10-Q 1 mv6-11_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-15502 COMVERSE TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) NEW YORK 13-3238402 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 170 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797 (Address of principal executive offices) (Zip Code) (516) 677-7200 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) 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. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares of Common Stock, par value $0.10 per share, outstanding as of June 6, 2002 was 187,029,629. Page 1 of 26 Total Pages (Exhibit Index Appears on Page 25) PART I FINANCIAL INFORMATION ITEM 1. Financial Statements. Page ---- 1. Condensed Consolidated Balance Sheets as of January 31, 2002 and April 30, 2002 3 2. Condensed Consolidated Statements of Operations for the Three Month Periods Ended April 30, 2001 and April 30, 2002 4 3. Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended April 30, 2001 and April 30, 2002 5 4. Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 12 2 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS JANUARY 31, APRIL 30, 2002* 2002 (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 1,361,862 $ 1,294,323 Bank time deposits and short-term investments 530,622 583,364 Accounts receivable, net 371,928 348,106 Inventories 56,024 58,714 Prepaid expenses and other current assets 76,667 76,257 --------------- --------------- TOTAL CURRENT ASSETS 2,397,103 2,360,764 PROPERTY AND EQUIPMENT, net 181,761 178,062 OTHER ASSETS 125,299 132,283 --------------- --------------- TOTAL ASSETS $ 2,704,163 $ 2,671,109 =============== =============== ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 322,402 $ 309,318 Advance payments from customers 39,576 37,380 Other current liabilities 4,875 46,688 --------------- --------------- TOTAL CURRENT LIABILITIES 366,853 393,386 CONVERTIBLE DEBENTURES 600,000 600,000 LIABILITY FOR SEVERANCE PAY 9,772 9,721 OTHER LIABILITIES 49,827 9,816 --------------- --------------- TOTAL LIABILITIES 1,026,452 1,012,923 --------------- --------------- MINORITY INTEREST 61,303 62,481 --------------- --------------- STOCKHOLDERS' EQUITY: Common stock, $0.10 par value - authorized, 600,000,000 shares; issued and outstanding, 186,248,350 and 186,820,747 shares 18,625 18,682 Additional paid-in capital 1,018,232 1,024,946 Retained earnings 574,763 551,187 Accumulated other comprehensive income 4,788 890 --------------- --------------- TOTAL STOCKHOLDERS' EQUITY 1,616,408 1,595,705 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,704,163 $ 2,671,109 =============== ===============

*The Condensed Consolidated Balance Sheet as of January 31, 2002 has been summarized from the Company's audited Consolidated Balance Sheet as of that date. The accompanying notes are an integral part of these financial statements. 3 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED APRIL 30, APRIL 30, 2001 2002 Sales $ 365,037 $ 211,194 Cost of sales 142,622 91,777 ------------- ------------- Gross margin 222,415 119,417 Operating expenses: Research and development, net 70,198 62,923 Selling, general and administrative 78,189 73,513 ------------- ------------- Income (loss) from operations 74,028 (17,019) Interest and other income (expense), net 10,380 (5,244) ------------- ------------- Income (loss) before income tax provision 84,408 (22,263) Income tax provision 5,452 1,313 ------------- ------------- Net income (loss) $ 78,956 $ (23,576) ============= ============= Earnings (loss) per share: Basic $ 0.46 $ (0.13) ============= ============= Diluted $ 0.43 $ (0.13) ============= =============

The accompanying notes are an integral part of these financial statements. 4 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)

THREE MONTHS ENDED APRIL 30, APRIL 30, 2001 2002 Cash flows from operating activities: Net cash from operations after adjustment for non-cash items $ 93,405 $ (6,636) Changes in assets and liabilities: Accounts receivable (31,229) 26,448 Inventories 12,725 (1,319) Prepaid expenses and other current assets (2,458) 10,206 Accounts payable and accrued expenses (25,817) (22,401) Liability for severance pay 2,530 (413) Other (19,115) (15,104) ------------- ------------- Net cash provided by (used in) operating activities 30,041 (9,219) ------------- ------------- Cash flows from investing activities: Maturities and sales (purchases) of bank time deposits and investments, net 61,204 (44,647) Purchases of property and equipment (15,535) (6,545) Increase in software development costs (5,405) (3,660) Net assets acquired - (9,706) ------------- ------------- Net cash provided by (used in) investing activities 40,264 (64,558) ------------- ------------- Cash flows from financing activities: Net proceeds (repayments) of bank loans and other debt 100 (533) Proceeds from issuance of common stock 13,179 6,771 ------------- ------------- Net cash provided by financing activities 13,279 6,238 ------------- ------------- Net increase (decrease) in cash and cash equivalents 83,584 (67,539) Cash and cash equivalents, beginning of period 1,275,105 1,361,862 ------------- ------------- Cash and cash equivalents, end of period $ 1,358,689 $ 1,294,323 ============= =============

The accompanying notes are an integral part of these financial statements. 5 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION. Comverse Technology, Inc. ("CTI" and, together with its subsidiaries, the "Company") is engaged in the design, development, manufacture, marketing and support of computer and telecommunications systems and software for multimedia communications and information processing applications. The accompanying financial information should be read in conjunction with the financial statements, including the notes thereto, for the annual period ended January 31, 2002. The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The results of operations for the three month period ended April 30, 2002 are not necessarily indicative of the results to be expected for the full year. INVENTORIES. The composition of inventories at January 31, 2002 and April 30, 2002 is as follows: JANUARY 31, APRIL 30, 2002 2002 (In thousands) Raw materials $ 30,989 $ 27,539 Work in process 12,049 12,533 Finished goods 12,986 18,642 ------------- ------------- $ 56,024 $ 58,714 ============= ============= RESEARCH AND DEVELOPMENT EXPENSES. The Company has received periodic reimbursement from the Israeli Government of a portion of the costs of approved research and development projects conducted at its facilities in Israel. During the three month periods ended April 30, 2001 and 2002, respectively, such reimbursement amounted to $5,667,000 and $1,204,000. The amount of reimbursement received by the Company has declined significantly, and the terms upon which such benefits are available to it have been modified, in recent periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Certain Trends and Uncertainties." Under the terms of the applicable funding agreements, the Company is required to pay royalties on revenues associated with certain of its products resulting from projects that received government funding, and certain products may not be manufactured outside of Israel without government approval. EARNINGS (LOSS) PER SHARE. The computation of basic earnings (loss) per share is based on the weighted average number of outstanding common shares. Diluted earnings (loss) per share further assumes the issuance of common shares for all dilutive potential common shares outstanding. The calculation for earnings per share for the three month periods ended April 30, 2001 and 2002 was as follows: 6

