. (Verint Americas),
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.
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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 also were the subject of our internal
investigation. On March 3, 2010, the SEC filed a settled enforcement action 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 our periodic reports under the Exchange
Act. 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 of the OIP. 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.
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.
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Item 1a. Risk Factors
Many of the factors that affect our business and operations involve risks and uncertainties. The
factors described below are risks that could materially harm our business, financial condition, and
results of operations. These are not all the risks we face and other factors currently considered
immaterial or unknown to us may have a material adverse impact on our future operations.
Risks Related to Our Internal Investigation, Restatement, Internal Controls, and Ownership
Following the filing of this report, we face challenges in completing our Form 10-Q filings for the
year ended January 31, 2010 and future SEC filings, we cannot assure you when we will complete
these filings, and we are likely to continue to face challenges until we come into compliance with
our reporting obligations and re-list our common stock.
Although we have completed our annual reports covering periods through the end of our most recent
fiscal year, we continue to face challenges with regard to completing our Forms 10-Q for the year
ended January 31, 2010 and timely completing our future SEC filings. We cannot assure you that we
will be able to complete these historical Forms 10-Q or future required filings prior to the
conclusion of the SEC administrative proceeding to suspend or revoke the registration of our common
stock, described below. Until we are able to come into compliance with our reporting obligations
and re-list our common stock, we expect to continue to face many of the risks and challenges we
have experienced during our extended filing delay period, including:
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risk associated with the SECs initiation of an administrative proceeding on March 3,
2010 to suspend or revoke the registration of our common stock under the Exchange Act due
to 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; |
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continued concern on the part of customers, partners, investors, and employees about our
financial condition and extended filing delay status, including potential loss of business
opportunities; |
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additional significant time and expense required to complete our remaining filings and
the process of seeking the re-listing of our common stock on NASDAQ or another national
securities exchange beyond the very significant time and expense we have already incurred
in connection with our internal investigation, restatement, and audits to date; |
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continued distraction of our senior management team and our board of directors as we
work to complete our remaining filings and seek to re-list our common stock; |
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limitations on our ability to raise capital and make acquisitions; and |
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general reputational harm as a result of the foregoing. |
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Even if we come into compliance with our reporting obligations and our common stock is re-listed on
NASDAQ or another national securities exchange, we cannot assure you that all of the risks and
challenges described above will be eliminated. For example, we cannot assure you that lost
business opportunities can be recaptured or that general reputational harm will not persist. If we
are unable to complete our remaining filings and complete any future required filings prior to the
conclusion of the SEC administrative proceeding to suspend or revoke the registration of our common
stock described below, are unable to re-list our common stock, or if one or more of the foregoing
risks or challenges persist even after we have done so, our business, results of operations, and
financial condition are likely to be materially and adversely affected.
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, management has
concluded that our internal control over financial reporting was not effective as of January 31,
2010. For further information about these material weaknesses, please see Controls and
Procedures under Item 9A.
We have implemented and continue to implement remedial measures designed to address the material
weaknesses identified as of January 31, 2010. If these remedial measures are insufficient to
address the identified material weaknesses, or if additional material weaknesses in our internal
control 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 address the identified material
weaknesses or any additional material weaknesses in our internal control 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.
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The extraordinary processes underlying the preparation of the financial statements contained in
this report 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, that
we will be able to timely implement them or that we 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, the processes underlying the preparation of the
financial statements contained in this report were extraordinary. While we expect to continue to
rely on these extraordinary processes for a period of time, during the year ending January 31,
2011, we have and expect to increasingly rely on our regular financial statement preparation and
reporting processes.
While we have significantly changed and enhanced these regular processes (as described elsewhere in
this report) as of the filing date of this report, we cannot assure you that the identified
material weaknesses as of January 31, 2010 have been fully remediated and we continue to:
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make changes to our finance organization; |
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enhance our accounting and reporting processes and procedures; |
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enhance our revenue recognition and other existing accounting policies and procedures; |
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introduce new or enhanced accounting systems and processes; and |
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improve our internal controls over financial reporting. |
Many of these changes and enhancements to our regular processes are ongoing as of the filing date
of this report and we continue to assimilate the complex and pervasive changes we have already
made. We cannot assure you that the changes and enhancements made to date, or those that are still
in process, are adequate, will operate as expected, or will be completed in a timely fashion (if
still in process). As a result, 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 arise or be identified in the future, or that we will be able to
timely comply with our reporting obligations in the future.
We cannot assure you that our common stock will be re-listed, or that once re-listed, it will
remain listed.
As a result of the delay in filing our periodic reports with the SEC, we were unable to comply with
the listing standards of NASDAQ and our common stock was suspended from trading effective February
1, 2007 and formally de-listed effective June 4, 2007. We have applied to re-list our common stock
with NASDAQ; however, there can be no assurance that we will be able to re-list our common stock in
an expeditious manner or at all. Even if our common stock is re-listed, unless we are able to
timely comply with our SEC reporting obligations in the future, our common stock may again be
de-listed. If we cannot re-list our common stock or if it is de-listed again in the future, the
price of our common stock will likely be adversely affected and there may be a decrease in the
liquidity of our common stock.
The circumstances which gave rise to our internal investigation, restatement, and extended filing
delay continue to create the risk of litigation against us, which could be expensive and could
damage our business.
Although Comverse and its affiliates have been named in a number of class action or shareholder
derivative lawsuits relating to Comverses internal investigation and restatement, no such actions
relating to our internal investigation, restatement, or extended filing delay have been brought
against us to date. However, companies that have undertaken internal reviews and investigations or
restatements face greater risk of litigation or other actions and there can be no assurance that
such a suit or action relating to our internal investigation, restatement, or extended filing delay
will not be initiated against us or our current or former officers, directors, or other personnel
in the future. 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. Any such litigation or action may be time consuming and expensive, and may
distract management from the conduct of our business. Any such litigation or action 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.
21
We were the subject of an SEC investigation relating to our reserve and stock option accounting
practices and are the subject of an SEC proceeding relating to our failure to timely file required
SEC reports. These government inquiries or any future inquiries to which we may become subject
could result in penalties and/or other remedies that could have a material adverse effect on our
financial condition and results of operation.
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 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.
Three of Comverses former officers, each of whom previously served on our board of directors, have
also been charged in civil and criminal actions by the SEC and the Department of Justice in
connection with the circumstances surrounding the Comverse special committee investigation. Two of
these three matters have been settled to date.
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,
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 our periodic reports under the Exchange
Act. 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 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. 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. We cannot at this time predict the outcome of the Section 12(j) administrative proceedings
or of any available appeals that may follow. Similarly, we cannot predict what, if any, impact the
outcome of the administrative proceedings may have on our business. If a final order is issued by
the SEC suspending or revoking the registration of our common stock, broker-dealers would be
prevented from making a market in our common stock in the United States and from any further
trading of our common stock on the Pink OTC Markets, Inc. (the Pink Sheets) or any other
exchange, market, or board in the United States until, in the case of a suspension, the lifting of
such suspension, and, in the case of a revocation, we file a new registration with the SEC under
the Exchange Act and that registration is made effective.
22
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 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 the outcome of any of the foregoing unresolved proceedings or whether we will
face additional government inquiries, investigations, or other actions related to these other
matters. An adverse ruling in any SEC enforcement action or other regulatory proceeding could
impose upon us fines, penalties, or other remedies, including the suspension or revocation of the
registration of our common stock, as discussed above, which could have a material adverse effect on
our results of operations and financial condition. Even if we are successful in defending against
an SEC enforcement action or other regulatory proceeding, such an action or 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 action or 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.
23
Prior to the announcement of the Comverse special committee investigation, our directors and
officers were included in a director and officer liability insurance policy, which 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.
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 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 NOLs allocated to us as of our May 2002 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 have required significant time, expense, and management
distraction, have 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.
24
Future delays at Comverse, if any, may again delay the completion of the preparation of our
outstanding or 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 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 U.S. federal income tax return.
Following our IPO, we began filing a separate U.S. 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 federal income tax returns by Comverse on
our behalf.
In addition, notwithstanding the terms of the tax sharing agreement, federal tax law provides that
each member of a consolidated federal income tax group is jointly and 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, 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.
Because Comverse currently holds approximately a 67% ownership position in us (assuming the
conversion of all of our preferred stock into common stock), Comverse effectively controls the
outcome of all matters submitted for stockholder action, including the approval of significant
corporate transactions, such as financings, 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.
25
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 in order 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, under the terms of the preferred stock, Comverse also has the right to
appoint two additional directors to our board of directors under certain circumstances.
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 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
future capital may be adversely affected.
As a result of the delay in completing our financial statements, we have been and are 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, following the filing of this
report and our Quarterly Reports on Form 10-Q for each of the quarters ended April 30, 2009, July
31, 2009, and October 31, 2009, 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 (or, in the event the registration of our common stock is revoked pursuant to the Section
12(j) proceeding discussed above, until after we have timely filed all required reports for the 12
calendar months following the date on which we once again become subject to the SEC reporting
requirements). In the meantime, we would need 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,
increasing the costs of raising capital during that period.
26
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, such as financial services. 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 24 months. 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.
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.
27
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:
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anticipate and respond to changes in technology and industry standards; |
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successfully develop and introduce new, enhanced, and competitive products which meet
our customers changing needs; and |
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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.
28
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:
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changes in budgets and purchasing priorities; |
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reductions in need to upgrade existing systems; |
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deferrals in anticipation of enhanced or new products; |
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introduction of new products by our competitors; or |
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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.
29
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.
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 under
Item 7 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.
30
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.
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 CALEA in the United States and standards established by 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.
31
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.
32
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, 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. Further, for as long as we remain ineligible to use a
Form S-8 registration statement and our common stock remains de-listed, we are likely to continue
to experience a certain amount of difficulty attracting and retaining highly qualified personnel,
particularly at more senior levels, due to concerns about our status and our ability to use our
common stock to retain and motivate employees will also continue to be a challenge and subject to
certain restrictions. 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:
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foreign currency fluctuations; |
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political, security, and economic instability in foreign countries; |
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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; |
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differences in tax regimes and potentially adverse tax consequences of operating in
foreign countries; |
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customizing products for foreign countries; |
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legal uncertainties regarding liability and intellectual property rights; |
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hiring and retaining qualified foreign employees; and |
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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 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 expose us to additional business risks and compliance obligations.
A significant portion of our business is generated from sales under government contracts around the
world. We expect that government contracts will continue to be a significant source of our revenue
for the foreseeable future. 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 business generated from government contracts may
be materially adversely affected if:
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our reputation or relationship with government agencies is impaired; |
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we are suspended or otherwise prohibited from contracting with a domestic or foreign
government or any significant law enforcement agency; |
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levels of government expenditures and authorizations for law enforcement and security
related programs decrease or shift to programs in areas where we do not provide products
and services; |
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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; |
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we are not granted security clearances that are required to sell our products to
domestic or foreign governments or such security clearances are deactivated; |
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there is a change in government procurement procedures; or |
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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, 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:
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terminate or cancel existing contracts for convenience; |
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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; |
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audit and object to our contract-related costs and expenses, including allocated
indirect costs; and |
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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.
36
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.
The mishandling or even the perception of mishandling of sensitive information could harm our
business.
Our products are in some cases used by customers to compile and analyze highly sensitive or
confidential information and data, including in some cases, information or data used in
intelligence gathering or law enforcement activities. While our customers use of our products in
no way affords us access to this 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. However, these measures are designed to
mitigate the risks associated with handling 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, 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.
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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 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.
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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 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 (collectively, 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.
39
Risks Related to Our Capital Structure and Finances
We have incurred significant indebtedness as a result of the 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 February 28, 2010, we had outstanding indebtedness of approximately $620 million. As a result
of our significant indebtedness, we are highly leveraged. Our leverage position may, among other
things:
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limit our ability to obtain additional debt financing in the future for working capital,
capital expenditures, acquisitions, or other general corporate purposes; |
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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; |
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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 |
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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. While we have hedged a portion of this exposure under our
term loan, this interest rate swap does not cover all of our term loan indebtedness, it expires
prior to the maturity date of our term loan, and it subjects us to above-market interest rates at
any time that prevailing rates drop below the rate fixed by the swap.
On January 29, 2010, S&P announced that our credit rating had been placed on CreditWatch
Developing, and there can be no assurance that S&P 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 extended filing delay status.
Risks associated with our leverage ratio and financial statement delivery covenants.
Our credit agreement contains a financial covenant that requires us to maintain a minimum
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 under Item 7 for additional
information.
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Our ability to comply with the leverage ratio covenant is highly dependent upon our ability to
continue to grow earnings from quarter to quarter, 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.
Because our revenue recognition review resulted in changes in the way we recognize revenue from the
way we did at the time the credit agreement was put in place, it may be more difficult for us to
maintain compliance with our leverage ratio covenant on a prospective basis than we expected at the
time we entered into the credit agreement since the leverage ratio covenant is based on our
earnings before interest, taxes, depreciation, and amortization (EBITDA), which is affected by
revenue.
The credit 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. 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 sell assets,
raise additional capital through a 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 a sale or
securities offering or refinance or restructure our debt on reasonable terms or at all.
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:
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incur additional indebtedness or liens or issue preferred stock; |
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pay dividends or make other distributions or repurchase or redeem our stock or
subordinated indebtedness; |
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engage in transactions with affiliates; |
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engage in sale-leaseback transactions; |
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change our lines of business; |
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make investments, loans, or advances; and |
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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.
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, so long as we remain delayed
with our SEC filings and our common stock remains de-listed, our ability to use our common stock to
raise capital for acquisitions will continue to be severely restricted.
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.
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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 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 consolidated financial statements included in Item 15.
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. As of January 31, 2010,
goodwill and other intangible assets totaled approximately $898.5 million, or approximately 64% of
our total assets. At a minimum, we assess annually whether there has been impairment in the
carrying amount of our goodwill and we assess on an as-needed basis whether there have been
impairments in our other intangible assets. We make assumptions and estimates in this assessment
which are complex and often subjective. These assumptions and estimates can be affected by a
variety of factors, including external factors such as industry and economic trends, and internal
factors such as changes in our business strategy or our internal forecasts. We did not record any
non-cash impairment charges for the year ended January 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 (CM Insight) 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 consolidated financial statements included in Item
15 for more information.
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.
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Our ability to realize value from and use our NOLs will impact our results and 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, a
future ownership change, adjustments to Comverses tax liability for periods prior to our IPO, or
changes in tax rates, laws, or regulations that could have retroactive effect. To the extent that
we are unable to utilize our NOLS, 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
effective tax rate will increase in that jurisdiction, thereby impacting our overall effective tax
rate. Our effective tax rate in any given year is also dependent on the relative mix of
jurisdictions (and corresponding local tax rates) in which we operate.
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 OCS for the financing of a portion of our research and development
expenditures in Israel. The availability in any given year of these OCS grants depends on OCS
approval of the projects and related budgets 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.
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Item 1b. Unresolved Staff Comments
None.
Item 2. Properties
The following describes our leased and owned properties as of the date of this report.
Leased Properties
We lease a total of approximately 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, 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.
45
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 consolidated financial statements
included in Item 15.
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 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.
Item 3. Legal Proceedings
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.
46
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 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 filing date of this report.
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.
47
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.
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
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.
48
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.
49
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 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.
Item 4. Removed and Reserved
50
PART II
|
|
Item 5. |
Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities |
Market Information
Since February 1, 2007, our common stock has traded on the over-the-counter securities market under
the symbol VRNT.PK with pricing and financial information provided by the Pink Sheets. Prior to
February 1, 2007, our common stock traded on NASDAQ under the symbol VRNT. However, as a result
of the delay in filing our periodic reports with the SEC, we were unable to comply with the listing
standards of NASDAQ and our common stock was suspended from trading effective February 1, 2007 and
formally de-listed effective June 4, 2007.
