Comverse Technology Inc/NY – ‘10-K’ for 1/31/05

On:  Monday, 4/4/05, at 4:45pm ET   ·   For:  1/31/05   ·   Accession #:  909518-5-226   ·   File #:  0-15502

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Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         93    526K 
 2: EX-21       21.1                                                   2     11K 
 3: EX-23       23.1                                                   1      7K 
 4: EX-31       31.1                                                   2±    10K 
 5: EX-31       31.2                                                   2±    10K 
 6: EX-32       Certification per Sarbanes-Oxley Act (Section 906)     1      7K 

10-K   —   Annual Report
Document Table of Contents

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================================================================================
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-K

 Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended January 31, 2005

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.)

909 THIRD AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices)

Registrant's telephone number, including area code: 212-652-6801

 Securities registered pursuant to Section 12(b) of the Act:

                                               Name of each exchange
      Title of each class                      on which registered
      -------------------                      -------------------

     Not applicable                           Not applicable

 Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $.10 PAR VALUE PER SHARE
(Title of Class)

     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

================================================================================

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           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 registrant's knowledge, in definitive proxy or information       
statements incorporated by reference in Part III of this Form 10-K or any       
amendment to this Form 10-K. [ X ]                                              

           Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).                                          

[X] Yes [ ] No  

           The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price as of the last    
business day of the registrant's most recently completed second fiscal quarter, 
July 31, 2004, was approximately $3,336,772,000.                                

    There were 199,543,867 shares of the registrant's common stock
outstanding on March 24, 2005.                                                  

 DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held on June 14, 2005, are incorporated by reference in   
Part III.                                                                       

 ___________________________________

Comverse, Comverse Technology, Total Communication and InSight, are trademarks  
or service marks of the Company. Verint(R), Powering Actionable Intelligence(R),
LORONIX(R) Intelligent Recording(R), OpenStorage Portal(R), and SmartSight(R)   
are registered trademarks and Actionable Intelligence, RELIANT, STAR-GATE,      
ULTRA, VANTAGE, Universal Database and Verint Systems are trademarks of Verint  
Systems Inc., a subsidiary of the Company. Signalware(R) and Ulticom(R) are     
registered trademarks of Ulticom, Inc., a subsidiary of the Company.            

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FORWARD-LOOKING STATEMENTS                                                      

Certain statements discussed in Item 1 (Business), Item 3 (Legal    
Proceedings), Item 7 (Management's Discussion and Analysis of Financial         
Condition and Results of Operations), and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities       
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors that could cause the   
actual results, performance or achievements of results to differ materially from
any future results, performance or achievements expressed or implied by such    
forward-looking statements. Important risks, uncertainties and other important  
factors that could cause actual results to differ materially include, among     
others: changes in the demand for the company's products; changes in capital    
spending among the company's current and prospective customers; the risks       
associated with the sale of large, complex, high capacity systems and with new  
product introductions as well as the uncertainty of customer acceptance of these
new or enhanced products from either the company or its competition; risks      
associated with rapidly changing technology and the ability of the company to   
introduce new products on a timely and cost-effective basis; aggressive         
competition may force the company to reduce prices; a failure to compensate any 
decrease in the sale of the company's traditional products with a corresponding 
increase in sales of new products; risks associated with changes in the         
competitive or regulatory environment in which the company operates; risks      
associated with prosecuting or defending allegations or claims of infringement  
of intellectual property rights; risks associated with significant foreign      
operations and international sales and investment activities, including         
fluctuations in foreign currency exchange rates, interest rates, and valuations 
of public and private equity; the volatility of macroeconomic and industry      
conditions and the international marketplace; risks associated with the         
company's ability to retain existing personnel and recruit and retain qualified 
personnel; and other risks described in filings with the Securities and Exchange
Commission. These risks and uncertainties, as well as other factors, are        
discussed in greater detail at the end of Item 7 (Management's Discussion and   
Analysis of Financial Condition and Results of Operations) of this Form 10-K.   
The company makes 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.                                                              

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COMVERSE TECHNOLOGY, INC. 

 FORM 10-K

FOR THE FISCAL YEAR ENDED JANUARY 31, 2005

 INDEX

                                                        [Enlarge/Download Table]
                                                                                                    
                                                                                                PAGE
                                                                                                ----
                              PART I                                                                

Item 1.  Business.                                                                                3 
Item 2.  Properties.                                                                             14 
Item 3.  Legal Proceedings.                                                                      14 
Item 4.  Submission of Matters to a Vote of Security Holders.                                    14 

                              PART II                                                               

Item 5.  Market For Registrant's Common Equity And Related Stockholder Matters.                  15 
Item 6.  Selected Financial Data.                                                                16 
Item 7.  Management's Discussion And Analysis Of Financial Condition And Results Of Operations.  17 
Item 7A. Quantitative And Qualitative Disclosures About Market Risk.                             46 
Item 8.  Financial Statements And Supplementary Data.                                            47 
Item 9.  Changes In And Disagreements With Accountants On Accounting And Financial Disclosure    47 
Item 9A. Controls And Procedures.                                                                47 
Item 9B. Other Information.                                                                      47 