APRIL 30, 2001 APRIL 30, 2002 --------------------------------- ----------------------------------- Per Share Income Per Share Income Shares Amount (Loss) Shares Amount (In thousands, except per share data) BASIC EPS Net Income (Loss) $ 78,956 170,747 $ 0.46 $ (23,756) 186,569 $ (0.13) ====== ======= EFFECT OF DILUTIVE SECURITIES ---------- Options and warrants 9,149 Convertible debentures 3,638 13,954 --------- ------- ------ --------- ------- ------- DILUTED EPS $ 82,594 193,850 $ 0.43 $ (23,756) 186,569 $ (0.13) ========= ======= ====== ========= ======= =======

The diluted earnings (loss) per share computation for the three months ended April 30, 2002 excludes incremental shares of 1,995,600 related to employee stock options. These shares are excluded due to their antidilutive effect as a result of the Company's loss during the period. In addition, debentures convertible into 5,157,963 weighted average shares as of April 30, 2001 and 2002 were not included in the computation of diluted earnings (loss) per share because the effect of including them would be antidilutive. COMPREHENSIVE INCOME (LOSS). For the three month periods ended April 30, 2001 and 2002, total comprehensive income (loss) was $66,041,000 and ($27,474,000), respectively. The elements of comprehensive income (loss) include net income (loss), unrealized gains/losses on available for sale securities and foreign currency translation adjustments. CONVERTIBLE DEBENTURES. In November and December 2000, the Company issued $600,000,000 aggregate principal amount of its 1.50% convertible senior debentures due December 2005 (the "Debentures"). The Debentures are unsecured senior obligations of the Company ranking equally with all of the Company's existing and future unsecured senior indebtedness and are senior in right of payment to any of the Company's existing and future subordinated indebtedness. The Debentures are convertible, at the option of the holders, into shares of the Company's common stock at a conversion price of $116.325 per share, subject to adjustment in certain events; and are subject to redemption at any time on or after December 1, 2003, in whole or in part, at the option of the Company, at redemption prices (expressed as percentages of the principal amount) of 100.375% if redeemed during the twelve-month period beginning December 1, 2003, and 100% of the principal amount if redeemed thereafter. The Debenture holders may require the Company to repurchase the Debentures at par in the event that the common stock ceases to be publicly traded and, in certain instances, upon a change in control of the Company. Upon the occurrence of a change in control, instead of paying the repurchase price in cash, the Company may pay the repurchase price in common stock. ACQUISTIONS. In February 2002, Verint Systems Inc. ("Verint"), a subsidiary of CTI, acquired the digital video recording business of Lanex, LLC. The Lanex business provides digital video recording solutions for security and surveillance applications primarily to North American banks. The purchase price consisted of $9.5 million in cash and a $2.2 million convertible note. The note is non-interest bearing and matures on February 1, 2004. The holder of the note may elect to convert the note, in whole or in part, into shares of Verint's common stock at a conversion price of $16.06 per share. The note is guaranteed 7 by CTI. Pro forma results of operations have not been presented because the effects of this acquisition are not material. In May 2002, the Company signed a definitive agreement to acquire Odigo, Inc. ("Odigo"), a privately-held leading provider of instant messaging and presence management solutions to service providers. The acquisition will cost the Company approximately $20 million in cash and is subject to closing conditions customary for a transaction of this type. Prior to the acquisition, the Company was a strategic partner with Odigo holding an equity position of approximately 12.4%, which it previously acquired for approximately $3 million. Pro forma results of operations will not be presented because the effects of this acquisition will not be material. WORKFORCE REDUCTION AND RESTRUCTURING. During the year ended January 31, 2002, the Company took steps to better align its cost structure with the current business environment, to improve the efficiency of its operations and to better position the Company to realize emerging opportunities. These steps included a reduction in workforce announced in April 2001 and a restructuring plan, which included an additional reduction in workforce, announced in December 2001. As of April 30, 2002 the Company had an accrual balance of approximately $28,116,000 related to the workforce reduction and restructuring plan. A roll forward of the workforce reduction and restructuring plan accrual from January 31, 2002 is as follows:

ACCRUAL ACCRUAL BALANCE AT BALANCE AT JANUARY 31, CASH APRIL 30, 2002 PAYMENTS 2002 ---- -------- ---- (IN THOUSANDS) Severance and related $11,862 $7,984 $ 3,878 Facilities 24,347 109 24,238 ------- ------ ----------- Total $36,209 $8,093 $ 28,116 ======= ====== ===========

Severance and related costs consist primarily of severance payments to terminated employees, fringe related costs associated with severance payments, other termination costs and legal and consulting costs. The balance of the severance and related costs is expected to be paid by October 31, 2002. Facilities costs consist primarily of contractually obligated lease liabilities and operating expenses related to facilities to be vacated primarily in the United States and Israel as a result of the restructuring plan. The balance of the facilities cost is expected to be paid at various dates through January 2011. 8 BUSINESS SEGMENT INFORMATION. The Company's reporting segments are as follows: Enhanced Services Solutions Products - Enable telecommunications service providers to offer a variety of revenue-generating services accessible to large numbers of simultaneous users. These services include a broad range of integrated multimodal messaging, information distribution and personal communications services, such as call answering with one-touch call return, voicemail, IP-based unified messaging (voice, fax and email in a single mailbox, media conversion such as email to voice and visual mailbox presentation), prepaid wireless calling services, wireless data and Internet-based services such as short messaging services, wireless information and entertainment services, multimedia messaging services, and wireless instant messaging interactive voice response, voice portal services, which are part of a voice-controlled portfolio of services such as voice dialing, voice-controlled Web browsing and voice-controlled messaging, and other applications. Service Enabling Signaling Software Products - Interconnect the complex circuit switching, database and messaging systems and manage vital number, routing and billing information that form the backbone of today's public telecommunications networks. These products also are embedded in a range of packet softswitching products to interoperate or converge voice and data networks and facilitate services such as voice over the Internet and Internet offload. This segment represents the Company's Ulticom, Inc. subsidiary. Security and Business Intelligence Recording Products - Provides analytic solutions for communications interception, digital video security and surveillance, and enterprise business intelligence. The software generates actionable intelligence through the collection, retention and analysis of voice, fax, video, email, Internet and data transmissions from multiple types of communications networks. This segment represents the Company's Verint subsidiary. All Other - Includes other miscellaneous operations. The table below presents information about operating income/loss and segment assets as of and for the three month periods ended April 30, 2001 and 2002: 9