The following table sets forth the range of high and low quotations as reported by the Pink Sheets
from February 1, 2008 through January 31, 2010. The bid quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission, and may not necessarily reflect actual
transactions:
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
Quarter |
|
Low |
|
|
High |
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2/1/08 - 4/30/08 |
|
$ |
14.90 |
|
|
$ |
21.00 |
|
|
|
5/1/08 - 7/31/08 |
|
$ |
19.75 |
|
|
$ |
24.10 |
|
|
|
8/1/08 - 10/31/08 |
|
$ |
9.10 |
|
|
$ |
22.51 |
|
|
|
11/1/08 - 1/31/09 |
|
$ |
5.55 |
|
|
$ |
12.25 |
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2/1/09 - 4/30/09 |
|
$ |
3.29 |
|
|
$ |
6.35 |
|
|
|
5/1/09 - 7/31/09 |
|
$ |
5.40 |
|
|
$ |
12.01 |
|
|
|
8/1/09 - 10/31/09 |
|
$ |
11.74 |
|
|
$ |
16.90 |
|
|
|
11/1/09 - 1/31/10 |
|
$ |
15.45 |
|
|
$ |
19.25 |
|
Holders
There were 97 holders of record of our common stock at April 30, 2010. Such record holders include
holders who are nominees for an undetermined number of beneficial owners.
51
Dividends
We have not declared or paid any cash dividends on our equity securities and have no current plans
to pay any dividends on our equity securities. We intend to retain our earnings to finance the
development of our business, repay debt, and for other corporate purposes. In addition, the terms
of our credit agreement restrict our ability to pay cash dividends on shares of our common or
preferred stock. See Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources under Item 7 for a more detailed discussion of these
limitations. Our ability to pay dividends on our common stock is also limited by the terms of our
outstanding shares of preferred stock which ranks senior to our common
stock with respect to the payment of dividends and bears a preferred dividend which currently
accrues at the rate of 3.875% per year. See Certain Relationships and Related Transactions, and
Director Independence Comverse Preferred Stock Financing Agreements under Item 13 and Note 8,
Convertible Preferred Stock to the consolidated financial statements included in Item 15 for a
more detailed discussion of these restrictions.
Any future determination as to the payment of dividends on our common stock will be made by our
board of directors at its discretion, subject to the limitations contained in the credit agreement
and the rights of the holders of the preferred stock and will depend upon our earnings, financial
condition, capital requirements, and other relevant factors.
Securities Authorized for Issuance Under Equity Compensation Plans
See Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information under Item 12.
Stock Performance Graph
The following table compares the cumulative total stockholder return on our common stock with the
cumulative total return on the NASDAQ Composite Index and the NASDAQ Computer & Data Processing
Services Index, assuming an investment of $100 on January 31, 2005, through January 31, 2010, and
the reinvestment of any dividends. The comparisons in the graph below are based upon historical
data based upon closing sale prices on NASDAQ for our common stock for each day prior to the year
ended January 31, 2007 and the high and low closing bid quotations (as reported by the Pink Sheets)
for each day during the years ended January 31, 2008, January 31, 2009, and January 31, 2010 and
are not indicative of, nor intended to forecast, future performance of our common stock.
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
January 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verint Systems Inc. |
|
$ |
100.00 |
|
|
$ |
95.07 |
|
|
$ |
86.68 |
|
|
$ |
48.52 |
|
|
$ |
17.05 |
|
|
$ |
47.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Composite Index |
|
$ |
100.00 |
|
|
$ |
111.70 |
|
|
$ |
122.93 |
|
|
$ |
117.81 |
|
|
$ |
72.77 |
|
|
$ |
105.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Computer & Data
Processing Index |
|
$ |
100.00 |
|
|
$ |
111.06 |
|
|
$ |
124.19 |
|
|
$ |
126.82 |
|
|
$ |
78.06 |
|
|
$ |
120.88 |
|
Recent Sales of Unregistered Securities
Equity Grants
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.
53
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 since the beginning of the year ended January 31, 2010 (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:
|
|
|
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 since the beginning of
the year ended January 31, 2010 under a private placement exemption to directors, executive
officers, or other employees qualifying as accredited investors (with officer performance awards
included at target levels):
|
|
|
March 4, 2009 equity awards representing approximately 708,000 shares; |
|
|
|
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. For a more detailed discussion of equity granted to our executive officers, see
Executive Compensation Compensation Discussion and Analysis under Item 11.
54
Issuer Purchases of Equity Securities
All of the purchases in the table below reflect shares withheld upon vesting of restricted stock to
satisfy statutory minimum tax withholding obligations. The shares that were withheld were
deposited in our treasury and a corresponding cash payment was made by us to the tax authorities.
The table below only includes those months in which purchases were made (no purchases were made in
the months omitted from the table). Purchases subsequent to January 31, 2010, which are not
included in the table below, are as follows (repurchase prices correspond to the closing prices of
our common stock on the Pink Sheets on the relevant vesting dates (or the trading date immediately
preceding the vesting date)): March 17, 2010 (8,556 shares at $24.58 per share), April 12, 2010
(5,294 shares at $26.75 per share), April 13, 2010 (109,644 shares at $27.00 per share), and
May 16, 2010 (8,000 shares at $26.50 per share). From
time to time, we may also foreclose on shares of our common stock pledged to us by non-officer
employees as security for tax-related loans associated with equity vestings if the employee
defaults on his or her repayment obligations.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
(d) |
|
|
|
|
|
|
|
|
|
|
|
Total number of |
|
|
Maximum number (or |
|
|
|
(a) |
|
|
|
|
|
|
shares (or units) |
|
|
approximate dollar value) of |
|
|
|
Total number of |
|
|
(b) |
|
|
purchased as part of |
|
|
shares (or units) that may yet |
|
|
|
shares (or units) |
|
|
Average price paid |
|
|
publicly announced |
|
|
be purchased under the plans |
|
Period |
|
purchased |
|
|
per share (or unit) |
|
|
plans or programs |
|
|
or programs |
|
May 2009 |
|
|
8,000 |
|
|
$ |
6.20 |
|
|
|
8,000 |
(1) |
|
|
N/A |
(1) |
January 2010 |
|
|
2,913 |
|
|
$ |
19.00 |
|
|
|
2,913 |
(1) |
|
|
N/A |
(1) |
|
|
|
(1) |
|
On June 28, 2007, our board of directors approved a limited stock repurchase
program (the Director Repurchase Program) to enable us to automatically repurchase, upon vesting,
40% of the shares of restricted stock otherwise deliverable to the independent directors of our
board of directors (and such other directors as our board of directors may from time to time
designate) upon such vesting in order to enable these directors to make required tax payments. The
Director Repurchase Program is effective through the date we become compliant with our SEC
reporting obligations, however, on March 18, 2010, our board of directors approved an extension of
the program through (and including) May 16, 2010 to the extent that the program would otherwise
have ended at such time and either we do not have in place an effective registration statement
under which the directors may sell shares or the directors are subject to a Company-imposed trading
blackout. In addition, on November 24, 2009, our board of directors approved a limited
stock repurchase program (the Officer Repurchase Program) to enable us to offer to repurchase
from each executive officer the number of shares necessary to satisfy such officers minimum tax
withholding obligation in connection with equity vesting-related tax events that occur during a
company-imposed trading blackout. Our executive officers are not obligated to participate in the
Officer Repurchase Program, which is effective through the date we file our Annual Report on Form
10-K for the year ended January 31, 2010, and is not limited to a set number of shares. |
55
Item 6. Selected Financial Data
The following selected consolidated financial data has been derived from our audited consolidated
financial statements. This data below should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations under Item 7 and our consolidated
financial statements and notes thereto under Item 15.
Our historical results should not be viewed as indicative of results expected for any future
period.
Five-Year Selected Financial Highlights:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations Data |
|
|
|
Year Ended January 31, |
|
(in thousands, except per share data) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Revenue |
|
$ |
703,633 |
|
|
$ |
669,544 |
|
|
$ |
534,543 |
|
|
$ |
368,778 |
|
|
$ |
278,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
65,679 |
|
|
$ |
(15,026 |
) |
|
$ |
(114,630 |
) |
|
$ |
(47,253 |
) |
|
$ |
4,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
17,100 |
|
|
$ |
(78,577 |
) |
|
$ |
(197,545 |
) |
|
$ |
(39,598 |
) |
|
$ |
2,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
Verint Systems Inc. |
|
$ |
15,617 |
|
|
$ |
(80,388 |
) |
|
$ |
(198,609 |
) |
|
$ |
(40,519 |
) |
|
$ |
1,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to
Verint Systems Inc. common shares |
|
$ |
2,026 |
|
|
$ |
(93,452 |
) |
|
$ |
(207,290 |
) |
|
$ |
(40,519 |
) |
|
$ |
1,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
attributable to Verint Systems Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
$ |
(1.26 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.06 |
|
|
$ |
(2.88 |
) |
|
$ |
(6.43 |
) |
|
$ |
(1.26 |
) |
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
32,478 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
32,156 |
|
|
|
31,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
33,127 |
|
|
|
32,394 |
|
|
|
32,222 |
|
|
|
32,156 |
|
|
|
32,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have never declared a cash dividend to common stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data |
|
|
|
January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Total assets |
|
$ |
1,396,337 |
|
|
$ |
1,337,393 |
|
|
$ |
1,492,275 |
|
|
$ |
593,676 |
|
|
$ |
609,558 |
|
Long-term debt, including current
maturities |
|
|
620,912 |
|
|
|
625,000 |
|
|
|
610,000 |
|
|
|
1,058 |
|
|
|
1,325 |
|
Preferred stock |
|
|
285,542 |
|
|
|
285,542 |
|
|
|
293,663 |
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(14,567 |
) |
|
|
(76,070 |
) |
|
|
30,325 |
|
|
|
198,890 |
|
|
|
220,569 |
|
56
Certain financial data in these tables for years ended prior to January 31, 2010 has been adjusted
to reflect the adoption of a new accounting standard related to noncontrolling interests, as
further discussed in Note 1, Summary of Significant Accounting Policies to the consolidated
financial statements included in Item 15.
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.
(Mercom) in July 2006, and Witness in May 2007. The operating results of acquired businesses
have been included in our consolidated financial statements since their respective acquisition
dates and have contributed to our revenue growth. The May 2007 acquisition of Witness had
significant impacts to 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; |
57
|
|
|
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; |
|
|
|
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 a $19.2 million one-time settlement
charge related to our exit from a royalty-bearing program with the OCS.
58
Item 7. 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 under Item 1, Selected Financial Data
under Item 6, and the consolidated financial statements and the related notes thereto which appear
elsewhere in this report. This discussion contains a number of forward-looking statements, all of
which are based on our current expectations and all of which could be affected by uncertainties and
risks. Our actual results may differ materially from the results contemplated in these
forward-looking statements as a result of many factors including, but not limited to, those
described under Risk Factors under Item 1A.
Business Overview
Verint is a global leader in Actionable Intelligence® solutions and value-added services. Our
solutions enable organizations of all sizes to make 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 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 and investigative 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 years ended
January 31, 2010, 2009, and 2008, this segment represented approximately 53%, 53%, and 49% of our
total revenue, respectively.
59
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
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 years ended
January 31, 2010, 2009, and 2008, this segment represented approximately 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, financial crime investigation, Web intelligence, integrated video monitoring, 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 years ended January 31, 2010, 2009, and
2008, this segment represented approximately 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 Requirements.
60
Our Strategy
There are several elements to our strategy, including:
|
|
|
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 (such as telephone
conversations, video streams, email and Internet communications, etc.) to help them make
better decisions. We believe that traditional business intelligence solutions, which have
generally been designed for structured data stored in relational databases, cannot easily
analyze this unstructured information and that the market opportunity for Actionable
Intelligence solutions is still in its early stages. 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 investment in research and development and
to protect our intellectual property through patents and other means. We must continue to
be in regular dialog with our customer base in order to understand their business
objectives and requirements. |
|
|
|
Grow through acquisitions, in addition to organic growth. Companies in our markets
continue to consolidate, and we believe this trend will continue. 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 to do so in the
future when strategic opportunities arise. |
|
|
|
Expand our market presence through OEM and partner relationships. We offer our products
and solutions to customers both directly and indirectly. For our indirect sales, we have
expanded our relationships with OEMs and other channel partners. We believe these
relationships broaden our market coverage, particularly in the SMB portion of the market,
though in these arrangements, the partner has the primary relationship with the customer.
We believe this is an important part of our growth strategy and intend to expand existing
relationships while creating new relationships. |
61
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:
|
|
|
Completion of our outstanding SEC filings. Our extended filing delay status has limited
the information we have been able to provide to the public and other interested parties,
including customers, partners, and bank lenders. This has had an adverse impact upon
relationships with customers and resellers and, we believe, upon our business. |
|
|
|
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 ownership and capital structure constrains investment 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. We are
also limited in our ability to raise additional capital until such time that we have filed
certain additional late periodic reports. These limitations may impede our ability to
execute upon our business strategy. |
See also Risk Factors under Item 1A for a more complete description of these and other risks that
may impact future revenue and profitability.
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.
62
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.
63
Under the substantive renewal rate approach, we believe it is necessary to evaluate whether both
the support renewal rate and term are substantive, and whether the renewal rate is being
consistently applied to subsequent renewals for a particular customer. We establish VSOE under
this approach through analyzing the renewal rate stated in the customer agreement and
determining whether that rate is above the minimum substantive VSOE renewal rate established for
that particular PCS offering. The minimum substantive VSOE rate is determined based upon an
analysis of revenue associated with historical PCS contracts. Typically, renewal rates of 15% for
PCS plans that provide when-and-if-available upgrades, and 10% for plans that do not provide for
when-and-if-available upgrades, would be deemed to be minimum substantive renewal rates. For
contracts that do not contain a stated renewal rate, revenue associated with the entire bundled
arrangement is recognized ratably over the PCS term. Contracts that have a renewal rate below the
minimum substantive VSOE rate are deemed to contain a more than insignificant discount element, for
which VSOE cannot be established. We recognize revenue for these arrangements over the period that
the customer is entitled to renew their PCS at the discounted rate, but not to exceed the estimated
economic life of the product. 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.
64
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
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.
65
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 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.
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.
66
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, market approach, and
comparable public company 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
approach, (e) required level of working capital, (f) assumed terminal value, and (g) time horizon
of cash flow forecasts.
67
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-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 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
current 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.
68
We evaluate the realizability of our deferred tax assets for each jurisdiction in which we operate
at each reporting date, 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 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.
69
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 report), 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
During the years ended January 31, 2010 and 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. In the year ended January 31, 2008 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 this report, 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.
Over the last three years, 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).
70
Video Intelligence Segment
During 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.
Over the last three years, 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
Certain Communications Intelligence contracts include professional services, for which VSOE 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 is deferred accordingly.
Over the last three years, 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.
71
Results of Operations
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, EMEA, and APAC regions 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.
72
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 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 where we do business
(primarily the British Pound, 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.
73
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 the APAC region, 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 regions 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 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 consolidated financial statements included in Item 15.
74
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 where we do business (weakened
versus the Euro and Israeli Shekel and strengthened versus the British Pound 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, 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.
75
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
76
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 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.
77
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
consolidated financial statements included in Item 15.
The following table sets forth revenue for products and service and support for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
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.
78
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 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 and backlog, for the years ended January
31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
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 and backlog |
|
|
8,021 |
|
|
|
9,024 |
|
|
|
8,018 |
|
|
|
(11 |
%) |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
$ |
239,935 |
|
|
$ |
258,250 |
|
|
$ |
230,042 |
|
|
|
(7 |
%) |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
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
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.
80
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 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 and Backlog
Year Ended January 31, 2010 compared to Year Ended January 31, 2009. Amortization and impairment
of acquired technology and backlog 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 in which some of our intangible assets are denominated.
81
Year Ended January 31, 2009 compared to Year Ended January 31, 2008. Amortization and impairment
of acquired technology and backlog 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
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.
82
The following table sets forth selling, general and administrative expense for the years ended
January 31, 2010, 2009, and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
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.
83
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Amortization of
other acquired
intangible assets |
|
$ |
22,268 |
|
|
$ |
25,249 |
|
|
$ |
19,668 |
|
|
|
(12 |
%) |
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 |
|
|
|
|
|
|
|
|
|
|
|
84
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 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. 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 flow. See Note 5, Intangible Assets and Goodwill to the consolidated
financial statements included in Item 15.
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 consolidated financial statements included in Item 15.
85
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.
86
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
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,
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, Euro and Israeli Shekel.
87
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 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. 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 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
auction rate securities (ARS) with a carrying value of $2.3 million, were repurchased by our
broker at the value equal to the 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 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. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change |
|
|
|
Year Ended January 31, |
|
|
2010 - |
|
|
2009 - |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Provision for income taxes |
|
$ |
7,108 |
|
|
$ |
19,671 |
|
|
$ |
27,729 |
|
|
|
(64 |
%) |
|
|
(29 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
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
consolidated financial statements included in Item 15.