                             PART III                                                               

Item 10. Directors And Executive Officers Of The Registrant.                                     47 
Item 11. Executive Compensation.                                                                 48 
Item 12. Security Ownership Of Certain Beneficial Owners And Management And                         
          Related Stockholder Matters.                                                           48 
Item 13. Certain Relationships And Related Transactions.                                         48 
Item 14. Principal Accounting Fees And Services.                                                 48 

                              PART IV                                                               

Item 15. Exhibits and Financial Statement Schedules.                                             49 


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PART I
ITEM 1.  BUSINESS.                                                              

           Comverse Technology, Inc. ("CTI" and, together with its subsidiaries,
the "Company"), a New York corporation incorporated in 1984, designs, develops, 
manufactures, markets and supports software, systems, and related services for  
multimedia communication and information processing applications. The Company's 
products are used in a broad range of applications by wireless and wireline     
telecommunications network operators and service providers, call centers, and   
other government, public and commercial organizations worldwide.                

   The Company's subsidiary Comverse, Inc. ("Comverse") provides
telecommunications software, systems, and related services to telecommunications
service providers ("TSPs") that enable voice and data value-added enhanced      
services and real-time billing of communication services. These products        
comprise Comverse's Total Communication portfolio and address four primary      
categories: call completion and call management solutions; advanced messaging   
solutions for groups, communities and person-to-person communication; solutions 
and enablers for the management and delivery of data and content-based services;
and real-time billing and account management solutions for dynamic service      
environments. These products are designed to enhance the communication          
experience and generate TSP traffic and revenue. Comverse's principal market for
its systems consists of organizations that use the systems to provide services  
to the public, often on a subscription or pay-per-usage basis, and includes both
wireless and wireline telecommunications network operators.                     

     Comverse markets its systems throughout the world, with its own
direct sales force and in cooperation with a number of leading international    
vendors of telecommunications infrastructure equipment.                         

   Approximately 400 wireless and wireline TSPs in more than 110
countries, including the majority of the 20 largest telecom companies in the    
world, have selected Comverse's products to provide enhanced telecommunications 
services to their customers. Major network operators and service providers using
Comverse's systems include, among others, AT&T (USA), China Mobile, Cingular    
(USA), Deutsche Telekom (multiple countries), O2 (Germany and UK), Orange       
(multiple countries), Reliance Infocomm (India), SBC Communications (USA),      
Sprint (USA), Telecom Italia (Italy), Telmex (Mexico), Telstra (Australia),     
Verizon (USA), Vimpelcom (Russia), Vivo (Brazil), and Vodafone (multiple        
countries).                                                                     

         Through its subsidiary, Verint Systems Inc. ("Verint"), the Company
provides analytic software-based solutions for communications interception,     
networked video security and business intelligence. Verint's software generates 
actionable intelligence through the collection, retention and analysis of       
unstructured information contained in voice, fax, video, email, Internet and    
data transmissions from voice, video and IP networks. Verint's analytic         
solutions are designed to extract critical intelligence and deliver this        
intelligence to decision makers for more effective action. The security market  
consists primarily of communications interception by law enforcement and other  
government agencies and networked video security utilized by government agencies
and public and private organizations for use in transportation, critical        
infrastructure, public buildings and other government and corporate sites. The  
business intelligence market consists primarily of solutions for enterprises    
that rely on contact centers for voice, email and Internet interactions with    
their customers. Additionally, an emerging segment of business intelligence     
utilizes digital video information to allow enterprises and institutions to     
generate actionable intelligence to enhance their operations, processes and     
performance. Verint sells its business actionable intelligence solutions to     
contact center service bureaus, financial institutions, retailers, utilities,   
communication service providers, manufacturers and other enterprises. Verint has
established marketing relationships with a variety of global value-added        
resellers and a network of systems integrators. Verint is listed on the NASDAQ  
National Market System under the symbol "VRNT." CTI held approximately 59% of   
Verint's outstanding common stock as of January 31, 2005.                       

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   Through its subsidiary Ulticom, Inc. ("Ulticom"), the Company
provides service enabling signaling software for wireline, wireless and Internet
communications. Ulticom's Signalware family of products are used by equipment   
manufacturers, application developers and communication service providers to    
deploy revenue generating infrastructure and enhanced services within the       
mobility, messaging, payment and location segments. Signalware products are also
embedded in a range of packet softswitching products to interoperate or converge
voice and data networks and facilitate services such as voice-over-IP ("VoIP"), 
hosted IP telephony, and virtual private networks. Ulticom is listed on the     
NASDAQ National Market System under the symbol "ULCM." CTI held approximately   
69% of Ulticom's outstanding common stock as of January 31, 2005.               

        The Company markets other telecommunication products and services,
including enhanced wireless roaming services, and automatic call distribution   
and messaging systems for telephone answering service bureaus. The Company also 
engages in venture capital investment and capital market activities for its own 
account.                                                                        

    Throughout this document, references are made to technologies,
features, capabilities, capacities and specifications in conjunction with the   
Company's products and technological resources. Such references do not          
necessarily apply to all product lines, models and system configurations.       