Service Security and Enhanced Enabling Business Services Signaling Intelligence Solutions Software Recording All Reconciling Consolidated Products Products Products Other Items Totals ------------------------------------------------------------------------------------------------------- (In thousands) THREE MONTHS ENDED APRIL 30, 2001: Sales $ 313,346 $ 17,033 $ 34,558 $ 2,460 $ (2,360) $ 365,037 Operating Income (Loss) $ 71,585 $ 3,834 $ 85 $ (569) $ (907) $ 74,028 Total Assets $ 1,122,147 $ 238,412 $ 113,049 $ 83,253 $ 1,106,537 $ 2,663,398 THREE MONTHS ENDED APRIL 30, 2002: Sales $ 166,538 $ 7,097 $ 36,317 $ 2,293 $ (1,051) $ 211,194 Operating Income (Loss) $ (14,819) $ (2,903) $ 2,075 $ (265) $ (1,107) $ (17,019) Total Assets $ 1,134,707 $ 237,047 $ 119,729 $ 46,023 $ 1,133,603 $ 2,671,109

Reconciling items consist of the following: Sales - elimination of intersegment revenues. Operating Income (Loss) - elimination of intersegment operating income and corporate operations. Total Assets - elimination of intersegment receivables and unallocated corporate assets. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. This Statement is required to be applied at the beginning of the Company's fiscal year and is to be applied to all goodwill and other intangible assets recognized in its financial statements at that date. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this Statement are to be reported as resulting from a change in accounting principle. Goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to the provisions of this Statement. The adoption of SFAS No. 142 did not have a material effect on the Company's consolidated financial statements. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. SFAS No. 143 applies to legal obligations associated with the retirement of a tangible long-lived asset that 10 result from the acquisition, construction, development and/or normal operation of a long-lived asset. This Statement is effective for fiscal years beginning after June 15, 2002; however, early adoption is encouraged. The adoption of SFAS No. 143 is not expected to have a material effect on the Company's consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supercedes certain provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" and Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years; however, early adoption is encouraged. The adoption of SFAS No. 144 did not have a material effect on the Company's consolidated financial statements. SUBSEQUENT EVENTS. In May 2002, the Company announced the commencement of a voluntary stock option exchange program for its eligible employees. Under the program, which was approved by the Company's shareholders, participating employees are being given the opportunity to have unexercised stock options previously granted to them cancelled, in exchange for replacement options that will be granted at a future date. Replacement options will be granted at a ratio of 0.85 new options for each existing option cancelled, at an exercise price equal to the fair market value of the Company's stock on the date of the re-grant, which currently is expected to be December 23, 2002. Participating employees are expected to have until June 20, 2002 to submit options for cancellation. The exchange program has been designed in accordance with FASB Interpretation No. 44. As per FASB No. 44, the grant of replacement options not less than six months and one day after cancellation will not result in any variable compensation charges relating to these options. In May 2002, Verint issued 4,500,000 shares of its common stock in an initial public offering. As a result of the initial public offering, the Company's ownership interest in Verint was reduced to approximately 79.5%. Proceeds from the offering, based on the offering price of $16.00 per share, totaled approximately $65 million, net of offering expenses. 11 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. INTRODUCTION As explained in greater detail in "Certain Trends and Uncertainties", the Company's two business units serving telecommunications markets are operating within an industry experiencing a deep capital spending contraction and, consequently, have experienced sequential and year over year revenue declines. In contrast, Verint, which services the security and enterprise business intelligence markets, achieved sequential revenue growth based, in part, on heightened awareness surrounding homeland defense and security related initiatives in the U.S. and worldwide. Overall, however, with over 80% of the quarter's sales generated from activities serving the telecommunications industry, during the quarter ended April 30, 2002 the Company experienced a sequential sales decline of approximately 20% and a year over year sales decline of approximately 42%, resulting in a net loss for the quarter. RESULTS OF OPERATIONS THREE MONTH PERIOD ENDED APRIL 30, 2002 COMPARED TO THREE MONTH PERIOD ENDED APRIL 30, 2001 Sales. Sales for the three month period ended April 30, 2002 decreased by approximately $153.8 million, or 42%, compared to the three month period ended April 30, 2001. This decrease is primarily attributable to a decrease in sales of ESS products of approximately $146.8 million. Such decrease was principally due to lower sales to European and American customers. In addition, sales of security and business intelligence recording products and service enabling signaling software products increased (decreased) by approximately $1.8 million and ($8.7) million, respectively. Cost of Sales. Cost of sales for the three month period ended April 30, 2002 decreased by approximately $50.8 million, or 36%, as compared to the three month period ended April 30, 2001. The decrease in cost of sales is primarily attributable to decreased materials and overhead costs of approximately $37.6 million due to the decrease in sales, decreased royalty costs of approximately $6.1 million, decreased personnel-related costs of approximately $4.3 million and decreased travel-related costs of approximately $2.2 million. Gross margins decreased from approximately 60.9% in the three month period ended April 30, 2001 to approximately 56.5% in the three month period ended April 30, 2002. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three month period ended April 30, 2002 decreased by approximately $4.7 million, or 6%, compared to the three month period ended April 30, 2001, while as a percentage of sales increased from approximately 21.4% in the three month period ended April 30, 2001 to approximately 34.8% in the three month period ended April 30, 2002. The decrease is primarily attributable to decreased personnel-related costs of approximately $12.2 million as a result of the reduction in workforce announced in April 2001 12 and the restructuring plan announced in December 2001, decreased travel-related costs of approximately $2.7 million and decreased marketing costs of approximately $1.1 million. These decreases were partially offset by an increase in bad debt expense of approximately $10.6 million. Research and Development. Net research and development expenses for the three month period ended April 30, 2002 decreased by approximately $7.3 million, or 10%, compared to the three month period ended April 30, 2001. The decrease was primarily due to a decrease in personnel costs as a result of the reduction in workforce announced in April 2001 and the restructuring plan announced in December 2001. Interest and Other Income (Expense), Net. Interest and other income (expense), net, for the three month period ended April 30, 2002 decreased by approximately $15.6 million as compared to the three month period ended April 30, 2001. The principal reasons for the decrease are decreased interest and dividend income of approximately $11.2 million due to the decline in interest rates in the three months ended April 30, 2002 as compared to the three months ended April 