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 we continued to
record valuation allowances against our U.S. deferred tax assets resulting in no tax benefit being
recorded in the current 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.
89
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, we borrowed $650.0
million under a new term loan facility ($40.0 million of which was prepaid
during the year ended January 31, 2008) and received $293.0 million through the issuance of
preferred stock to finance a significant portion of the Witness acquisition. We also have a $15.0
million revolving line of credit, which we initially borrowed against on November 24, 2008, and
this borrowing remains outstanding as of the date of this report. See - Liquidity and Capital
Resources Requirements below for additional information regarding our credit agreement. 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.
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.
90
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 |
|
|
|
|
|
|
|
|
|
|
|
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.
During the year ended January 31, 2010, we generated $100.8 million in cash from operating
activities. This $100.8 million in cash from operating activities was due to net income of $17.1
million, non-cash items of $97.4 million, primarily depreciation and amortization, stock-based
compensation, and non-cash losses on derivative financial instruments, lower deferred cost of
revenue of $14.1 million, and higher accounts payable and accrued expenses of $12.9 million. These
increases were partially offset by lower deferred revenue of $21.1 million, higher accounts
receivable of $13.9 million, and higher prepaid expenses and other assets of $11.5 million.
During the year ended January 31, 2009, we generated $53.6 million in cash from operating
activities. This $53.6 million cash from operating activities was due to non-cash items of $142.0
million, primarily depreciation and amortization, stock-based compensation, impairment of assets,
provision for deferred income taxes, and non-cash losses on derivative financial instruments, lower
deferred cost of revenue of $12.2 million, and lower prepaid expenses and other assets of $8.9
million. These increases were partially offset by a net loss of $78.6 million, lower accounts
payable and accrued expenses of $10.8 million, and lower deferred revenue of $7.3 million.
91
During the year ended January 31, 2008, we used $0.3 million in cash in operating activities. The
cash used consisted primarily of a net loss of $197.5 million and increased accounts receivable of
$20.2 million due to higher revenue. This was partially offset by non-cash items of $159.8
million, primarily depreciation and amortization, deferred income taxes, stock-based compensation,
impairment of assets, and non-cash losses on derivative financial instruments, increased deferred
revenue of $25.1 million, lower prepaid expenses and other assets of $14.0 million, lower deferred
cost of revenue of $5.6 million, and higher accounts payable and accrued expenses of $8.5 million.
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.
Currently, we have no significant commitments for capital expenditures.
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.
92
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 including
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 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 services
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 through January 31, 2005
and our extended filing delay status. We expect that we will continue to incur significant
professional fees and costs in the first half of 2010. 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 $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. As of January 31,
2010, our outstanding term loan balance was $605.9 million. The original $25.0 million revolving
credit facility was reduced to $15.0 million in September 2008 due to the bankruptcy of Lehman
Brothers and the termination of its commitment under the credit agreement. We borrowed the entire
$15.0 million available to us in November 2008 and currently have no remaining balance available to
us. We have made no payments during the year ended January 31, 2010 on the revolving credit
facility. The term loan matures on May 25, 2014 and the revolving credit facility matures on May
25, 2013.
The credit agreement requires mandatory prepayments from the proceeds of certain asset sales,
excess cash flow as defined by the agreement and proceeds of indebtedness as well as quarterly
principal repayments. Any re-borrowings under the revolving credit facility are dependent upon
certain conditions including the absence of any material adverse effect or change on our business,
as defined in the credit agreement.
93
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
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, 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, the consolidated leverage ratio could not exceed 5.50:1 for the quarterly period
ended January 31, 2008, and we were in compliance with such requirement as of
such date. For the quarterly periods ended April 30, July 31, and October 31, 2008, the
consolidated leverage ratio could not exceed 5.50:1 and we were in compliance with such requirement
as of such dates. 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 we were in compliance with such requirement
as of such dates. For the quarterly periods ended
January 31, April 30, July 31, and October 31, 2010, the consolidated leverage ratio cannot exceed
3.50:1. As of January 31, 2010, we were in compliance with such requirement. For the quarterly
periods ended January 31, April 30, July 31, and October 31, 2011, the consolidated leverage ratio
cannot exceed 2.50:1. For the quarterly period ended January 31, 2012 and thereafter, the
consolidated leverage ratio cannot exceed 2.00:1.
Because our revenue recognition review resulted in changes in the way we recognize revenue from the
way we did so at the time the credit agreement was put in place, it may be more difficult for us to
maintain compliance with our leverage ratio covenant on a prospective basis than we expected at the
time we entered into the credit agreement since the leverage ratio covenant is based on EBITDA,
which is affected by revenue.
Based on our current expectations, we intend to reduce our outstanding debt by the end of the
quarterly period ending January 31, 2011 in order to maintain compliance with the consolidated
leverage ratio covenant using available cash or cash raised from financing activities.
Alternatively, we may pursue an acquisition that is accretive to our earnings. There can be no
assurance that we will be successful with any such financing activities or in pursuing such an
acquisition.
In addition, we are subject to a number of restrictive covenants, 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
sale and leasebacks, enter new lines of business, provide negative pledges, enter into transactions
with related parties, and enter into any speculative hedges, although there are limited exceptions
to these covenants. The credit 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. 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. On April 27, 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 from May 1, 2010 to June 1, 2010. In consideration for this
amendment, we paid approximately $0.9 million.
Effective on February 25, 2008, our applicable borrowing margin increased by 0.25%, pursuant to the
terms of the facility, because we did not provide certain audited financial statements to our
lenders. Additionally, on August 25, 2008, the applicable margins increased another 0.25%, or
0.50% in total, since we did not deliver audited financial statements to our lenders.
See Risk Factors We have incurred significant indebtedness as a result of the acquisition of
Witness, which makes us highly leveraged, subjects us to restrictive covenants, and could adversely
affect our operations under Item 1A.
94
If we are unable to comply with any of the requirements in the credit agreement, an event of
default could occur which could cause or permit holders of the debt 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 of the debt on reasonable terms, or at all.
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 consolidated
financial statements included in Item 15. 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.
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.
95
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 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 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.
Subsequent Events
The following summarizes significant developments since January 31, 2010.
Acquisition of Iontas
On February 4, 2010, our wholly owned subsidiary, Verint Americas, acquired all of the outstanding
shares of Iontas, a privately held provider of desktop analytics solutions. Iontas solutions
measure application usage and analyze workflows to help improve staff performance in contact
center, branch, and back-office operations environments. Iontas desktop analytics
solutions will be tightly integrated into our Impact 360® Workforce Optimization suite. We
acquired Iontas for approximately $15.2 million in cash (net of cash and net assets acquired) and
potential additional earn-out payments tied to certain targets being achieved over a two-year
period.
96
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 also were the subject of our internal
investigation. On March 3, 2010, the SEC filed a settled enforcement action 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 file our periodic reports under the Exchange Act. On
March 3, 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. 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.
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. 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.
97
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 consolidated financial statements
included in Item 15.
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:
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|
|
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
was 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. |
98
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 consolidated financial statements included in Item 15.
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.
99
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.
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.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial condition due to adverse
changes in financial market prices and rates. We are exposed to market risk related to changes in
interest rates and foreign currency exchange rate fluctuations. To manage the volatility relating
to interest rate and foreign currency risks, we periodically enter into derivative instruments
including foreign currency forward exchange contracts and interest rate swap agreements. It is our
policy to enter into derivative transactions only to the extent considered necessary to meet our
risk management objectives. We use derivative instruments solely to reduce the financial impact of
these risks and do not use derivative instruments for trading purposes.
100
Credit Agreement
On May 25, 2007, to partially finance the acquisition of Witness, we entered into a $675.0 million
secured financing arrangement comprised of a seven-year $650.0 million term loan facility and a
six-year $25.0 million revolving credit facility (the facilities). As of January 31, 2010, we
had $605.9 million outstanding under the term loan. The $25.0 million revolving credit facility
was subsequently reduced to $15.0 million due to the bankruptcy of Lehman Brothers and in November
2008, we borrowed the full $15.0 million under the facility, which remained outstanding as of
January 31, 2010.
Borrowings under the facilities bear interest at a rate of, at our election, (a) 1.75% plus the
higher of (i) prime rate and (ii) the federal funds rate plus 0.50% or (b) 2.75% over the London
Interbank Offered Rate, or LIBOR. In the case of the former, 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. Effective on February 25, 2008, our applicable margins indicated
above increased by 0.25%, pursuant to the terms of the facility, because we did not provide certain
audited financial statements to our lenders. Additionally, on August 25, 2008 the applicable
margins increased another 0.25%, or 0.50% in total, since we did not deliver audited financial
statements to our lenders. We have now delivered the audited financial statements for the year
ended January 31, 2010 to our lenders and after receipt of appropriate credit ratings from Standard
& Poors and Moodys Investor Services, the applicable margins described above will be determined by
reference to our credit ratings, and will range from 1.00% to 1.75% in the case of prime rate (or
federal funds) based borrowings, and from 2.00% to 2.75% for LIBOR-based borrowings.
Interest Rate Risk on Our Debt
Because the interest rates applicable to borrowings under the facilities 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 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 that were outstanding
under the term loan, the interest rate on $450.0 million of such borrowings was substantially fixed
by utilization of the interest rate swap. Interest on the remaining $155.9 million was variable.
If the market interest rates for one or three-month LIBOR changed by 1.00% as of January 31, 2010,
the annual interest expense on these borrowings would change by approximately $1.6 million.
This interest rate swap is not designated as a hedging instrument under applicable accounting
guidance and is 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 year ended January
31, 2010, we recorded losses on this instrument of approximately $13.6 million in other
income (expense), net on the consolidated statements of operations. These losses reflect the
decline in market interest rates during the year ended January 31, 2010.
101
The counterparty to our interest rate swap is a multinational financial institution. Despite the
recent disruption in the global financial markets, we believe the risk of this counterpartys
nonperformance of its obligations is not material. Currently and for the expected remaining term
of the agreement, the swap is in the counterpartys favor and not ours, so we do not expect to have
counterparty risk as a result of the significant decline in interest rates since first quarter
2008.
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 January 31, 2010, we had cash and cash equivalents totaling approximately $184.3 million,
consisting of demand deposits and bank time deposits having maturities of three months or less. We
also held $5.2 million of cash equivalents which were restricted for purposes of securing certain
short-term performance obligations, and were not available for general operating use.
As of January 31, 2009, we had cash and cash equivalents totaling approximately $115.9 million,
consisting of demand deposits and bank time deposits having maturities of three months or less. We
also held $7.7 million of cash equivalents which were restricted for purposes of securing certain
short-term performance obligations, and were not available for general operating use.
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
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 consolidated financial statements included in
Item 15 for more information regarding our short-term investments.
102
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. 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 conduct business.
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 $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 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 years ended January 31, 2010, 2009, and 2008, we realized net losses of $2.6 million,
$2.1 million and net gains of $1.8 million, respectively, on settlements of foreign currency
forward contracts not designated as hedges. 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.
103
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.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are set forth at the pages
indicated at Item 15(a).
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9a. Controls and Procedures
The information contained in this section covers managements evaluation of our disclosure controls
and procedures and our assessment of our internal control over financial reporting as of January
31, 2010.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures, as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of January 31, 2010.
Disclosure controls and procedures are those controls and other procedures that are designed to
ensure that information required to be disclosed in reports filed or submitted under the Exchange
Act is recorded, processed, summarized, and reported, within the time periods specified by the
rules and forms promulgated by the SEC. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. As a result of this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were not effective as of January 31, 2010 because of the material
weaknesses set forth below.
104
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our
system of internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated
financial statements for external reporting purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect every misstatement. An evaluation of effectiveness is subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of compliance with
policies or procedures may decrease over time.
Our internal control over financial reporting includes those policies and procedures that (a)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (b) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial statements in accordance with
GAAP, and that our receipts and expenditures are being made only in accordance with authorizations
of our management and directors; and (c) provide reasonable assurance regarding prevention or
timely detection of unauthorized use, acquisition, or disposition of our assets that could have a
material effect on the consolidated financial statements.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our internal control over financial reporting as of January 31,
2010. In making this assessment, we utilized the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework.
A material weakness is a deficiency, or a 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 this evaluation, we concluded that our internal control over financial reporting was not
effective as of January 31, 2010 because of the material weaknesses set forth below.
We have made significant progress implementing new control activities related to monitoring,
financial reporting and revenue and cost of revenue discussed below under Changes in Internal
Control Over Financial Reporting Remediation Activities. However, not all ineffective control
activities identified in our evaluation of internal control over financial reporting as of January 31, 2009 had been remediated as of January 31, 2010 and certain controls had not operated
effectively for a sufficient period of time to allow us to conclude that the material weaknesses
had been remediated. Therefore, we concluded that there were material weaknesses in our control activities over monitoring, financial reporting and revenue
and cost of revenue as of January 31, 2010.
In addition, while we believe that the design of the control activities for income taxes discussed
below under Changes in Internal Control Over Financial Reporting Remediation Activities are
effective, the controls had not been operating effectively for a sufficient period of time to allow
us to conclude that the material weakness had been remediated. Therefore, the identified income
tax related material weakness still exists as of January 31, 2010.
105
The following is a summary of our material weaknesses as of January 31, 2010:
Effective monitoring enables a company to determine whether internal control over financial
reporting is present and functioning. We did not design adequate monitoring controls related to
our subsidiaries, such that we could not be assured that a material misstatement of financial
results would be prevented or detected on a timely basis.
We did not maintain effective controls over the period-end financial close and reporting
processes in relation to the consolidation of our subsidiaries financial statements and our
monitoring of non-routine and complex accounting matters. Due to the actual and potential
errors on financial statement balances and disclosures, management has concluded that these
deficiencies in internal controls over the period-end financial close and reporting processes
constituted a material weakness in internal control over financial reporting.
|
|
|
Revenue and Cost of Revenue |
We did not maintain effective internal controls over order management, contract management,
master file monitoring, issuance of credit memos and policies and procedures to ensure effective
controls over accounts receivable and the recognition of revenue, deferred revenue and cost of
revenue in accordance with GAAP, which could have resulted in material errors in accounts
receivable and the recognition of revenue and related cost of revenue. While remediation
efforts occurred in the following areas, not all areas were completely remediated or the
controls designed were not operating effectively for a sufficient period of time to be deemed
effective as of January 31, 2010. Specifically:
|
a) |
|
we lacked sufficient personnel with appropriate knowledge, experience and training in
the complexities of current GAAP related to software revenue recognition; |
|
b) |
|
we did not establish adequate procedures or effective controls to determine VSOE for
installation, training services, or certain post-contract customer support agreements; |
|
c) |
|
we did not establish adequate review procedures or effective controls to determine
proper accounting treatment for multiple element sales arrangements; |
|
d) |
|
we did not establish adequate procedures or effective controls to ensure that all
elements included in a multiple element arrangement were timely identified and measured
including establishment of VSOE of fair value for undelivered elements; |
|
e) |
|
we did not establish adequate procedures or effective controls to identify the nature
of projects, capture the necessary data, and determine the appropriate accounting treatment
for arrangements subject to contract accounting; |
106
|
f) |
|
we did not establish or maintain appropriate policies and procedures to identify,
capitalize, and amortize product costs associated with revenue arrangements; |
|
g) |
|
we did not establish adequate procedures or effective controls to identify sufficient
evidence of customer delivery and acceptance; and |
|
h) |
|
we lacked consistent communication and coordination between and among the various
finance and non-finance organizations across the company on the scope and terms of customer
arrangements, including the proper identification of all undelivered contractual
obligations that impacted revenue recognition. |
We did not maintain adequate policies and procedures and related internal controls or employ
adequate resources with sufficient technical expertise in the area of accounting for income
taxes for a sufficient period of time to ensure the completeness, accuracy, and timely
preparation and review of our consolidated income tax provision, related account balances, and
disclosures sufficient to prevent a material misstatement of related account balances.
Our independent registered public accounting firm, Deloitte & Touche LLP, expressed an adverse
opinion on our internal control over financial reporting because of the material weaknesses
described above.