30, 2001, decreased realized gains on the Company's investments of approximately $6.3 million and decreased equity in the earnings of affiliates of approximately $0.6 million. In addition, during the three month period ended April 30, 2002 the Company recorded a charge of approximately $15.4 million for the write-down of certain of its investments due to an other than temporary decline in their value. These decreases were partially offset by decreased interest expense of approximately $3.3 million due to the redemption of the Company's $300 million 4.50% convertible subordinated debentures in June 2001 and the change in foreign currency gains/losses of approximately $14.4 million. Income Tax Provision. Provision for income taxes for the three month period ended April 30, 2002 decreased by approximately $4.1 million, or 76%, compared to the three month period ended April 30, 2001 due to decreased pre-tax income. The overall effective tax rate was approximately (5.9)% in the three month period ended April 30, 2002 as compared to approximately 6.5% in the three month period ended April 30, 2001. The Company's overall rate of tax is reduced significantly by the tax benefits associated with qualified activities of certain of its Israeli subsidiaries, which are entitled to favorable income tax rates under a program of the Israeli Government for "Approved Enterprise" investments in that country. Net Income (Loss). Net loss was approximately $23.6 million for the three month period ended April 30, 2002 as compared to net income of approximately $79.0 million for the three month period ended April 30, 2001, a decrease of approximately $102.5 million or 130%, while as a percentage of sales net income (loss) was approximately (11.2)% in the three month period ended April 30, 2002 as compared to approximately 21.6% in the three month period ended April 30, 2001. The decrease resulted primarily from the factors described above. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at April 30, 2002 and January 31, 2002 was approximately $1,967.4 million and $2,030.3 million, respectively. 13 Operations for the three month periods ended April 30, 2002 and 2001, after adding back non-cash items, provided (used) cash of approximately ($6.6) million and $93.4 million, respectively. During such periods, other changes in operating assets and liabilities used cash of approximately $2.6 million and $63.4 million, respectively. This resulted in cash provided by (used in) operating activities of approximately ($9.2) million and $30.0 million, respectively. Investment activities for the three month periods ended April 30, 2002 and 2001 provided (used) cash of approximately ($64.6) million and $40.3 million, respectively. These amounts include (i) additions to property and equipment in the three month periods ended April 30, 2002 and 2001 of approximately $6.5 million and $15.5 million, respectively; (ii) maturities and sales (purchases) of bank time deposits and investments, net, of approximately ($44.6) million and $61.2 million, respectively; (iii) capitalization of software development costs of approximately $3.7 million and $5.4 million, respectively and (iv) net assets acquired as a result of an acquisition in the 2002 period of approximately $9.7 million. Financing activities for the three month periods ended April 30, 2002 and 2001 provided cash of approximately $6.2 million and $13.3 million, respectively. These amounts include (i) proceeds from the issuance of common stock in connection with the exercise of stock options, warrants and employee stock purchase plan in the three month periods ended April 30, 2002 and 2001 of approximately $6.8 million and $13.2 million, respectively; and (ii) net proceeds (repayments) of bank loans and other debt of approximately ($0.5) million and $0.1 million, respectively. As of April 30, 2002, the Company had outstanding convertible debentures of $600 million. In January 2002, Verint took a long-term bank loan in the amount of $42 million. This loan, which matures in February 2003, bears interest at LIBOR plus 0.55% and may be prepaid without penalty. The loan is guaranteed by CTI. In February 2002, Verint acquired the digital video recording business of Lanex, LLC. The Lanex business provides digital video recording solutions for security and surveillance applications primarily to North American banks. The purchase price consisted of $9.5 million in cash and a $2.2 million convertible note. The note is non-interest bearing and matures on February 1, 2004. The holder of the note may elect to convert the note, in whole or in part, into shares of Verint's common stock at a conversion price of $16.06 per share. The note is guaranteed by CTI. In May 2002, the Company signed a definitive agreement to acquire Odigo, a privately-held leading provider of instant messaging and presence management solutions to service providers. The acquisition will cost the Company approximately $20 million in cash and is subject to closing conditions customary for a transaction of this type. Prior to the acquisition, the Company was a strategic partner with Odigo holding an equity position of approximately 12.4%, which it previously acquired for approximately $3 million. 14 The Company believes that its existing working capital, together with funds generated from operations, will be sufficient to provide for its planned operations for the foreseeable future. The Company regularly examines opportunities for strategic acquisitions of other companies or lines of business and anticipates that it may from time to time issue additional debt and/or equity securities either as direct consideration for such acquisitions or to raise additional funds to be used (in whole or in part) in payment for acquired securities or assets. The issuance of such securities could be expected to have a dilutive impact on the Company's shareholders, and there can be no assurance as to whether or when any acquired business would contribute positive operating results commensurate with the associated investment. The Company's liquidity and capital resources have not been, and are not anticipated to be, materially affected by restrictions pertaining to the ability of its foreign subsidiaries to pay dividends or by withholding taxes associated with any such dividend payments. CERTAIN TRENDS AND UNCERTAINTIES The Company derives the majority of its revenue from the telecommunications industry, which continues to face an unprecedented recession. This has resulted in a significant reduction of capital expenditures made by TSPs. The Company's operating results and financial condition have been, and will continue to be, adversely affected by the severe decline in technology purchases and capital expenditures by TSPs worldwide. Consequently, the Company's operating results have deteriorated significantly in recent periods and likely will continue to deteriorate in future periods if such conditions remain in effect. For these reasons and the risk factors outlined below, it has been and continues to be very difficult for the Company to accurately forecast future revenues and operating results. The Company's business is particularly dependent on the strength of the telecommunications industry. The telecommunications industry, in general, and the Company, in particular, have been negatively affected by, among other factors, the high costs and large debt positions incurred by some TSPs to expand capacity and enable the provision of future services (and the corresponding risks associated with the development, marketing and adoption of these services as discussed below), including the cost of acquisitions of licenses to provide future broadband services and reductions in TSPs' actual and projected revenues and deterioration in their actual and projected operating results. Accordingly, TSPs in general and the