Changes in Internal Control Over Financial Reporting
Our management performed extensive procedures designed to ensure the reliability of our financial
reporting. In addition to other internal processes undertaken, procedures performed included, but
were not limited to the following actions: (a) dedicating significant resources, including the
engagement of subject matter specialists, to support management in its efforts to complete our
financial filings, (b) expending substantial resources in response to the findings of the Comverse
investigation relating to stock based compensation errors associated with stock option grants
issued to Verint employees previously employed by Comverse, and (c) performing extensive
substantive reviews of our revenue recognition, income and expense classification, and tax
provisions. Based on these procedures, we have concluded that the consolidated financial
statements included in this report fairly present, in all material respects, our financial
position, results of operations, and cash flows for the interim and annual periods for the years
ended January 31, 2010, 2009 and 2008.
As discussed below under Remediation Activities, there have been changes in our internal control
over financial reporting identified as part of our evaluation that occurred during the three months
ended January 31, 2010 that have materially affected our internal control over financial reporting.
107
Remediation Activities
During the year ended January 31, 2010, we evaluated the remedial actions to address our previously
disclosed material weaknesses in internal control over financial reporting. As a result of the
actions described below, our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, concluded that we have remediated the material weaknesses related to risk
assessment and equity compensation and are still in the process of remediating the material
weaknesses noted above in Managements Report on Internal Control Over Financial Reporting.
Discussed below are our remediation efforts from February 1, 2009 through January 31, 2010, as well
as changes made to our internal control over financial reporting from February 1, 2010 through the
date of this report.
Risk Assessment
As of January 31, 2009, we failed to perform an adequate global risk assessment to identify all
material locations, balances, and related fraud risks when evaluating our internal control over
financial reporting and therefore, we did not maintain an effective process to identify, analyze,
and manage risks associated with financial reporting and anti-fraud programs and controls. In
response to this material weakness, we have, among other things, appointed a Chief Compliance
Officer establishing a robust world-wide compliance program, performed a detailed global scoping
and risk assessment analysis for the year ended January 31, 2010 in order to identify all material
locations, and conducted a global fraud risk assessment and IT risk assessment with the assistance
of third party specialists.
Equity Compensation
As of January 31, 2009, we did not maintain adequate policies and procedures to ensure effective
controls over the administration, accounting, and disclosure for stock-based compensation
sufficient to prevent a material misstatement of related compensation expense. In response to this
material weakness, we engaged a large global public accounting firm to act as an external subject
matter expert with respect to the accounting for and disclosure of stock-based compensation related
matters, including providing additional training in the related accounting guidance and accounting assistance.
We also centralized responsibility for the administration of stock-based compensation within the purview of
the Senior VP and Corporate Controller. In addition, sufficient procedures were developed and
implemented, which resulted in the proper recognition and disclosure of our stock based
compensation expense as of January 31, 2010.
108
Financial Reporting
Due to a lack of adequate systems, processes, and resources with sufficient GAAP knowledge,
experience, and training, we concluded that we did not maintain effective controls over the
period-end financial close and reporting processes as of January 31, 2009. The specific
deficiencies contributing to this material weakness related to inadequate policies and procedures,
ineffective procedures and controls over journal entries, accruals and reserves, and account
reconciliations, inadequate segregation of duties, deficiencies in end-user computing controls of
critical spreadsheets, and inadequate controls over our property and equipment process. We have
subsequently implemented changes and improvements in our internal control over financial reporting,
including the following:
|
|
|
formalization and communication of our critical accounting policies and procedures to
ensure worldwide compliance with GAAP; |
|
|
|
implementation of improved journal entry procedures; |
|
|
|
implementation of rigorous policies and procedures related to accounts requiring
management estimates, as well as other complex areas, which include multiple levels of
review; |
|
|
|
implementation of policies and procedures designed to ensure reconciliations were
accurate in all material respects, completed in a timely manner, and properly reviewed by
management; |
|
|
|
policy implementation over access to our financial applications as well as procedures
designed to ensure adequate segregation of duties; |
|
|
|
establishment of end user computing policy and guidelines for managing the use of
critical financial reporting spreadsheets to reduce the risk of financial reporting errors; |
|
|
|
enhancement of procedures related to the classification and selection of consistent
useful lives formally documented in our fixed and long-lived assets global policy; |
|
|
|
appointed a VP of Global Accounting to help ensure accurate consistent application of
GAAP; and |
|
|
|
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. |
Monitoring
In order to adequately monitor our subsidiaries and be assured that a material misstatement of our
financial results would be prevented or detected on a timely basis, we have designed and are
completing our implementation of analytical procedures to review the financial results at each of
our subsidiary locations on a regular basis.
109
Revenue and Cost of Revenue
The following remedial efforts have been completed with respect to the remediation of our material
weakness in internal control over financial reporting related to revenue and cost of revenue:
|
|
|
we have expended substantial resources and have 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. It is expected that these investments will
improve the reliability of our financial reporting by reducing the need for manual
processes, reducing the chance for errors and omissions and thereby decrease our reliance
on manual controls to detect and correct accounting and financial reporting inaccuracies;
and |
|
|
|
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. |
110
Income Taxes
Management made substantial changes in an effort to remediate the material weakness related to
Income Taxes as of January 31, 2010, including the following:
|
|
|
established a corporate tax department in the first quarter of the year ended January
31, 2009, 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. |
111
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Verint Systems Inc.
Melville, New York
We have audited Verint Systems Inc.s and subsidiaries (the Companys) internal control over
financial reporting as of January 31, 2010, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on that risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
112
A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the companys annual or interim financial statements will not be prevented or detected on a timely
basis. The following material weaknesses have been identified and included in managements
assessment:
1. Monitoring
The Company did not design adequate monitoring controls related to their subsidiaries, such that
the Company could not be assured that a material misstatement of financial results would be
prevented or detected on a timely basis.
2. Financial Reporting
The Company did not maintain effective controls over the period-end financial close and
reporting processes in relation to the consolidation of its subsidiaries financial statements
and its monitoring of non-routine and complex accounting matters.
3. Revenue and Cost of Revenue
The Company did not maintain effective internal controls over order management, contract
management, master file monitoring, issuance of credit memos and policies and procedures to
ensure effective controls over accounts receivable and the recognition of revenue, deferred
revenue and cost of revenue in accordance with accounting principles generally accepted in the
United States of America (US GAAP), which could have resulted in material errors in accounts
receivable and the recognition of revenue and related cost of revenue. Specifically:
|
a) |
|
The Company lacked sufficient personnel with appropriate knowledge, experience and
training in the complexities of current US GAAP related to software revenue recognition; |
|
b) |
|
The Company did not establish adequate procedures or effective controls to determine
vendor specific objective evidence (VSOE) of fair value for installation, training
services, or certain post-contract customer support agreements; |
|
c) |
|
The Company did not establish adequate review procedures or effective controls to
determine proper accounting treatment for multiple element sales arrangements; |
|
d) |
|
The Company did not establish adequate procedures or effective controls to ensure that
all elements included in a multiple element arrangement were timely identified and measured
including establishment of VSOE of fair value for undelivered elements; |
|
e) |
|
The Company did not establish adequate procedures or effective controls to identify the
nature of projects, capture the necessary data, and determine the appropriate accounting
treatment for arrangements subject to contract accounting; |
113
|
f) |
|
The Company did not establish or maintain appropriate policies and procedures to
identify, capitalize, and amortize product costs associated with revenue arrangements; |
|
g) |
|
The Company did not establish adequate procedures or effective controls to identify
sufficient evidence of customer delivery and acceptance; and |
|
h) |
|
The Company lacked consistent communication and coordination between and among the
various finance and non-finance organizations across the Company on the scope and terms of
customer arrangements, including the proper identification of all undelivered contractual
obligations that impacted revenue recognition. |
4. Income Taxes
The Company did not maintain adequate policies and procedures and related internal controls or employ adequate resources with
sufficient technical expertise in the area of accounting for income taxes to ensure the completeness, accuracy, and
timely preparation and review of their consolidated income tax provision, related account
balances, and disclosures sufficient to prevent a material misstatement of related account
balances.
These material weaknesses were considered in determining the nature, timing, and extent of audit
tests applied in our audit of the consolidated financial statements of the Company as of and for
the year ended January 31, 2010, and this report does not affect our report on such financial
statements.
In our opinion, because of the effect of the material weaknesses identified above on the
achievement of the objectives of the control criteria, the Company has not maintained effective
internal control over financial reporting as of January 31, 2010, based on the criteria established
in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of the years ended January 31, 2010
and 2009 and for each of the three years in the period ended January 31, 2010, of the Company and
our report dated May 18, 2010, expressed an unqualified opinion on those financial statements
and includes an explanatory paragraph regarding the Companys
adoption of new accounting guidance for the reporting and disclosure
of noncontrolling interests.
/s/ DELOITTE & TOUCHE LLP
New York, New York
May 18, 2010
114
Item 9b. Other Information
Not applicable.
115
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Current Executive Officers and Directors
The following lists our current executive officers and directors as of the date of this report.
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 report, two
vacancies remain on the board of directors.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Dan Bodner
|
|
|
51 |
|
|
President, Chief Executive Officer, Corporate
Officer, and Director |
|
|
|
|
|
|
|
Peter D. Fante
|
|
|
42 |
|
|
Chief Legal Officer, Chief Compliance
Officer, Secretary, and Corporate Officer |
|
|
|
|
|
|
|
Elan Moriah
|
|
|
47 |
|
|
President, Verint Witness Actionable
Solutions and Verint Video Intelligence
Solutions and Corporate Officer |
|
|
|
|
|
|
|
David Parcell
|
|
|
56 |
|
|
Managing Director, EMEA and Corporate Officer |
|
|
|
|
|
|
|
Douglas E. Robinson
|
|
|
53 |
|
|
Chief Financial Officer and Corporate Officer |
|
|
|
|
|
|
|
Meir Sperling
|
|
|
61 |
|
|
President, Verint Communications Intelligence
and Investigative Solutions and Corporate
Officer |
|
|
|
|
|
|
|
Paul D. Baker
|
|
|
51 |
|
|
Director |
|
|
|
|
|
|
|
John Bunyan
|
|
|
57 |
|
|
Director |
|
|
|
|
|
|
|
Andre Dahan
|
|
|
61 |
|
|
Chairman of the Board |
|
|
|
|
|
|
|
Victor A. DeMarines
|
|
|
73 |
|
|
Director |
|
|
|
|
|
|
|
Kenneth A. Minihan
|
|
|
66 |
|
|
Director |
|
|
|
|
|
|
|
Larry Myers
|
|
|
71 |
|
|
Director |
|
|
|
|
|
|
|
Howard Safir
|
|
|
68 |
|
|
Director |
|
|
|
|
|
|
|
Shefali Shah
|
|
|
38 |
|
|
Director |
|
|
|
|
|
|
|
Stephen Swad
|
|
|
48 |
|
|
Director |
|
|
|
|
|
|
|
Lauren Wright
|
|
|
56 |
|
|
Director |
116
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 as our Chief
Executive Officer, intimate knowledge of our operations, assets, customers, growth strategies,
competitors, industry make-up and 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 public company and former operating subsidiary of
Comverse. 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 public company and former operating subsidiary of Comverse, 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. (now NCR), 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
public company and former operating subsidiary of Comverse, Starhome, B.V., also a Comverse
majority-owned company and a global 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.
117
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.
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 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.
118
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. 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. 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 public company and
former operating subsidiary of Comverse, and Starhome, B.V., a Comverse majority-owned subsidiary
and a global provider of mobile roaming technology and services as well as numerous other wholly
owned subsidiaries of Comverse. Ms.
Shah was nominated by 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.
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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 June 2009. Prior to joining Comverse,
Mr. Swad served as Chief Financial Officer at Federal National Mortgage Association (Fannie Mae)
from August 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, 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, 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.
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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 Vice President of EMEA
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 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
Although our common stock is not currently listed on NASDAQ, we have endeavored to continue to
operate during our extended filing delay period in accordance with NASDAQ rules. To that end, the
board of directors has determined that Messrs. DeMarines, Minihan, Myers, and Safir are
independent for purposes of NASDAQs amended 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.
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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 previously were, and if
our common stock was listed on NASDAQ, would continue to be 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 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 report, 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.
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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 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 amended
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 Certain Relationships and Related Transactions, and
Director Independence Comverse Preferred Stock Financing Agreements under Item 13 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, Ms. Shah, and Ms. 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 function was
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. 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.
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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.
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 has an active role, as a whole, and in particular the audit committee of the
board of directors, in overseeing 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 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 Item 11. 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.
Codes of Business Conduct and Ethics
Codes of Business Conduct and Ethics
The board of directors has adopted a Code of Business Conduct and Ethics for Senior Officers to
promote our commitment to the legal and ethical conduct of our business. The Chief Executive
Officer, Chief Financial Officer, and other senior officers are required to abide by the code. We
intend to disclose on our website any amendment to, or waiver from, a provision of the code that
applies to our Chief Executive Officer, Chief Financial Officer, or principal accounting officer
that relates to any elements of the code of ethics.
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On March 19, 2009, we adopted an amended and restated Code of Conduct: Ethics Promote Excellence
that replaced our Employee Code of Conduct and Ethics which was adopted in 2003. The new code
applies to all executive officers, directors, and employees of the Company. A copy of the amended
code was filed as an exhibit to a Current Report on Form 8-K filed with the SEC on March 24, 2009.
The amended code can also be found on our website at www.verint.com under the Investor Relations
tab. A copy of the Code of Conduct and Ethics for Senior Officers is also posted on our website
under the Investor Relations tab. We will provide a copy of these codes of ethics to any person
without charge, upon request. Requests may be made by writing or telephoning us at the following
address:
Verint Systems Inc.
330 South Service Road
Melville, NY 11747 USA
(631) 962-9600
Attn: Corporate Secretary
Ethics Hot Line
We have a hot line, managed by a third party, that gives employees and our other stakeholders a way
to confidentially and anonymously report any actual or perceived unethical behavior or violations
or suspected violations of our Codes of Conduct. Information regarding our hot line can be found
on our website at www.verint.com under the Investor Relations tab.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who
beneficially own more than 10% of a registered class of our equity securities to file initial
reports of ownership on Form 3 and reports of changes in ownership on Forms 4 or 5 with the SEC.
Such officers, directors, and 10% stockholders also are required by SEC rules to furnish us with
copies of all Section 16(a) reports they file.
Based solely on review of the copies of such reports furnished to us, or written representations
that no reports were required, we believe that during the year ended January 31, 2010, our
directors, executive officers, and 10% stockholders complied with all filing requirements except
that:
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an untimely Form 4 was filed by Messrs. DeMarines, Minihan, Myers, and Safir on May 20,
2009; and |
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an untimely Form 4 was filed by Messrs. Fante, Moriah and Parcell on February 8, 2010. |
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Item 11. 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:
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Dan Bodner, President and Chief Executive Officer and Corporate Officer |
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Douglas Robinson, Chief Financial Officer and Corporate Officer |
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Elan Moriah, President, Verint Witness Actionable Solutions and Verint Video
Intelligence Solutions and Corporate Officer |
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Meir Sperling, President, Verint Communications Intelligence and Investigative Solutions
and Corporate Officer |
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David Parcell, Managing Director, EMEA and Corporate Officer |
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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 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:
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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; |
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incentivize our executive officers to execute on our operational and strategic goals and
reward the successful achievement of such goals; and |
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align the interests of our officers with those of our stockholders. |
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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.
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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, 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. 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 on each
proposed executive officer compensation package. 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 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.
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:
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Take-Two Interactive Software, Inc., |
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Quest Software, Inc., and |
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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:
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the officers compensation for the previous year; |
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the officers performance in the previous year; |
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our performance in the previous year; |
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our growth from the previous year; |
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our outlook, budget, and cash forecast for the upcoming year; |
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the proposed packages for the other executive officers (internal pay equity); |
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the proposed merit increases, if any, being offered to our employees generally; |
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equity dilution and burn rates; |
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the value of previously awarded equity grants; |
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executive officer recruiting and retention considerations; and |
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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
also 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.
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.
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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) approved by
the compensation committee. 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 operating budget and our compensation performance goals, subject to any additional adjustments
the compensation committee may deem appropriate in a particular period:
131
|
|
|
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. |
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.
132
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
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.