Company's customers in particular have significantly reduced their actual and planned expenditures to expand or replace equipment and delayed and reduced the deployment of services. A number of TSPs, including certain customers of the Company, also have indicated the existence of conditions of excess capacity in certain markets. In addition, TSPs have delayed the planned introduction of new services, such as broadband mobile telephone services, that would be supported by certain of the Company's products. Certain of the Company's customers also have implemented changes in procurement practices and procedures, including limitations on purchases in anticipation of estimated future capacity requirements, and in the management and use of their networks, that have reduced the Company's sales and order backlog, which also has made it very difficult for 15 the Company to project future sales. The continuation and/or exacerbation of these negative trends will have an adverse effect on the Company's future results. In addition to loss of revenue, weakness in the telecommunications industry has affected and will continue to affect the Company's business by increasing the risks of credit or business failures of suppliers, customers or distributors, by customer requirements for vendor financing and longer payment terms, by delays and defaults in customer or distributor payments, and by price reductions instituted by competitors to retain or acquire market share. The Company's current plan of operations is predicated in part on a recovery in capital expenditures by its customers. In the absence of such improvement, the Company would experience further deterioration in its operating results, and may determine to modify its plan for future operations accordingly, which likely may include, among other things, additional reductions in its workforce. The Company intends to continue to make significant investments in its business, and to examine opportunities for growth through acquisitions and strategic investments. These activities may involve significant expenditures and obligations that cannot readily be curtailed or reduced if anticipated demand for the associated products does not materialize or is delayed. The impact of these decisions on future financial results cannot be predicated with assurance, and the Company's commitment to growth may increase its vulnerability to downturns in its markets, technology changes and shifts in competitive conditions. The Company also may not be able to identify future suitable merger or acquisition candidates, and even if the Company does identify suitable candidates, it may not be able to make these transactions on commercially acceptable terms, or at all. If the Company does make acquisitions, it may not be able to successfully incorporate the personnel, operations and customers of these companies into the Company's business. In addition, the Company may fail to achieve the anticipated synergies from the combined businesses, including marketing, product integration, distribution, product development and other synergies. The integration process may further strain the Company's existing financial and managerial controls and reporting systems and procedures. This may result in the diversion of management and financial resources from the Company's core business objectives. In addition, an acquisition or merger may require the Company to utilize cash reserves, incur debt or issue equity securities, which may result in a dilution of existing stockholders, and the Company may be negatively impacted by the assumption of liabilities of the merged or acquired company. Due to rapidly changing market conditions, the Company may find the value of its acquired technologies and related intangible assets, such as goodwill as recorded in the Company's financial statements, to be impaired, resulting in charges to operations. The Company may also fail to retain the acquired or merged companies' key employees and customers. The Company has made, and in the future, may continue to make strategic investments in other companies. These investments have been made in, and future investments will likely be made in, immature businesses with unproven track records and technologies. Such investments have a high degree of risk, with the possibility that the Company may lose the total amount of its investments. The Company may not be able to identify suitable investment candidates, and, even if it does, the Company may not be able to make those 16 investments on acceptable terms, or at all. In addition, even if the Company makes investments, it may not gain strategic benefits from those investments. The telecommunications industry is subject to rapid technological change. The introduction of new technologies in the telecommunications market, including the delay in the adoption of such new technologies, and new alternatives for the delivery of services are having, and can be expected to continue to have, a profound effect on competitive conditions in the market and the success of market participants, including the Company. The Company's continued success will depend on its ability to correctly anticipate technological trends in its industries, to react quickly and effectively to such trends and to enhance its existing products and to introduce new products on a timely and cost-effective basis. As a result, the life cycle of the Company's products is difficult to estimate. In addition, changing industry and market conditions may dictate strategic decisions to restructure some business units and discontinue others. Discontinuing a business unit or product line may result in the Company recording accrued liabilities for special charges, such as costs associated with a reduction in workforce. These strategic decisions could result in changes to determinations regarding a product's useful life and the recoverability of the carrying basis of certain assets. The Company's products involve sophisticated hardware and software technology that performs critical functions to highly demanding standards. There can be no assurance that the Company's current or future products will not develop operational problems, which could have a material adverse effect on the Company. The Company relies on a limited number of suppliers and manufacturers for specific components and may not be able to find alternate manufacturers that meet its requirements and existing or alternative sources may not be available on favorable terms and conditions. Thus, if there is a shortage of supply for these components, the Company may experience an interruption in its product supply. In addition, loss of third party software licensing would materially and adversely affect the Company's business, financial condition and results of operations. The telecommunications industry continues to undergo significant change as a result of deregulation and privatization worldwide, reducing restrictions on competition in the industry. Unforeseen changes in the regulatory environment also may have an impact on the Company's revenues and/or costs in any given part of the world. The worldwide ESS system industry is already highly competitive and the Company expects competition to intensify. The Company believes that existing competitors will continue to present substantial competition, and that other companies, many with considerably greater financial, marketing and sales resources than the Company, may enter the ESS system markets. Moreover, as the Company enters into new markets as a result of its own research and development efforts or acquisitions, it is likely to encounter new competitors. The market for the Company's digital security and surveillance and enterprise business intelligence products in the past has been affected by weakness in general economic conditions, delays or reductions in customers' purchases of capital equipment and uncertainties relating to government expenditure programs. The Company's business generated from government contracts may be adversely affected if: (i) levels of government expenditures and authorizations for law enforcement and security related programs decrease, 17 remain constant or shift to programs in areas where the Company does not provide products and services, (ii) the Company is prevented from entering into new government contracts or extending existing government contracts based on violations or suspected violations of procurement laws or regulations, (iii) the Company is not granted security clearances required to sell products to domestic or foreign governments or such security clearances are revoked, (iv) the Company's reputation or relationship with government agencies is impaired, (v) there is a change in government procurement procedures, or (vi) the Company is suspended from contracting with a domestic or foreign government or any significant law enforcement agency. Competitive conditions in this sector also have been affected by the increasing use by certain potential customers of their own internal development resources rather than outside vendors to provide certain technical solutions. In addition, a number of established government contractors, particularly developers and integrators of technology products, have taken steps to redirect their marketing strategies and product plans in reaction to cut-backs in their traditional areas of focus, resulting in an increase in the number of competitors and the range of products offered in response to particular requests for proposals. The Company has historically derived a significant portion of its sales and operating profit from contracts for large system installations with major customers. The Company continues to emphasize large capacity systems in its product development and marketing strategies. Contracts for large installations typically involve a lengthy and complex bidding and selection process, and the ability of the Company to obtain particular contracts is inherently difficult to predict. The timing and scope of these opportunities and the pricing and margins associated with any eventual contract award are difficult to forecast, and may vary substantially from transaction to transaction. The Company's future operating results may accordingly exhibit a higher degree of volatility than the operating results of other companies in its industries that have adopted different strategies, and also may be more volatile than the Company has experienced in prior periods. The degree of dependence by the Company on large system orders, and the investment required to enable the Company to perform such orders, without assurance of continuing order flow from the same customers and predictability of gross margins on any future orders, increase the risk associated with its business. The Company's gross margins also may be adversely affected by increases in material or labor costs, obsolescence charges, price competition and changes in channels of distribution or in the mix of products sold. Political, economic and military conditions in Israel directly affect the Company's operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, and the continued state of hostility, varying in degree and intensity, has led to security and economic problems for Israel. Since October 2000, there has been a significant increase in violence, primarily in the West Bank and Gaza Strip, and more recently Israel has experienced terrorist incidents within its borders. As a result, negotiations between Israel and representatives of the Palestinian Authority have been sporadic and have failed to result in peace. The Company could be adversely affected by hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners, or a significant downturn in the economic or financial condition of Israel. In addition, the sale of products manufactured in Israel may be adversely affected in certain countries by restrictive laws, policies or 18 practices directed toward Israel or companies having operations in Israel. The continuation or exacerbation of violent conflicts involving Israel and other nations may impede the Company's ability to sell its products in certain countries. In addition, some of the Company's employees in Israel are subject to being called upon to perform military service in Israel, and their absence may have an adverse effect upon the Company's operations. Generally, unless exempt, male adult citizens and permanent residents of Israel under the age of 54 are obligated to perform up to 36 days of military reserve duty annually. Additionally, all such residents are subject to being called to active duty at any time under emergency circumstances. These conditions could disrupt the Company's operations in Israel and its business, financial condition and results of operations could be adversely affected. The Company's costs of operations have at times been affected by changes in the cost of its operations in Israel, resulting from changes in the value of the Israeli shekel relative to the United States dollar, which for certain periods had a negative impact and recently has had a positive impact, and from difficulties in attracting and retaining qualified scientific, engineering and technical personnel in Israel, where the availability of such personnel has at times been severely limited. Changes in these cost factors have from time to time been significant and difficult to predict, and could in the future have a material adverse effect on the Company's results of operations. The Company's historical operating results reflect substantial benefits it has received from programs sponsored by the Israeli government for the support of research and development, as well as tax moratoriums and favorable tax rates associated with investments in approved projects ("Approved Enterprises") in Israel. Some of these programs and tax benefits have ceased and others may not be continued in the future and the availability of such benefits to the Company may be affected by a number of factors, including budgetary constraints resulting from adverse economic conditions, government policies and the Company's ability to satisfy eligibility criteria. The Israeli government has reduced the benefits available under some of these programs in recent years, and Israeli government authorities have indicated that the government may further reduce or eliminate some of these benefits in the future. The Company has regularly participated in a conditional grant program administered by the OCS under which it has received significant benefits through reimbursement of up to 50% of qualified research and development expenditures. Verint currently pays royalties, of between 3% and 5% (or 6% under certain circumstances) of associated product revenues (including service and other related revenues) to the Government of Israel for repayment of benefits received under this program. Such royalty payments by Verint are currently required to be made until the government has been reimbursed the amounts received by the Company plus, for amounts received under projects approved by the OCS after January 1, 1999, interest on such amount at a rate equal to the 12-month LIBOR rate in effect on January 1 of the year in which approval is obtained. During fiscal 2001, Comverse entered into an arrangement with the OCS whereby Comverse agreed to pay a lump sum royalty amount for all past amounts received from the OCS. In addition, Comverse will receive lower amounts from the OCS than it has historically received, but will not have to pay royalty amounts on future grants. The amount of reimbursement received by the Company under this program has been reduced significantly, and the Company does 19 not expect to receive significant reimbursement under this program in the