133
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.
|
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Max % |
|
|
Target Bonus |
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|
|
|
Calculated |
|
|
Calculated Payout |
|
|
Actual |
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|
|
Bonus |
|
|
% of |
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|
|
Calculated Achievement Against |
|
Payout |
|
|
Amount (Prior to |
|
|
Payout |
|
Name |
|
Description of Bonus Plan |
|
Pool |
|
|
Bonus Pool |
|
|
$ |
|
|
Performance Goals |
|
Percentage |
|
|
Adjustments) |
|
|
Amount(1) |
|
Bodner |
|
Bonus based 40% on |
|
|
41.39 |
% |
|
|
12.5 |
% |
|
$ |
600,000 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
897,150 |
|
|
$ |
780,072 |
|
|
|
company revenue, 40% on |
|
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|
|
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|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
company operating |
|
|
|
|
|
|
|
|
|
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|
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|
DSO: 111% |
|
|
140.0 |
% |
|
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|
|
|
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|
|
income, 10% on DSO, and |
|
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|
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|
|
|
|
|
MBO: 80% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
|
|
10% on MBOs. |
|
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|
|
|
|
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|
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|
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|
|
|
|
|
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|
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|
Robinson |
|
Bonus based 40% on |
|
|
14.65 |
% |
|
|
4.4 |
% |
|
$ |
212,400 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
317,591 |
|
|
$ |
276,145 |
|
|
|
company revenue, 40% on |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
company operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
income, 10% on DSO, and |
|
|
|
|
|
|
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|
|
|
|
|
|
MBO: 80% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
|
|
10% on MBOs. |
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
Moriah |
|
Bonus based 40% on |
|
|
14.65 |
% |
|
|
4.4 |
% |
|
$ |
212,400 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
321,839 |
|
|
$ |
276,170 |
|
|
|
company revenue, 40% on |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
company operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
income, 10% on DSO, and |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 100% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sperling |
|
Bonus based 20% on |
|
|
10.34 |
% |
|
|
3.1 |
% |
|
$ |
149,736 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
217,391 |
|
|
$ |
217,391 |
|
|
|
company revenue, 20% on |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
company operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit revenue: 100.7% |
|
|
102.6 |
% |
|
|
|
|
|
|
|
|
|
|
income, 20% on unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit contribution margin: 108.4% |
|
|
111.8 |
% |
|
|
|
|
|
|
|
|
|
|
revenue, 20% on unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
contribution margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 100% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
(relating to the unit |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for which Mr. Sperling |
|
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|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
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|
|
|
|
|
was responsible), 10% on |
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|
|
|
|
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|
DSO, and 10% on MBOs. |
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parcell |
|
Bonus based 20% on |
|
|
7.76 |
% |
|
|
2.3 |
% |
|
$ |
112,472 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
159,280 |
|
|
$ |
159,280 |
|
|
|
company revenue, 20% on |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
company operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit revenue: 101.1% |
|
|
104.5 |
% |
|
|
|
|
|
|
|
|
|
|
income, 20% on unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit contribution margin: 85.2% |
|
|
83.2 |
% |
|
|
|
|
|
|
|
|
|
|
revenue, 20% on unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
contribution margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 80% |
|
|
80.0 |
% |
|
|
|
|
|
|
|
|
|
|
(relating to the unit |
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for which Mr. Parcell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
was responsible), 10% on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO, and 10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fante |
|
Bonus based 40% on |
|
|
11.21 |
% |
|
|
3.4 |
% |
|
$ |
162,500 |
|
|
Company revenue: 104.2% |
|
|
136.0 |
% |
|
$ |
246,228 |
|
|
$ |
211,288 |
|
|
|
company revenue, 40% on |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company operating income: 126.5% |
|
|
182.8 |
% |
|
|
|
|
|
|
|
|
|
|
company operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
DSO: 111% |
|
|
140.0 |
% |
|
|
|
|
|
|
|
|
|
|
income, 10% on DSO, and |
|
|
|
|
|
|
|
|
|
|
|
|
|
MBO: 100% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
10% on MBOs. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 or the bonus
approval date (if payment has not yet been made). |
134
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% |
|
|
|
|
|
|
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% |
|
135
|
|
|
|
|
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 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.
136
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.
137
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.
Although we do not presently have any stock ownership guidelines in place for our officers or
directors, we are presently developing such guidelines in consultation with the compensation
committees independent compensation consultant and other advisors. 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. Due to our extended filing delay, other than limited
dispositions to the company to cover tax liabilities in connection with vestings, none of our
current executive officers has been able to sell any of our securities, including shares underlying
equity awards, since January 2006.
138
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, |
|
|
|
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 filing date of this report, 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 Item 11.
139
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 during our extended filing delay period 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 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.
140
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 have 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.
141
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. 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 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 have 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 have been an important part of our retention initiatives and have 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 override the regular
time-vesting or performance-vesting schedule of the awards. These compliance vesting conditions
require 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
require 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 is not satisfied on the date
the awards would otherwise vest, the portion of the award that would otherwise vest remains
unvested until such time as all of the applicable compliance vesting conditions are 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.
142
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), and continued officer retention concerns on the part of senior management, 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 filing date of this report, we have finalized all of these
amendments except for Mr. Parcells which remains open due to local tax considerations. 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.
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.
143
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 COMMITTEE REPORT
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis
section of this report with management. Based on its review and discussions with management
regarding such section of this report, the compensation committee recommended to the board of
directors that the Compensation Discussion and Analysis section be included in this report.
Compensation Committee:
Andre Dahan, Chairman
Victor DeMarines
Kenneth Minihan
Shefali Shah
The foregoing report shall not be deemed incorporated by reference by any general statement
incorporating by reference this report into any filing under the Securities Act of 1933, as
amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that we
specifically incorporate this information by reference, and shall not otherwise be deemed filed
under such Acts.
144
Compensation Programs and Risk
In connection with the preparation of this report, 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.
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.
145
Executive Compensation
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
Officer and Corporate Officer |
|
|
2010 |
|
|
|
600,000 |
|
|
|
|
|
|
|
601,620 |
|
|
|
|
|
|
|
780,072 |
|
|
|
41,818 |
|
|
|
2,023,510 |
|
|
|
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 and Corporate Officer |
|
|
2010 |
|
|
|
354,000 |
|
|
|
|
|
|
|
218,942 |
|
|
|
|
|
|
|
276,145 |
|
|
|
14,000 |
|
|
|
863,087 |
|
|
|
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
Actionable Solutions and Verint Video Intelligence Solutions and Corporate Officer |
|
|
2010 |
|
|
|
354,000 |
|
|
|
|
|
|
|
217,129 |
|
|
|
|
|
|
|
276,170 |
|
|
|
12,687 |
|
|
|
859,986 |
|
|
|
2009 |
|
|
|
354,000 |
|
|
|
|
|
|
|
742,832 |
|
|
|
|
|
|
|
206,818 |
|
|
|
14,644 |
|
|
|
1,318,294 |
|
|
|
2008 |
|
|
|
340,000 |
|
|
|
|
|
|
|
1,285,086 |
|
|
|
|
|
|
|
213,650 |
|
|
|
11,969 |
|
|
|
1,850,705 |
|
Meir Sperling - President, Verint
Communications Intelligence and Investigative
Solutions and Corporate Officer |
|
|
2010 |
|
|
|
317,528 |
(5) |
|
|
|
|
|
|
460,590 |
|
|
|
|
|
|
|
217,391 |
(5) |
|
|
82,360 |
|
|
|
1,077,869 |
|
|
|
2009 |
|
|
|
345,899 |
|
|
|
|
|
|
|
669,475 |
|
|
|
|
|
|
|
205,040 |
|
|
|
97,030 |
|
|
|
1,317,444 |
|
|
|
2008 |
|
|
|
277,601 |
|
|
|
|
|
|
|
1,254,316 |
|
|
|
|
|
|
|
245,586 |
|
|
|
93,388 |
|
|
|
1,870,891 |
|
David Parcell - Managing Director,
EMEA and Corporate Officer |
|
|
2010 |
|
|
|
306,520 |
(6) |
|
|
|
|
|
|
191,254 |
|
|
|
|
|
|
|
159,280 |
(6) |
|
|
57,058 |
|
|
|
714,112 |
|
|
|
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
Compliance Officer, Secretary and
Corporate Officer |
|
|
2010 |
|
|
|
325,000 |
|
|
|
|
|
|
|
188,194 |
|
|
|
|
|
|
|
211,288 |
|
|
|
18,250 |
|
|
|
742,732 |
|
|
|
2009 |
|
|
|
325,000 |
|
|
|
|
|
|
|
629,219 |
|
|
|
|
|
|
|
158,229 |
|
|
|
14,000 |
|
|
|
1,126,448 |
|
|
|
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). |
146
|
|
|
(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 |
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value on Date |
|
|
|
Date of Committee |
|
Accounting |
|
|
Maximum |
|
|
of Commitee |
|
Name |
|
Approval of Grant |
|
Grant Date |
|
|
Possible Shares |
|
|
Approval |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
Contribution |
|
|
Contribution |
|
|
Contribution |
|
|
Allowance |
|
|
Allowance |
|
|
Payout |
|
|
Payment |
|
|
Insurance |
|
|
Total |
|
Name |
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
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= $1.5800. |
149
Grants of Plan-Based Awards for the Year Ended January 31, 2010
The following table sets forth information concerning equity grants to our named executive officers
during the year ended January 31, 2010. For the sake of clarity, the table also contains
information about awards made in other years to the extent that the performance goal for any
tranche of such awards was set in the year ended January 31, 2010.
150
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts |
|
|
Estimated Future Payouts |
|
|
Awards: |
|
|
Grant Date |
|
|
|
|
|
Date of |
|
|
|
|
|
|
Under Non-Equity Incentive |
|
|
Under Equity Incentive Plan |
|
|
Number of |
|
|
Fair Value of |
|
|
|
|
|
Committee |
|
|
|
|
|
|
Plan Awards |
|
|
Awards |
|
|
Shares of |
|
|
Stock and |
|
|
|
|
|
Approval of |
|
|
Accounting |
|
|
Threshold |
|
|
Target |
|
|
Max |
|
|
Threshold |
|
|
Target |
|
|
Max |
|
|
Stock or Units |
|
|
Option Awards |
|
Name |
|
Type of Award |
|
Grant |
|
|
Grant Date |
|
|
($)(1) |
|
|
($) |
|
|
($) |
|
|
(#)(10) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
(2) |
|
Dan Bodner |
|
RSU (Time-vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,750 |
|
|
$ |
389,063 |
|
|
|
RSU (Performance-vested |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,625 |
|
|
|
31,250 |
|
|
|
62,500 |
|
|
|
|
|
|
$ |
106,250 |
|
|
|
grant)(4)(5)(6) |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,750 |
|
|
|
31,250 |
|
|
|
62,500 |
|
|
|
|
|
|
$ |
768,125 |
|
|
|
|
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
31,250 |
|
|
|
62,500 |
|
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
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 Robinson |
|
RSU (Time-vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,835 |
|
|
$ |
140,415 |
|
|
|
RSU (Performance-vested |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,639 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
38,345 |
|
|
|
grant)(4)(5)(6) |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,767 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
277,213 |
|
|
|
|
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
11,279 |
|
|
|
22,558 |
|
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
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 Moriah |
|
RSU (Time-vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,835 |
|
|
$ |
140,415 |
|
|
|
RSU (Performance-vested |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,639 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
38,345 |
|
|
|
grant)(4)(5)(6) |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,767 |
|
|
|
11,278 |
|
|
|
22,556 |
|
|
|
|
|
|
$ |
277,213 |
|
|
|
|
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
11,279 |
|
|
|
22,558 |
|
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Stock |
|
|
Accounting |
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts |
|
|
Estimated Future Payouts |
|
|
Awards: |
|
|
Grant Date |
|
|
|
|
|
Date of |
|
|
|
|
|
Under Non-Equity Incentive |
|
|
Under Equity Incentive Plan |
|
|
Number of |
|
|
Fair Value of |
|
|
|
|
|
Committee |
|
|
|
|
|
Plan Awards |
|
|
Awards |
|
|
Shares of |
|
|
Stock and |
|
|
|
|
|
Approval of |
|
|
Accounting |
|
|
Threshold |
|
|
Target |
|
|
Max |
|
|
Threshold |
|
|
Target |
|
|
Max |
|
|
Stock or Units |
|
|
Option Awards |
|
Name |
|
Type of Award |
|
Grant |
|
|
Grant Date |
|
|
($)(1) |
|
|
($) |
|
|
($) |
|
|
(#)(10) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
(2) |
|
Meir Sperling |
|
RSU (Time-vested grant)(3) |
|
|
5/20/2009 |
|
|
|
6/20/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
$ |
318,795 |
|
|
|
RSU (Performance-vested |
|
|
5/20/2009 |
|
|
|
6/20/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
106,265 |
|
|
|
grant)(4)(5)(6) |
|
|
5/20/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,015 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
246,415 |
|
|
|
|
|
|
5/20/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
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 1/31/10(7) |
|
|
n/a |
|
|
|
n/a |
|
|
|
67,381 |
|
|
|
149,736 |
|
|
|
284,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Parcell |
|
RSU (Time-vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
$ |
124,811 |
|
|
|
RSU (Performance-vested |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
34,085 |
|
|
|
grant)(4)(5)(6) |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,015 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
246,415 |
|
|
|
|
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
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 1/31/10(8) |
|
|
n/a |
|
|
|
n/a |
|
|
|
50,612 |
|
|
|
112,472 |
|
|
|
213,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Fante |
|
RSU (Time-vested grant)(3) |
|
|
3/4/2009 |
|
|
|
3/4/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,075 |
|
|
$ |
124,811 |
|
|
|
RSU (Performance-vested |
|
|
3/4/2009 |
|
|
|
3/18/2009 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,013 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
34,085 |
|
|
|
grant)(4)(5)(6) |
|
|
3/4/2009 |
|
|
|
3/17/2010 |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,015 |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
$ |
246,415 |
|
|
|
|
|
|
3/4/2009 |
|
|
|
n/a |
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/a |
|
|
|
10,025 |
|
|
|
20,050 |
|
|
|
|
|
|
|
n/a |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
|
(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 consolidated
financial statements included in Item 15. |
|
|
|
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 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 |
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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). |
|
(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. |
154
|
|
|
(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 |
|
|
Actual Shares Earned |
|
|
Actual Shares Earned |
|
|
|
for 2007 Performance |
|
|
for 2008 Performance |
|
|
for 2009 Performance |
|
Name |
|
Period |
|
|
Period |
|
|
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 |
|
155
Performance Grant Approved May 28, 2008
|
|
|
|
|
|
|
|
|
|
|
Actual Shares Earned |
|
|
Actual Shares Earned |
|
|
|
for 2008 Performance |
|
|
for 2009 Performance |
|
Name |
|
Period |
|
|
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 |
|
Performance Grant Approved March 4, 2009 or May 20, 2009
|
|
|
|
|
|
|
Actual Shares Earned |
|
|
|
for 2009 Performance |
|
Name |
|
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 filing date of this report, 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.
156
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 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.
157
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.
158
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 override the regular time-vesting or performance-vesting schedule of the awards.
These compliance vesting conditions require 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 require 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 is not satisfied on the
date the awards would otherwise vest, the portion of the award that would otherwise vest remains
unvested until such time as all of the applicable compliance vesting conditions are 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 filing date of this report, we have finalized all of these amendments
except for Mr. Parcells which remains open due to local tax considerations. For our U.S.
executive officers, these amendments also provided for a delay in the delivery of the shares
underlying these awards 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 ($18.30 on January 29, 2010).
159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards |
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan |
|
|
Equity Incentive Plan |
|
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Market Value of |
|
|
Awards: Number of |
|
|
Awards: Market or Payout |
|
|
|
Date of |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
|
|
|
or Units of Stock |
|
|
Shares or Units of |
|
|
Unearned Shares, Units or |
|
|
Value of Unearned Shares, |
|
|
|
Committee |
|
|
Options |
|
|
Options |
|
|
Exercise |
|
|
Option |
|
|
That Have Not |
|
|
Stock That Have |
|
|
Other Rights That Have |
|
|
Units or Other Rights That |
|
|
|
Approval of |
|
|
(#) |
|
|
(#) |
|
|
Price |
|
|
Expiration |
|
|
Vested |
|
|
Not Vested |
|
|
Not Vested |
|
|
Have Not Vested |
|
Name |
|
Grant |
|
|
Exercisable |
|
|
Unexercisable |
|
|
($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
Dan Bodner |
|
|
5/21/2002 |
(1) |
|
|
16,635 |
|
|
|
|
|
|
|
16.00 |
|
|
|
5/21/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Robinson |
|
|
7/2/2007 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,900 |
|
|
|
236,070 |
|
|
|
|
|
|
|
|
|
|
|
|
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 Moriah |
|
|
4/1/2001 |
(1) |
|
|
4,892 |
|
|
|
|
|
|
|
8.69 |
|
|
|
4/1/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Sperling |
|
|
4/1/2001 |
(1) |
|
|
2,446 |
|
|
|
|
|
|
|
8.69 |
|
|
|
4/1/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Parcell |
|
|
5/21/2002 |
(1) |
|
|
2,446 |
|
|
|
|
|
|
|
16.00 |
|
|
|
5/16/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Fante |
|
|
11/20/2002 |
(1) |
|
|
6,250 |
|
|
|
|
|
|
|
14.90 |
|
|
|
11/20/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
160
|
|
|
(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. |
161
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 override the regular
time-vesting or performance-vesting schedule of the awards. These compliance vesting conditions
require 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 require 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 is not satisfied on the date the awards would otherwise vest,
the portion of the award that would otherwise vest remains unvested until such time as all of the
applicable compliance vesting conditions are 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
filing date of this report, we have finalized all of these amendments except for Mr. Parcells
which remains open due to local tax considerations. For our U.S. executive officers, these
amendments also provided for a delay in the delivery of the shares underlying these awards 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 |
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Acquired on |
|
|
Value Realized |
|
|
Acquired on |
|
|
Value Realized |
|
|
|
Exercise |
|
|
on Exercise |
|
|
Vesting |
|
|
on 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 filing date of this report, 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 filing date of this report, 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.
162
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 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.
163
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 incorporated by reference into this report.
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 filing date of this report, 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.
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.
164
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. |
165
|
|
|
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. |
|
|
|
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 ($18.30 on January
29, 2010). |
|
|
|
Except with respect to tax gross up amounts, all amounts are calculated on a pre-tax
basis. |
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated |
|
|
Cont. Health |
|
|
Cont. |
|
|
|
|
|
|
|
|
|
Salary |
|
|
Pro Rata |
|
|
Additional |
|
|
Equity |
|
|
(present Insurance |
|
|
Other |
|
|
280G Tax |
|
|
|
|
|
|
Continuation(1) |
|
|
Bonus(2) |
|
|
Bonus(3) |
|
|
Awards(4) |
|
|
Coverage value)(5) |
|
|
Benefits(6) |
|
|
Gross up(7) |
|
|
Total |
|
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
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. |
167
|
|
|
(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 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= $1.5992. |
|
(7) |
|
The tax reimbursement amount represents a reasonable estimate of costs to cover the excise
tax liability under Internal Revenue Code Section 4999 and the subsequent federal, state and
FICA taxes on the reimbursement payment. With respect to tax gross-ups, the assumptions used
to calculate this estimate are: an excise tax rate under 280G of the Internal Revenue Code of
20%, a federal, state (New York), and FICA tax blended rate of 42.28% (a 35% federal income
tax rate, a 8.97% state income tax rate, and a 1.45% Medicare tax rate). These calculations
do not take into account the value of any covenant not to compete that may affect the
calculation of any excess parachute payment. |
168
Subsequent to January 31, 2010 (between January 31, 2010 and the filing date of this report), Mr.
Bodner entered into an employment agreement with us which provided him with significant severance
and/or change in control benefits. The terms of this new agreement are described in greater detail
under - Executive Officer Severance Benefits and Change in Control Provisions above.
Director Compensation for the Year Ended January 31, 2010
The following table summarizes the cash and equity compensation earned by each member of the board
of directors during the year ended January 31, 2010 for service as a director.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
|
Stock |
|
|
Option |
|
|
|
|
|
|
|
|
|
|
Paid in Cash |
|
|
Awards |
|
|
Awards |
|
|
Total |
|
Name |
|
|
|
|
|
($)(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 dollar amount recognized for financial statement reporting purposes for year
ended January 31, 2010 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. |
169
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 Stock |
|
|
|
Unvested Options |
|
|
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 |
|
|
|
|
|
|
|
|
Although we do not presently have any stock ownership guidelines in place for our directors or
officers, we are presently developing such guidelines in consultation with the compensation
committees independent compensation consultant and other advisors. 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. Due to our extended filing delay, other than limited dispositions to
the company to cover tax liabilities in connection with vestings, none of our present directors has
been able to sell any of our securities, including shares underlying equity awards, since January
2006.
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.
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.
170
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 its 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 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 have 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 the duration of our extended filing delay period), 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.
171
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 in
recognition of his special role and added responsibilities in overseeing the completion of our
restatement and audits.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our common
stock as of April 30, 2010 (the Reference Date) by:
|
|
|
each person (or group within the meaning of Section 13(d)(3) of the Exchange Act) known
by us to own beneficially 5% or more of our common stock; |
|
|
|
each of our directors and named executive officers; and |
|
|
|
all our directors and named 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 (assuming the suspension of option exercises referred to in Executive Compensation under
Item 11 is released) 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 32,802,402
shares of common stock outstanding as of the Reference Date and exclude 10,072,966 shares of common
stock issuable to Comverse upon conversion of shares of preferred stock (if converted on the
Reference Date). The foregoing issued and 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.
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
|
Percentage of Total |
|
Name of Beneficial Owner |
|
Class |
|
|
Beneficially Owned(1) |
|
|
Shares Outstanding |
|
|
|
Principal Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Comverse Technology, Inc.
810 Seventh Avenue
New York, NY 10019 |
|
Common |
|
|
18,589,023 |
(2) |
|
|
56.7 |
%(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comverse Technology, Inc.
810 Seventh Avenue
New York, NY 10019 |
|
Series A Preferred |
|
|
10,072,966 |
(3) |
|
|
100 |
%(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadian Capital Management, LLC (5)
461 Fifth Avenue 24th Floor
New York, NY 10017 |
|
Common |
|
|
2,302,525 |
|
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Platinum Partners (6)
152 West 57th Street 54th Floor
New York, NY 10019 |
|
Common |
|
|
1,718,300 |
|
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers: |
|
|
|
|
|
|
|
|
|
|
|
|
Dan Bodner |
|
Common |
|
|
535,073 |
(7) |
|
|
1.6 |
% |
Douglas E. Robinson |
|
Common |
|
|
81,515 |
(8) |
|
|
** |
|
Peter Fante |
|
Common |
|
|
111,523 |
(9) |
|
|
** |
|
Elan Moriah |
|
Common |
|
|
178,282 |
(10) |
|
|
** |
|
David Parcell |
|
Common |
|
|
101,977 |
(11) |
|
|
** |
|
Meir Sperling |
|
Common |
|
|
200,712 |
(12) |
|
|
** |
|
Paul D. Baker |
|
Common |
|
|
10,723 |
(13) |
|
|
** |
|
John Bunyan |
|
Common |
|
|
0 |
(14) |
|
|
** |
|
Andre Dahan |
|
Common |
|
|
0 |
(15) |
|
|
** |
|
Victor A. DeMarines |
|
Common |
|
|
36,000 |
(16) |
|
|
** |
|
Kenneth A. Minihan |
|
Common |
|
|
37,000 |
(17) |
|
|
** |
|
Larry Myers |
|
Common |
|
|
25,000 |
(18) |
|
|
** |
|
Howard Safir |
|
Common |
|
|
42,000 |
(19) |
|
|
** |
|
Shefali Shah |
|
Common |
|
|
0 |
(20) |
|
|
** |
|
Lauren Wright |
|
Common |
|
|
0 |
(21) |
|
|
** |
|
Stephen M. Swad |
|
Common |
|
|
0 |
(22) |
|
|
** |
|
All executive officers and
directors as a group (sixteen
persons) |
|
|
|
|
|
|
1,359,805 |
|
|
|
4.0 |
% |
|
|
|
** |
|
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) |
|
Because the preferred stock is not currently convertible, the shares of common stock
underlying the preferred stock are not included in this number. If the preferred stock were
converted into common stock 60 days after the Reference Date, Comverses beneficial ownership
percentage would equal 66.8%. Please see Market for Registrants Common Equity, Related
Stockholder Matters, and Issuer Purchases of Equity Securities Recent Sales of Unregistered
Securities under Item 5 and Certain Relationships and Related Transactions, and Director
Independence Preferred Stock Financing under Item 13 for a discussion of the conversion
rights of the preferred stock. |
|
(3) |
|
Reflects the number of shares of common stock issuable to Comverse upon conversion of shares
of preferred stock if converted 60 days after the Reference Date inclusive of the effect of
additional dividend accruals on the preferred stock during such 60 day period. |
173
|
|
|
(4) |
|
Comverse is the sole holder of our preferred stock. See Certain Relationships and Related
Transactions, and Director Independence Preferred Stock Financing under Item 13, 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. |
|
(6) |
|
As reported in the Schedule 13G/A filed on February 11, 2010, with the SEC by Platinum
Partners Value Arbitrage Fund L.P. (PPVAF), Platinum Partners Legacy Feeder Ltd (PPLF) and
Platinum Partners Liquid Opportunity Fund L.P. (PPLOF) (collectively, Platinum Partners),
Platinum Partners expressly affirms their membership of a group and each has sole voting and
dispositive power over the following shares: PPVAF 401,153 shares; PPLF 1,212,140 shares;
and PPLOF 105,007 shares. |
|
(7) |
|
Includes options to purchase 261,835 shares of common stock which are currently exercisable.
Includes 103,474 shares of restricted stock which are fully vested. Also includes 169,764
RSUs which are fully vested. Mr. Bodner beneficially owns options to purchase 4,781 shares of
Comverse common stock exercisable within 60 days after the Reference Date. |
|
(8) |
|
Consists of 81,515 RSUs which are fully vested. |
|
(9) |
|
Includes options to purchase 45,000 shares of common stock which are currently exercisable.
Includes 6,235 shares of restricted stock which are fully vested. Also includes 60,288 RSUs
which are fully vested. |
|
(10) |
|
Includes options to purchase 91,088 shares of common stock which are currently exercisable.
Includes 16,718 shares of restricted stock which are fully vested. Also includes 70,476 RSUs
which are fully vested.
|
|
(11) |
|
Includes options to purchase 41,196 shares of common stock which
are currently exercisable. Includes 6,944 shares of restricted stock which are fully vested.
Also includes 53,837 RSUs which are fully vested. Includes 41,460 RSUs which will vest
immediately upon the earlier of finalization of an amendment to Mr. Parcells equity award
agreements or satisfaction of certain compliance conditions as discussed in Item 11. |
|
(12) |
|
Includes options to purchase 99,892 shares of common stock which are currently exercisable.
Includes 20,000 shares of restricted stock which are fully vested. Also includes 80,820 RSUs
which are fully vested. |
|
(13) |
|
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 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 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. |
|
(14) |
|
Mr. Bunyan beneficially owns 66,000 shares 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. |
|
(15) |
|
Mr. Dahan beneficially owns 502,822 shares 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. |
|
(16) |
|
Includes options to purchase 17,000 shares of common stock which are currently exercisable.
Includes 19,000 shares of restricted stock, 9,000 of which are fully vested, 5,000 of which
vest within 60 days after the Reference Date but were subject to forfeiture as of the
Reference Date and of which 5,000 are unvested and subject to forfeiture. Includes 2,000 shares
of restricted stock which were repurchased by the Company on May 16, 2010 pursuant to the
Director Repurchase Program (see Market for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities-Issuer Purchases of Equity Securities under Item 5). |
|
(17) |
|
Includes options to purchase 18,000 shares of common stock which are currently exercisable.
Includes 19,000 shares of restricted stock, 9,000 of which are fully vested, 5,000 of which
vest within 60 days after the Reference Date but were subject to forfeiture as of the
Reference Date and of which 5,000 are unvested and subject to forfeiture. Includes 2,000 shares
of restricted stock which were repurchased by the Company on May 16, 2010 pursuant to the
Director Repurchase Program (see Market for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities-Issuer Purchases of Equity Securities under Item 5). |
|
(18) |
|
Includes options to purchase 6,000 shares of common stock which are currently exercisable.
Includes 19,000 shares of restricted stock, 9,000 of which are fully vested, 5,000 of which
vest within 60 days
after the Reference Date but were subject to forfeiture as of the Reference Date and of
which 5,000 are unvested and subject to forfeiture. Includes 2,000 shares
of restricted stock which were repurchased by the Company on May 16, 2010 pursuant to the
Director Repurchase Program (see Market for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities-Issuer Purchases of Equity Securities under Item 5). |
174
|
|
|
(19) |
|
Includes options to purchase 23,000 shares of common stock which are currently exercisable.
Includes 19,000 shares of restricted stock, 9,000 of which are fully vested, 5,000 of which
vest within 60 days after the Reference Date but were subject to forfeiture as of the
Reference Date and of which 5,000 are unvested and subject to forfeiture. Includes 2,000 shares
of restricted stock which were repurchased by the Company on May 16, 2010 pursuant to the
Director Repurchase Program (see Market for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities-Issuer Purchases of Equity Securities under Item 5). |
|
(20) |
|
Ms. Shah beneficially owns 44,667 shares 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. |
|
(21) |
|
Ms. Wright beneficially owns 55,001 shares 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. |
|
(22) |
|
Mr. Swad is a senior executive at Comverse. Mr. Swad beneficially owns 46,667 shares 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. He disclaims beneficial ownership of
any of our securities held by Comverse. |
Equity Compensation Plan Information
The following table sets forth certain information regarding our equity compensation plans as of
January 31, 2010, after giving effect to our assumption on May 25, 2007 of the following in
connection with our acquisition of Witness: (a) the Witness Amended and Restated Stock Incentive
Plan, the Witness Broad Based Option Plan, and the Witness Non-Employee Director Stock Option Plan,
(b) all unvested awards previously issued under such plans as of May 25, 2007, (c) certain new-hire
inducement grants made by Witness outside of its stockholder-approved equity plans prior to May 25,
2007, and (d) the passage of the expiration date for making new awards under the Witness Amended
and Restated Stock Incentive Plan on November 18, 2009. In accordance with applicable NASDAQ rules
at the time, the Witness Broad Based Option Plan was not approved by stockholders. No awards were
assumed by us under the Witness Broad Based Option Plan or the Witness Non-Employee Director Stock
Option Plan in connection with our acquisition of Witness. Since the closing of the Witness
acquisition, we have not made, and do not in the future expect to make, additional awards under the
Witness Broad Based Option Plan or the Witness Non-Employee Director Stock Option Plan and these
plans are therefore not included in column (c) in either of the tables below. The following table
does not include awards for an aggregate of (i) 1,292,150 shares which were approved for grant by
the stock option committee of our board of directors on March 4, 2009 and May 20, 2009 outside of
our equity incentive plans, (ii) 188,734 performance shares eligible to be earned by our executive
officers based on the overachievement of specified performance goals, and (iii) 355,150 shares
originally granted as hybrid RSUs that were later converted into shares of cash-settled phantom
stock. The vesting of any awards made outside of our equity incentive plans is, among other
things, contingent on stockholder approval of a new equity compensation plan or having additional
share capacity under an existing stockholder-approved equity compensation plan.
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
(a) |
|
|
(b) |
|
|
Number of Securities Remaining |
|
|
|
Number of Securities to |
|
|
Weighted-Average |
|
|
Available for Future Issuance |
|
|
|
be Issued upon Exercise |
|
|
Exercise Price of |
|
|
under Equity Compensation |
|
|
|
of Outstanding Options, |
|
|
Outstanding Options, |
|
|
Plans (Excluding Securities |
|
Plan Category |
|
Warrants, and Rights |
|
|
Warrants and Rights (1) |
|
|
Reflected in Column (a)) |
|
Equity compensation
plans approved by
security holders |
|
|
7,093,896 |
(2) |
|
$ |
23.17 |
|
|
|
249,304 |
(3) |
Equity compensation
plans not approved
by security holders |
|
|
5,943 |
(4) |
|
$ |
19.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,099,839 |
|
|
$ |
23.16 |
|
|
|
249,304 |
(5) |
The following table sets forth certain information regarding our equity compensation plans as of
April 30, 2010, after giving effect to (a) the assumption of the Witness plans and awards referred
to above, (b) grants subsequent to January 31, 2010, and (c) the passage of the expiration date for
making new awards under the Witness Amended and Restated Stock Incentive Plan on November 18, 2009.