future. In addition, permission from the Government of Israel is required for the Company to manufacture outside of Israel products resulting from research and development activities funded under these programs, or to transfer outside of Israel related technology rights. In order to obtain such permission, the Company may be required to increase the royalties to the applicable funding agencies and/or repay certain amounts received as reimbursement of research and development costs. The continued reduction in the benefits received by the Company under the program, or the termination of its eligibility to receive these benefits at all in the future, could adversely affect the Company's operating results. The Company's overall effective tax rate benefits from the tax moratorium provided by the Government of Israel for Approved Enterprises undertaken in that country. The Company's effective tax rate may increase due to, among other factors, the increased proportion of its taxable income associated with activities in higher tax jurisdictions, and by the relative ages of the Company's eligible investments in Israel. The tax moratorium on income from the Company's Approved Enterprise investments made prior to 1997 is four years, whereas subsequent Approved Enterprise projects are eligible for a moratorium of only two years. Reduced tax rates apply in each case for certain periods thereafter. To be eligible for these tax benefits, the Company must continue to meet conditions, including making specified investments in fixed assets and financing a percentage of investments with share capital. If the Company fails to meet such conditions in the future, the tax benefits would be canceled and the Company could be required to refund the tax benefits already received. Israeli authorities have indicated that additional limitations on the tax benefits associated with Approved Enterprise projects may be imposed for certain categories of taxpayers, which would include the Company. If further changes in the law or government policies regarding those programs were to result in their termination or adverse modification, or if the Company were to become unable to participate in, or take advantage of, those programs, the cost of the Company's operations in Israel would increase and there could be a material adverse effect on the Company's operations and financial results. The Company's success is dependent on recruiting and retaining key management and highly skilled technical, managerial, sales, and marketing personnel. The competition for highly skilled personnel remains very competitive despite the current economic conditions. The Company's ability to attract and retain employees also may be affected by recent cost control actions, including reductions in the Company's workforce and the associated reorganization of operations. The occurrence or perception of security breaches within the Company could harm the Company's business, financial condition and operating results. While the Company implements sophisticated security measures, third parties may attempt to breach the Company's security through computer viruses, electronic break-ins and other disruptions. If successful, confidential information, including passwords, financial information, or other personal information may be improperly obtained and the Company may be subject to lawsuits and other liability. Even if the Company is not held liable, a security breach could harm 20 the Company's reputation, and even the perception of security risks, whether or not valid, could inhibit market acceptance of the Company's products. The Company currently derives a significant portion of its total sales from customers outside of the United States. International transactions involve particular risks, including political decisions affecting tariffs and trade conditions, rapid and unforeseen changes in economic conditions in individual countries, turbulence in foreign currency and credit markets, and increased costs resulting from lack of proximity to the customer. The Company is required to obtain export licenses and other authorizations from applicable governmental authorities for certain countries within which it conducts business. The failure to receive any required license or authorization would hinder the Company's ability to sell its products and could adversely affect the Company's business, financial condition and results of operations. In addition, legal uncertainties regarding liability, compliance with local laws and regulations, labor laws, employee benefits, currency restrictions, difficulty in accounts receivable collection, longer collection periods and other requirements may have a negative impact on the Company's operating results. Volatility in international currency exchange rates may have a significant impact on the Company's operating results. The Company has, and anticipates that it will continue to receive, significant contracts denominated in foreign currencies, particularly the euro. As a result of the unpredictable timing of purchase orders and payments under such contracts and other factors, it is often not practicable for the Company to effectively hedge the risk of significant changes in currency rates during the contract period. The Company may experience risk associated with the failure to hedge the exchange rate risks associated with contracts denominated in foreign currencies and its operating results have been negatively impacted for certain periods and recently have been positively impacted and may continue to be affected to a material extent by the impact of currency fluctuations. Operating results may also be affected by the cost of such hedging activities that the Company does undertake. While the Company generally requires employees, independent contractors and consultants to execute non-competition and confidentiality agreements, the Company's intellectual property or proprietary rights could be infringed or misappropriated, which could result in expensive and protracted litigation. The Company relies on a combination of patent, copyright, trade secret and trademark law to protect its technology. Despite the Company's efforts to protect its intellectual property and proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use its products or technology. Effectively policing the unauthorized use of the Company's products is time-consuming and costly, and there can be no assurance that the steps taken by the Company will prevent misappropriation of its technology, particularly in foreign countries where in many instances the local laws or legal systems do not offer the same level of protection as in the United States. If others claim that the Company's products infringe their intellectual property rights, the Company may be forced to seek expensive licenses, reengineer its products, engage in expensive and time-consuming litigation or stop marketing its products. The Company attempts to avoid infringing known proprietary rights of third parties in its product development efforts. The Company does not regularly conduct comprehensive patent searches to 21 determine whether the technology used in its products infringes patents held by third parties, however. There are many issued patents as well as patent applications in the fields in which the Company is engaged. Because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to the Company's software and products. If the Company were to discover that its products violated or potentially violated third-party proprietary rights, it might not be able to obtain licenses to continue offering those products without substantial reengineering. Any reengineering effort may not be successful, nor can the Company be certain that any licenses would be available on commercially reasonable terms. Substantial litigation regarding intellectual property rights exists in the