The following table does not include awards for an aggregate of (i) 2,243,844 shares which were
approved for grant by the stock option committee of our board of directors on March 4, 2009, May
20, 2009, March 17, 2010 and April 17, 2010 outside of our equity incentive plans and (ii) 339,506
performance shares eligible to be earned by our executive officers based on the overachievement of
specified performance goals. The vesting of any awards made outside of our equity incentive plans
is, among other things, contingent on stockholder approval of a new equity compensation plan or
having additional share capacity under an existing stockholder-approved equity compensation plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
(a) |
|
|
(b) |
|
|
Number of Securities Remaining |
|
|
|
Number of Securities to |
|
|
Weighted-Average |
|
|
Available for Future Issuance |
|
|
|
be Issued upon Exercise |
|
|
Exercise Price of |
|
|
under Equity Compensation |
|
|
|
of Outstanding Options, |
|
|
Outstanding Options, |
|
|
Plans (Excluding Securities |
|
Plan Category |
|
Warrants, and Rights |
|
|
Warrants and Rights (1) |
|
|
Reflected in Column (a)) |
|
Equity compensation
plans approved by
security holders |
|
|
6,611,005 |
(6) |
|
$ |
23.37 |
|
|
|
314,994 |
|
Equity compensation
plans not approved
by security holders |
|
|
5,943 |
(4) |
|
$ |
19.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,616,948 |
|
|
$ |
23.37 |
|
|
|
314,994 |
(5) |
|
|
|
(1) |
|
The weighted-average price relates to outstanding stock options only (as of the
applicable date). Other outstanding awards carry no exercise price and are therefore
excluded from the weighted-average price. |
|
(2) |
|
Consists of 4,725,176 stock options and 2,368,720 RSUs. Does not include 20,000 shares
of restricted stock previously issued under our equity compensation plans. |
176
|
|
|
(3) |
|
The Witness Amended and Restated Stock Incentive Plan contains an evergreen provision
pursuant to which the number of shares available under the plan may increase annually so
that the total number of shares reserved will equal the sum of (a) the aggregate number of
shares previously issued under the plan, (b) the aggregate number of shares subject to
outstanding options granted under the plan, and (c) 10% of the number of shares outstanding
on the last day of the preceding year. Notwithstanding the foregoing, the board of
directors (or an authorized committee thereof), in its discretion, may authorize a smaller
number of additional shares to be reserved under this plan. The maximum annual increase in the
number of shares, however, shall not exceed 3,000,000 in any calendar year. No new awards
are permitted to be made under this plan after November 18, 2009. |
|
(4) |
|
Consists solely of certain new-hire inducement grants made by Witness outside of its
stockholder-approved equity plans prior to May 25, 2007. |
|
(5) |
|
Does not include 743,489 shares available for issuance pursuant to our Employee Stock
Purchase Plan as of January 31, 2010 and as of April 30, 2010. The Witness Employee Stock
Purchase Plan was terminated immediately prior to our acquisition of Witness and therefore
was not assumed by us. |
|
(6) |
|
Consists of 4,615,286 stock options and 1,995,719 RSUs. Does not include 40,000 shares
of restricted stock previously issued under our equity compensation plans. |
For additional information about equity grants made subsequent to January 31, 2010, see Market for
Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Equity Grants under Item 5.
Item 13. Certain Relationships and Related Transactions, and Director Independence
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.
See Directors, Executive Officers, and Corporate Governance under Item 10 for a discussion of
director independence.
177
Comverse Preferred Stock 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.
The terms of the preferred stock are set forth in the Certificate of Designation.
The preferred stock was issued at purchase price of $1,000 per share and ranks senior to our common
stock. 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 the company, 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.
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. Initially, the specified
dividend rate was 4.25% per annum per share, however, in accordance with the terms of the
Certificate of Designation, beginning with the first quarter after the initial interest rate on the
term loan under our credit agreement had been reduced by 50 basis points or more (i.e., the quarter
ended January 31, 2008), the dividend rate was reset to 3.875% per annum and is now fixed at this
level. 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 stock for each of the five consecutive trading days
ending on the second trading day immediately prior to the record date for such dividend.
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 such share of preferred stock would be convertible at the Conversion Rate in effect on
the date the preferred stock was issued to Comverse (the Issue Date). In addition, following
receipt of stockholder approval for the issuance of the underlying 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 (as adjusted from time to time, the Conversion Rate). The
initial Conversion Rate is set at 30.6185 shares of common stock for each share of preferred stock
that is converted. We also have the right in certain circumstances to cause the mandatory
conversion of the preferred stock into shares of common stock at the then-applicable Conversion
Rate.
178
Subject to stockholder approval of the issuance of the common stock underlying the preferred stock
as described above, at any time on or after the second anniversary of the Issue Date, 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) 150%, if the conversion is on or
after the second anniversary of the Issue Date but prior to the third anniversary of the Issue
Date, (b) 140%, if the conversion is on or after the third anniversary of the Issue Date but prior
to the fourth anniversary of the Issue Date, or (c) 135%, if the conversion is on or after the
fourth anniversary of the Issue Date.
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 million additional shares of common stock for every share of preferred stock
converted into common stock following a fundamental change.
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 (the 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 (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 not, however, required to comply with a demand
request if (a) any such request is within 12 months after the effective date of a prior demand
registration, (b)(i) within the 90-day period preceding the request, we have effected (x) any
registration other than an underwritten registration pursuant to which Comverse was entitled to
participate without any limitation on its ability to include all of its registrable securities
requested to be included therein or (y) an underwritten registration pursuant to which Comverse was
entitled to participate and include between 25% to 50% of the registrable securities requested to
be included therein, or (ii) within the 180-day period preceding such request, we have effected an
underwritten registration pursuant to which Comverse was entitled to participate and include more
than 50% of the registrable securities requested to be included therein, (c) a registration
statement is effective at the time the request is made, pursuant to which Comverse can effect the
disposition of its registrable securities in the manner requested, (d) the registrable securities
requested to be registered (i) have an aggregate then-current market value of less than $100.0
million (before deducting any underwriting discounts and commission) or (ii) constitute less than
all remaining registrable securities if less than $100.0 million of then-current market value of
registrable securities are then outstanding; or (e) during the pendency of any blackout period (as
defined in the New Registration Rights Agreement).
179
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.
We have agreed to pay all expenses that result from a registration under the New Registration
Rights Agreement, other than underwriting commissions and taxes. We have also agreed to indemnify
Comverse, its directors, officers and employees against liabilities that may that may arise from
sale of shares registered pursuant to the New Registration Rights Agreement, including Securities
Act liabilities.
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 by executing a joinder agreement agreeing to be bound by all of the terms and
conditions of the New Registration Rights Agreement.
Comverse Original Registration Rights Agreement
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 IPO in
2002. This registration rights agreement (the 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. Under the agreement, we are
not required to comply with a demand request made by Comverse less than 90 days after the effective
date of a prior demand request made under this registration rights agreement. We may also delay
satisfying a demand request if (a) we are in the process of preparing a registration statement at
the time the demand request is received which we intend to file within 90 days from the date of
Comverses demand request or (b) the board of directors determines in good faith that filing a
registration statement in response to a demand request would either require us to publicly disclose
information which would have a material adverse effect on us or would be seriously detrimental to
us or our stockholders, or could interfere with, or would require us to accelerate public
disclosure of, any material financing, acquisition, disposition, corporate reorganization, or other
material transaction involving us or our subsidiaries.
Like the New Registration Rights Agreement, the Original Registration Rights Agreement also
provides that Comverse will have unlimited piggyback registration rights, that we will pay all
expenses of a registration under the agreement (other than underwriting commissions and taxes),
that we will indemnify Comverse and its affiliates from liabilities that may result from the sale
of our stock under the agreement, and that Comverse may transfer its rights under the agreement to
an affiliate or other subsequent transferee subject to the transferee signing a joinder to the
agreement.
180
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.
181
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 Item 13, we do not believe that any of
these historical agreements are currently material to us or to Comverse.
Item 14. Principal Accounting Fees and Services
The audit committee of our board of directors is directly responsible for the appointment,
oversight, and evaluation of our independent registered public accounting firm. In accordance with
the audit committees charter, it must approve, in advance of the service, all audit and
permissible non-audit services to be provided by our independent registered public accounting firm
and establish policies and procedures for the engagement of the outside auditor to provide audit
and permissible non-audit services. Our independent registered public accounting firm may not be
retained to perform non-audit services specified in Section 10A(g) of the Exchange Act.
The audit committee appointed Deloitte & Touche LLP as our auditors for the years ended January 31,
2010 and 2009, and in accordance with established policy, our board of directors ratified those
appointments. Deloitte & Touche LLP, which includes Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the Deloitte entities)
has advised the audit committee that they are independent accountants with respect to our company,
within the meaning of the rules and standards of the Public Company Accounting Oversight Board and
federal securities laws administered by the SEC.
In conjunction with our management, the audit committee regularly reviews the services and fees
from its independent registered public accounting firm. Our audit committee has determined that
the providing of certain non-audit services, as described below, is compatible with maintaining the
independence of the Deloitte entities.
In addition to performing the audit of our consolidated financial statements, the Deloitte entities
provided various other services during the years ended January 31, 2010 and 2009. Our audit
committee has determined that these services did not impair the independence of the Deloitte
entities from Verint.
182
The aggregate fees billed for years ended January 31, 2010 and 2009 for each of the following
categories of services are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
Audit fees (1) |
|
$ |
28,170 |
|
|
$ |
13,171 |
|
Audit-related fees (2) |
|
|
|
|
|
|
|
|
Tax fees (3) |
|
|
908 |
|
|
|
105 |
|
All other fees (4) |
|
|
9 |
|
|
|
13 |
|
|
|
|
|
|
|
|
Total fees |
|
$ |
29,087 |
|
|
$ |
13,289 |
|
|
|
|
|
|
|
|
The categories in the above table have the definitions assigned under Item 9 of Schedule 14A
promulgated under the Exchange Act, and these categories include in particular the following
components:
|
|
|
(1) |
|
Audit fees include fees for audit services principally related to the year-end
examination and the quarterly reviews of our consolidated financial statements, consultation
on matters that arise during a review or audit, review of SEC filings, audit services
performed in connection with our acquisitions, and statutory audit fees. |
|
(2) |
|
Audit-related fees include fees which are for assurance and related services other
than those included in Audit fees. |
|
(3) |
|
Tax fees include fees for tax compliance and advice. |
|
(4) |
|
All other fees include fees for all other non-audit services. For the year ended
January 31, 2010, these fees were incurred for assistance to respond to an HMRC inquiry in
the U.K. For the year ended January 31, 2009, we incurred these fees to license an online
accounting research tool. |
By policy, all services (audit and non-audit) to be provided by the independent registered public
accounting firm must be pre-approved by the audit committee. The committee may delegate
pre-approval authority to one or more of its members. The member to whom such authority is
delegated must report any pre-approval decisions to the audit committee at its next scheduled
meeting.
As reflected in the table above, and as described in greater detail elsewhere in this report, we
have incurred significant audit fees in connection with our investigation and restatement
activities.
183
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Page(s)
(a) Documents filed as part of this report
(1) Financial Statements.
The consolidated financial statements filed as part of this report are listed
on the Index to Consolidated Financial Statements on page F-1.
(2) Financial Statement Schedules.
All financial statement schedules have been omitted here because they are not
applicable, not required, or the information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits.
See (b) below.
(b) Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed Herewith / |
|
|
|
|
|
|
Incorporated by |
Number |
|
Description |
|
Reference from |
|
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 |
184
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed Herewith / |
|
|
|
|
|
|
Incorporated by |
Number |
|
Description |
|
Reference from |
|
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 among the
Company, Nic. Christiansen Invest A/G and Ulrik
Ortiz Rasmussen, dated as of September 2, 2004
|
|
Form S-3
(Commission File
No. 333-120266)
effective on
December 17, 2004 |
|
4.4 |
|
|
Registration Rights Agreement, by and between the
Company and Comverse Technology, Inc., dated May 25,
2007
|
|
Form 8-K filed on
May 30, 2007 |
|
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 |
185
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed Herewith / |
|
|
|
|
|
|
Incorporated by |
Number |
|
Description |
|
Reference from |
|
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 |
|
|
Form of Stock Option Award Agreement*
|
|
Form 8-K filed on
December 7, 2004 |
|
10.18 |
|
|
Form of Restricted Stock Award Agreement to a U.S.
executive officer*
|
|
Form 8-K filed on
January 10, 2006 |
|
10.19 |
|
|
Form of Restricted Stock Award Agreement to an
Israeli executive officer*
|
|
Form 8-K filed on
January 10, 2006 |
|
10.20 |
|
|
Form of Restricted Stock Award Agreement to an
Independent Director, as amended*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.21 |
|
|
Form of Time-Based Restricted Stock Unit Award
Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.22 |
|
|
Form of Performance-Based Restricted Stock Unit
Award Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.23 |
|
|
Form of Time-Based Deferred Stock Award Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.24 |
|
|
Form of Performance-Based Deferred Stock Award
Agreement*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.25 |
|
|
Form of Amendment to Time-Based and
Performance-Based Equity Award Agreements*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.26 |
|
|
Form of Time-Based Restricted Stock Unit Award
Agreement Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
|
10.27 |
|
|
Form of Performance-Based Restricted Stock Unit
Award Agreement Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
186
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed Herewith / |
|
|
|
|
|
|
Incorporated by |
Number |
|
Description |
|
Reference from |
|
10.28 |
|
|
Form of Time-Based Deferred Stock Award Agreement
Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
|
10.29 |
|
|
Form of Performance-Based Deferred Stock Award
Agreement Solely Related to 2010 Grant*
|
|
Form 10-K filed on
April 8, 2010 |
|
10.30 |
|
|
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 |
|
10.31 |
|
|
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 |
|
10.32 |
|
|
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 |
|
10.33 |
|
|
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 |
|
10.34 |
|
|
Securities Purchase Agreement, by and between the
Company and Comverse Technology, Inc., dated May 25,
2007.
|
|
Form 8-K filed on
May 30, 2007 |
|
10.35 |
|
|
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 |
|
10.36 |
|
|
Employment Agreement, dated February 23, 2010,
between Verint Systems Inc. and Dan Bodner*
|
|
Form 8-K filed on
February 23, 2010 |
|
10.37 |
|
|
Employment Agreement, dated August 14, 2006, between
Verint Systems Inc. and Douglas E. Robinson*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.38 |
|
|
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 |
|
10.39 |
|
|
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 |
|
10.40 |
|
|
Amended and Restated Employment Agreement, dated
October 29, 2009, between Verint Systems Inc. and
Elan Moriah*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.41 |
|
|
Employment Agreement, dated April 16, 2001, between
Comverse Infosys UK Limited and David Parcell*
|
|
Form 10-K filed on
March 17, 2010 |
187
|
|
|
|
|
|
|
|
|
|
|
|
|
Filed Herewith / |
|
|
|
|
|
|
Incorporated by |
Number |
|
Description |
|
Reference from |
|
10.42 |
|
|
Supplemental Employment Agreement, dated June 13,
2008, between Verint Systems UK Limited and David
Parcell*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.43 |
|
|
Amended and Restated Employment Agreement, dated
November 10, 2009, between Verint Systems Inc. and
Peter Fante*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.44 |
|
|
Employment Offer Letter, dated August 30, 2000,
between Comverse Infosys Ltd. and Meir Sperling*
|
|
Form 10-K filed on
March 17, 2010 |
|
10.45 |
|
|
Managers Insurance Policy Letter between Comverse
Infosys Ltd. and Meir Sperling* (English
translation)
|
|
Form 10-K filed on
March 17, 2010 |
|
10.46 |
|
|
Summary of the Terms of Verint Systems Inc.