telecommunications industry, and the Company expects that its products may be increasingly subject to third-party infringement claims as the number of competitors in its industry segments grows and the functionality of software products in different industry segments overlaps. In addition, the Company has agreed to indemnify customers in certain situations should it be determined that its products infringe on the proprietary rights of third parties. Any third-party infringement claims could be time consuming to defend, result in costly litigation, divert management's attention and resources, cause product and service delays or require the Company to enter into royalty or licensing agreements. Any royalty or licensing arrangements, if required, may not be available on terms acceptable to the Company, if at all. A successful claim of infringement against the Company and its failure or inability to license the infringed or similar technology could have a material adverse effect on its business, financial condition and results of operations. The Company holds a large proportion of its net assets in cash equivalents and short-term investments, including a variety of public and private debt and equity instruments, and has made significant venture capital investments, both directly and through private investment funds. Such investments subject the Company to the risks inherent in the capital markets generally, and to the performance of other businesses over which it has no direct control. Given the relatively high proportion of the Company's liquid assets relative to its overall size, the results of its operations are materially affected by the results of the Company's capital management and investment activities and the risks associated with those activities. Declines in the public equity markets have caused, and may be expected to continue to cause, the Company to experience realized and unrealized investment losses. In addition, while the Company's interest and other income has benefited from the positive spread between the fixed interest it pays on its outstanding indebtedness and interest earned on the investment of its cash balances, reduction in prevailing interest rates due to economic conditions or government policies has had and may continue to have an adverse impact on the Company's results of operations. The severe decline in the public trading prices of equity securities, particularly in the technology and telecommunications sectors, and corresponding decline in values of privately-held companies and venture capital funds in which the Company has invested, have, and may continue to have, an adverse impact on the Company's financial results and costs of operations. The Company has in the past benefited from the long-term rise in the public trading price of its shares in various ways, including its ability to use equity incentive arrangements as a means of attracting and retaining the highly qualified employees necessary for 22 the growth of its business and its ability to raise capital on relatively attractive conditions. The decline in the price of the Company's shares, and the overall decline in equity prices generally, and in the shares of technology companies in particular, can be expected to make it more difficult for the Company to rely on equity incentive arrangements as a means to recruit and retain talented employees, and negatively has impacted the ability of the Company to raise capital on terms as advantageous to the Company as in the past. The trading price of the Company's shares has been affected by the factors disclosed herein as well as prevailing economic and financial trends and conditions in the public securities markets. Share prices of companies in technology-related industries, such as the Company, tend to exhibit a high degree of volatility. The announcement of financial results that fall short of the results anticipated by the public markets could have an immediate and significant negative effect on the trading price of the Company's shares in any given period. Such shortfalls may result from events that are beyond the Company's immediate control, can be unpredictable and, since a significant proportion of the Company's sales during each fiscal quarter tend to occur in the latter stages of the quarter, may not be discernible until the end of a financial reporting period. These factors may contribute to the volatility of the trading value of its shares regardless of the Company's long-term prospects. The trading price of the Company's shares may also be affected by developments, including reported financial results and fluctuations in trading prices of the shares of other publicly-held companies in the telecommunications equipment industry in general, and the Company's business segments in particular, which may not have any direct relationship with the Company's business or prospects. FORWARD-LOOKING STATEMENTS From time to time, the Company makes forward-looking statements. 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. The Company may include forward-looking statements in its periodic reports to the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in its proxy statements, in its press releases, in other written materials, and in statements made by employees to analysts, investors, representatives of the media, and others. By their very nature, forward-looking statements are subject to uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. Actual results may differ materially due to a variety of factors, including without limitation those discussed under "Certain Trends and Uncertainties" and elsewhere in this report. Investors and others should carefully consider these and other uncertainties and events, whether or not the statements are described as forward-looking. Forward-looking statements made by the Company are intended to apply only at the time they are made, unless explicitly stated to the contrary. Moreover, whether or not stated in connection with a forward-looking statement, 23 the Company undertakes no obligation to correct or update a forward-looking statement should the Company later become aware that it is not likely to be achieved. If the Company were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that the Company will make additional updates or corrections thereafter. MARKET RISK DISCLOSURES Refer to Item 7A in the Company's Annual Report on Form 10-K for a discussion about the Company's exposure to market risks. 24 PART II Other Information ITEM 1. Legal Proceedings On or about October 19, 2001, a securities class action complaint entitled Kevin Beier v. Comverse Technology, Inc., et al., CV 016972, was filed against CTI and certain of its executive officers in the United States District Court for the Eastern District of New York. An amended consolidated complaint was filed on March 4, 2002. The consolidated complaint generally alleges violations of federal securities laws on behalf of individuals who allege that they purchased CTI's common stock during a purported class period between April 30, 2001 and July 10, 2001. The consolidated complaint seeks an unspecified amount in damages on behalf of persons who purchased CTI stock during the purported class period. The Company believes all claims in the consolidated complaint to be without merit and will vigorously defend against these claims. ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibit Index. None. (b) Reports on Form 8-K. None. 25 SIGNATURES Pursuant to the requirements 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. COMVERSE TECHNOLOGY, INC. Dated: June 10, 2002 /s/ Kobi Alexander ------------------------------------ Kobi Alexander Chairman of the Board and Chief Executive Officer Dated: June 10, 2002 /s/ David Kreinberg ------------------------------------ David Kreinberg Vice President of Finance and Chief Financial Officer 26