Executive Officer Annual Bonus Plan*
|
|
Filed herewith |
|
10.47 |
|
|
2009 Executive Officer Retention Letter
|
|
Form 10-K filed on
March 17, 2010 |
|
10.48 |
|
|
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 |
|
21.1 |
|
|
Subsidiaries of the Company
|
|
Filed herewith |
|
31.1 |
|
|
Certification of Dan Bodner, Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
Filed herewith |
|
31.2 |
|
|
Certification of Douglas E. Robinson, Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
Filed herewith |
|
32.1 |
|
|
Certification of the Chief Executive Officer
pursuant to Securities Exchange Act Rule 13a-14(b)
and 18 U.S.C. Section 1350(1)
|
|
Filed herewith |
|
32.2 |
|
|
Certification of the Chief Financial Officer
pursuant to Securities Exchange Act Rule 13a-14(b)
and 18 U.S.C. Section 1350(1)
|
|
Filed herewith |
|
|
|
(1) |
|
These exhibits are being furnished with this periodic report and are not deemed filed with
the Securities and Exchange Commission and are not incorporated by reference in any filing of the
Company under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
|
* |
|
Denotes a management contract or compensatory plan or arrangement required to be filed as an
exhibit to this form pursuant to Item 15(b) of this report. |
(c) Financial Statement Schedules
None.
188
|
|
|
Item 15A. |
|
Financial Statements and Supplementary Data |
|
|
|
|
|
|
|
|
F-2 |
|
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|
|
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F-3 |
|
|
|
|
|
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|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
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|
F-22 |
|
|
|
|
|
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F-23 |
|
|
|
|
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F-24 |
|
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F-28 |
|
|
|
|
|
|
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F-31 |
|
|
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|
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F-34 |
|
|
|
|
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F-36 |
|
|
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|
F-39 |
|
|
|
|
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|
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F-41 |
|
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F-45 |
|
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F-46 |
|
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F-51 |
|
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F-57 |
|
|
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|
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F-67 |
|
|
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F-69 |
|
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F-76 |
|
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F-79 |
|
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F-81 |
|
|
|
|
|
|
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 new accounting guidance for the reporting and
disclosure of 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
Financial Statements
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, respectively |
|
|
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 and backlog |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Cumulative |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
Par |
|
|
Paid-in |
|
|
Treasury |
|
|
Accumulated |
|
|
Gains |
|
|
Translation |
|
|
Noncontrolling |
|
|
Stockholders |
|
(in thousands) |
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
(Losses) |
|
|
Adjustment |
|
|
Interest |
|
|
Equity (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.
F-7
Cash and Cash Equivalents
Cash primarily consists of cash on hand and bank deposits. Cash equivalents primarily consist of
interest-bearing money market accounts and other highly liquid investments with an original
maturity of three months or less when purchased.
Restricted Cash and Bank Time Deposits
Restricted cash and restricted bank time deposits are pledged as collateral or otherwise restricted
as to use for vendor payables, general liability insurance, workers compensation insurance, 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.
F-8
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.
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 foreign currency exchange rates. |
F-9
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 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.
F-10
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 and backlog 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.
F-11
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 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.
F-12
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.
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.
F-13
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.
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.
F-14
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.
F-15
We record reimbursements from customers for out-of-pocket expenses as revenue. Shipping and
handling fees and expenses that are billed to customers are recognized in revenue and the costs
associated with such fees and expenses are recorded in cost of revenue. Historically, these fees
and expenses have not been material. Taxes collected from customers and remitted to government
authorities are excluded from revenue.
Cost of Revenue
Our cost of revenue includes costs of materials, compensation and benefit costs for operations and
service personnel, subcontractor costs, royalties and license fees, depreciation of equipment used
in operations and service, amortization of capitalized software development costs and certain
purchased intangible assets, and related overhead costs.
Where revenue is recognized over multiple periods in accordance with our revenue recognition
policies, we have made an accounting policy election whereby cost of product revenue, including
hardware and third-party software license fees, are capitalized and recognized in the same period
that product revenue is recognized, while installation and other service costs are 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.
F-16
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 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.
F-17
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.
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.
F-18
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:
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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. |
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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. |
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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. |
F-19
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.
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.
F-20
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.
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.
F-21
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-22
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.
F-23
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 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: |
|
|
|
|
|
|
|
|
Acquisition of approximately 35.2 million shares of outstanding
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 |
|
|
|
|
|
Subsequent payments on assumed contingent consideration 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 years. |
F-24
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 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.
F-25
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 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.
F-26
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-27
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.
F-28
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.
Estimated future finite-lived acquisition-related intangible asset amortization expense is as
follows:
|
|
|
|
|
(in thousands) |
|
|
|
For the Years Ended January 31, |
|
Amount |
|
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-29
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.
F-30
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 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 |
|
|
|
|
|
|
|
|
F-31
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 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 prepayment 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.
F-32
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) |
|
|
|
Year Ended January 31, |
|
Amount |
|
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.
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.
F-33
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-34
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-35
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.
F-36
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:
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.
F-37
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).
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.
F-38
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-39
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-40
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-41
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 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
F-42
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 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.
F-43
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, 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.
F-44
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 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.
F-45
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 |
) |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
F-46
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 |
% |
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.
F-47
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 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.
F-48
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.
F-49
On February 1, 2007, we implemented the provisions of the authoritative guidance on accounting
for uncertainty in income taxes. The guidance contains a two-step approach to recognizing and
measuring uncertain tax positions. The first step is to determine whether any amount of tax
benefit may be recognized by evaluating tax positions taken or expected to be taken in a tax return
and assessing whether, based solely on their technical merits, they are more-likely-than-not
sustainable upon examination, including resolution of any related appeals or litigation process.
The second step is to measure the amount of associated tax benefit that may be recorded for each
position as the largest amount that we believe is more-likely-than-not sustainable. Differences
between the amount of tax benefits taken or expected to be taken in our income tax returns and the
amount of tax benefits recognized in our financial statements, determined by applying the
prescribed methodologies of accounting for uncertainty in income taxes, represent our unrecognized
income tax benefits, which we either record as a liability or as a reduction of deferred tax
assets.
For the years ended January 31, 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 |
F-50
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.
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-51
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.
F-52
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.
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-53
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-54
The effects of derivative instruments in cash flow hedging relationships for the years ended
January 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains Recognized in |
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
Classification of Gains |
|
Gains Reclassified from Other |
|
|
|
Comprehensive Income |
|
|
Reclassified from Other |
|
Comprehensive Income (Loss) |
|
|
|
(Loss) |
|
|
Comprehensive Income |
|
into the Statements of Operations |
|
|
|
January 31, |
|
|
(Loss) into the Statements |
|
Year Ended January 31, |
|
(in thousands) |
|
2010 |
|
|
2009 |
|
|
of Operations |
|
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.
F-55
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 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.
F-56
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.
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.
F-57
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
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.
F-58
The table below summarizes key information for the Plans as of January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
Shares Reserved |
|
|
Shares |
|
|
Shares Available |
|
(in thousands) |
|
for Grant |
|
|
Outstanding |
|
|
for 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-59
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.
F-60
Stock Options
When stock options are awarded, the fair value of the options is estimated on the date of grant
using the Black-Scholes option-pricing model. Expected volatility and the expected term are the
input factors to that model that require the most significant management judgment. Expected
volatility is estimated utilizing daily historical volatility over a period that equates to the
expected life of the option. The expected life (estimated period of time outstanding) is estimated
using the historical exercise behavior of employees. The risk-free interest rate is the implied
daily yield currently available on U.S. Treasury issues with a remaining term closely approximating
the expected term used as the input to the Black-Scholes option pricing model.
We 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.
F-61
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.
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.
F-62
The following table summarizes information about stock options as of January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
Remaining |
|
|
Average |
|
|
Number of |
|
|
Average |
|
(in thousands, except exercise prices) |
|
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.
F-63
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.
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 |
|
(in thousands, except |
|
|
|
|
|
Grant-Date |
|
|
|
|
|
|
Grant-Date |
|
|
|
|
|
|
Grant-Date |
|
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.
F-64
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.
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.
F-65
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.
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.
F-66
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-67
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.
F-68
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 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.
F-69
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.
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.
F-70
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 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.
F-71
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 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 filing date of this report.
F-72
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.
F-73
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 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.
F-74
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
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.
F-75
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-76
Operating results by segment for the years ended January 31, 2010, 2009, and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Workforce |
|
|
Video |
|
|
Communications |
|
|
|
|
Year Ended January 31, |
|
Optimization |
|
|
Intelligence |
|
|
Intelligence |
|
|
Total |
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-77
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 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.
F-78
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 Kingdom |
|
|
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.
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.
F-79
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-80
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-81
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.
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-82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
|
|
|
VERINT SYSTEMS INC. |
|
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
May 18, 2010
|
|
By: |
|
/s/ Dan Bodner |
|
|
|
|
|
|
Dan Bodner, President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
May 18, 2010
|
|
By: |
|
/s/ Douglas E. Robinson |
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas E. Robinson, Chief Financial Officer (Principal
Financial Officer and Accounting Officer) |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
|
|
|
/s/ Dan Bodner
|
|
May 18, 2010 |
Dan Bodner, Chief Executive Officer and President; Director of Verint Systems Inc.
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
/s/ Douglas E. Robinson
|
|
May 18, 2010 |
Douglas E. Robinson, Chief Financial Officer of Verint
Systems Inc.
(Principal Financial Officer and Principal Accounting
Officer)
|
|
|
|
|
|
/s/ Paul D. Baker
|
|
May 18, 2010 |
Paul D. Baker, Director of Verint Systems Inc.
|
|
|
189
|
|
|
/s/ John Bunyan
|
|
May 18, 2010 |
John Bunyan, Director of Verint Systems Inc.
|
|
|
|
|
|
/s/ Andre Dahan
|
|
May 18, 2010 |
Andre Dahan, Chairman of the Board of Directors of
Verint Systems Inc.
|
|
|
|
|
|
/s/ Victor A. DeMarines
|
|
May 18, 2010 |
Victor A. DeMarines, Director of Verint Systems Inc.
|
|
|
|
|
|
/s/ Kenneth A. Minihan
|
|
May 18, 2010 |
Kenneth A. Minihan, Director of Verint Systems Inc.
|
|
|
|
|
|
/s/ Larry Myers
|
|
May 18, 2010 |
Larry Myers, Director of Verint Systems Inc.
|
|
|
|
|
|
/s/ Howard Safir
|
|
May 18, 2010 |
Howard Safir, Director of Verint Systems Inc.
|
|
|
|
|
|
/s/ Shefali Shah
|
|
May 18, 2010 |
Shefali Shah, Director of Verint Systems Inc.
|
|
|
|
|
|
/s/ Stephen M. Swad
|
|
May 18, 2010 |
Stephen M. Swad, Director of Verint Systems Inc.
|
|
|
|
|
|
/s/ Lauren Wright
|
|
May 18, 2010 |
Lauren Wright, Director of Verint Systems Inc.
|
|
|
190
Exhibit 10.46
Exhibit 10.46
Summary of the Terms of Verint Systems Inc. Executive Officer Annual Bonus Plan
Verint Systems Inc. (the Company) maintains an annual bonus program (the
AIP) for its executive officers. Under the AIP, each executive officer is eligible to
receive an annual cash bonus upon the satisfaction of pre-determined performance goals. The target
bonus under the AIP is established annually by the Compensation Committee of the Companys Board of
Directors (the Committee) as part of the Committees regular compensation review process
and is paid upon certification by the Committee of the achievement of the underlying performance
goals. In establishing target bonuses, in addition to the factors considered as part of the
compensation review process generally, the 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.
The performance goals under the AIP are based on revenue, a measure of profitability, and a
measure of cash generation (e.g., days sales outstanding) and expressed on a non-GAAP basis. In the
case of executive officers with responsibility for a specific operating unit, unit revenue and unit
profitability goals (contribution margin) are also incorporated into the executive officers
performance goals. In addition to company-wide performance goals (or if applicable, unit-based
goals) a portion of the target bonus may also be tied to the achievement of non-financial
management business objectives (MBOs) approved by the Committee. The financial performance goals
established by the Committee generally come in the form of a range, wherein the executive officer
may achieve a percentage of his or her 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.
Exhibit 21.1
EXHIBIT 21.1
Subsidiaries of Verint
(as of May 18, 2010)
|
|
|
|
|
Jurisdiction of |
|
|
Incorporation or |
Name |
|
Organization |
|
|
|
Comverse Information Systems Ltd. |
|
Israel |
Iontas, Inc. |
|
Delaware |
Iontas Limited |
|
Ireland |
Mercom Systems Technology Limited |
|
United Kingdom |
MultiVision Holdings Limited |
|
British Virgin Islands |
MultiVision IP Management Limited |
|
Hong Kong |
Syborg GmbH |
|
Germany |
Syborg Grundbesitz GmbH |
|
Germany |
Syborg Informationsysteme b.h. OHG |
|
Germany |
Verint Americas Inc. |
|
Delaware |
Verint Blue Pumpkin Software GmbH |
|
Germany |
Verint Blue Pumpkin Software Israel Ltd. |
|
Israel |
Verint Blue Pumpkin Software LLC |
|
Delaware |
Verint Systems (Asia Pacific) Limited |
|
Hong Kong |
Verint Systems (Australia) PTY Ltd. |
|
Australia |
Verint Systems (India) Private Ltd. |
|
India |
Verint Systems Japan K.K. |
|
Japan |
Verint Systems (Macau) Limited |
|
Macau |
Verint Systems (Singapore) Pte. Ltd. (1) |
|
Singapore |
Verint Systems (Zhuhai) Limited |
|
Peoples Republic of China |
Verint Systems B.V. |
|
The Netherlands |
Verint Systems Canada Inc. |
|
Canada |
Verint Systems GmbH |
|
Germany |
Verint Systems Ltd. |
|
Israel |
Verint Systems Poland sp.z.o.o. |
|
Poland |
Verint Systems SAS |
|
France |
Verint Systems UK Ltd. |
|
United Kingdom |
Verint Technology Inc. |
|
Delaware |
Verint Video Solutions AB |
|
Sweden |
Verint Video Solutions Inc. |
|
Nevada |
Verint Video Solutions SL |
|
Spain |
Verint Video Solutions UK Limited |
|
United Kingdom |
Witness Systems (HK) Limited |
|
Hong Kong |
Verint Witness Systems Canada Inc. |
|
Canada |
Witness Systems Deutschland GmbH |
|
Germany |
Verint Witness Systems |
|
United Kingdom |
Verint Witness Systems LLC |
|
Delaware |
Verint Witness Systems S.A. de CV |
|
Mexico |
Verint Witness Systems Services S.A. de CV |
|
Mexico |
Witness Systems Software (India) Private
Limited (2) |
|
India |
Verint Witness Systems Software, Hardware,
E Servicos Do Brasil Ltda |
|
Brazil |
Verint WS Holdings Ltd. |
|
United Kingdom |
View Links Euclipse Ltd. |
|
Israel |
|
|
|
(1) |
|
We own a 50% equity interest in this entity and do not have the power to unilaterally
direct or cause the direction of the management and policies of this entity. |
|
(2) |
|
Shares currently held by local attorneys who organized entity on our behalf pending transfer
to us. |
Exhibit 31.1
EXHIBIT 31.1
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Dan Bodner, certify that:
1. I have reviewed this annual report on Form 10-K of Verint Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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Dated: May 18, 2010 |
By: |
/s/ Dan Bodner |
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Dan Bodner |
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President and Chief Executive Officer
Principal Executive Officer |
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Exhibit 31.2
EXHIBIT 31.2
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Douglas E. Robinson, certify that:
1. I have reviewed this annual report on Form 10-K of Verint Systems Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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Dated: May 18, 2010 |
By: |
/s/ Douglas E. Robinson |
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Douglas E. Robinson |
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Chief Financial Officer
Principal Financial Officer |
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Exhibit 32.1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Verint Systems Inc. (the Company) on Form 10-K for the
period ended January 31, 2010 (the Report), I, Dan Bodner, President and Chief Executive Officer
of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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Dated: May 18, 2010 |
By: |
/s/ Dan Bodner |
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Dan Bodner |
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President and Chief Executive Officer
Principal Executive Officer |
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This certification accompanies this Report on Form 10-K pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended
(the Exchange Act). Such certification will not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent
that the Company specifically incorporates it by reference.
Exhibit 32.2
EXHIBIT 32.2
CERTIFICATION REQUIRED BY 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Verint Systems Inc. (the Company) on Form 10-K for the
period ended January 31, 2010 (the Report), I, Douglas E. Robinson, Chief Financial Officer of
the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
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Dated: May 18, 2010 |
By: |
/s/ Douglas E. Robinson |
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Douglas E. Robinson |
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Chief Financial Officer
Principal Financial Officer |
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This certification accompanies this Report on Form 10-K pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended
(the Exchange Act). Such certification will not be deemed to be incorporated by reference into
any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent
that the Company specifically incorporates it by reference.