      The Company was incorporated in the State of New York in October
1984. Its headquarters are located at 909 Third Avenue, New York, New York 10022
and its telephone number is (212) 652-6801.                                     

     The Company's Internet address is www.cmvt.com. The information
contained on the Company's website is not included as a part of, or incorporated
by reference into, this Annual Report on Form 10-K. The Company makes available,
free of charge, on its Internet website, its annual report on Form 10-K, its    
quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments  
to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the    
Securities Exchange Act of 1934, as amended, as soon as reasonably practicable  
after the Company has electronically filed such material with, or furnished it  
to, the United States Securities and Exchange Commission.                       

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THE COMPANY'S PRODUCTS                                                          

TOTAL COMMUNICATION PORTFOLIO                                                   

   Comverse is a leading supplier of telecommunication software,
systems, and related services for voice and data value-added enhanced services. 
These value-added enhanced services solutions along with Comverse's real-time   
billing solutions from our Network Systems Division ("CNS") comprise Comverse's 
Total Communication portfolio. Comverse's Total Communication portfolio         
addresses four primary categories: call completion and call management solutions
(e.g., Call Answering, Who Called Service, and Interactive Voice Response       
applications); advanced messaging solutions for groups, communities and         
person-to-person communication (e.g., Voice Messaging, Short Messaging Service  
(SMS), Videomail, Multimedia Messaging Service (MMS), Instant Messaging and     
Mobile Email); solutions and enablers for the management and delivery of data   
and content-based services (e.g., Video Portal, Presence Server, Personal       
Address Book, Mobile Data Gateway, Media Server, Ringback Tones, Media and      
Content Adaptation); and real-time billing and account management for dynamic   
service environments (e.g., Prepaid Calling, Real-Time Data Billing, and        
Converged Prepaid/Post-paid/Voice/Data Billing).                                

           Comverse's InSight solution, a part of Comverse's Total Communication
portfolio, provides a single, open, modular architecture on which a wide variety
of advanced messaging and content services can be hosted. Insight is designed to
improve network efficiencies and leverage the built-in synergies between        
next-generation communication and infotainment services to increase revenues for
wireline and wireless service providers.                                        

        Comverse's principal market for its software, systems, and related
services consists of organizations that use the systems to provide services to  
the public, often on a subscription or pay-per-usage basis, and includes both   
wireless and wireline telecommunications network operators. With Total          
Communication, TSPs benefit from revenue generated by the increase in billable  
completed calls, service-related fees, and increased customer loyalty that      
results in an overall reduction in churn. Wireless TSPs are almost universally  
adding call answering and messaging to their service offerings, often as part of
their basic service package, not only because of these benefits, but also       
because wireless call answering and messaging services directly increase        
billable airtime by stimulating outbound calls and increase billable            
transactions by stimulating person-to-person messaging and information          
retrieval.                                                                      

         Comverse's carrier grade Total Communication software, systems, and
related services have been designed and packaged to meet the capacity,          
reliability, availability, scalability, maintainability, network and OMAP       
(Operations, Maintenance, Administration, and Provisioning) interfaces and      
physical requirements of large telecommunications network operators. The systems
are offered in a variety of sizes and configurations and can be clustered for   
larger capacity installations. The systems are available with redundancy of     
critical components, so that no single failure will interrupt the service.      
Comverse's products are available in both centralized and distributed           
configurations.                                                                 

        Comverse's systems also incorporate components that are compatible
with the Intelligent Network ("IN") and Advanced Intelligent Network ("AIN")    
protocols for Service Control Points and Intelligent Peripherals, permitting    
Comverse's network operator customers to develop and deploy services based on   
the overall IN architecture.                                                    

 Comverse's products incorporate both Comverse-developed and
third-party developed software, and Comverse-designed and third-party hardware, 
and are available in an open, modular, IP standards-based system architecture.  
The systems support a wide variety of digital telephony and IP interfaces and   
signaling systems, allowing them to adapt to a variety of different network     
environments and IN/AIN applications, and enable a "universal port" -- a single 
port that supports multiple applications and services at any time during a      
single call.                                                                    

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SECURITY AND BUSINESS INTELLIGENCE                                              

           Verint is a leading provider of analytic software-based solutions for
the security and business intelligence markets. Verint's software generates     
actionable intelligence through the collection, retention and analysis of voice,
fax, video, email, Internet and data transmissions from multiple types of       
communication networks.                                                         

    Verint's STAR-GATE product line enables communications service
providers, Internet service providers, and communication equipment manufacturers
to overcome the complexities posed by global digital communication and comply   
with governmental requirements. STAR-GATE enables communication service         
providers in receipt of proper legal authorization to intercept simultaneous    
communications over a variety of wireline, wireless and IP networks for delivery
to law enforcement and other government agencies. STAR-GATE's flexibility       
supports multi-network, multi-vendor switch environments for a common interface 
across communication networks and supports switches from communications         
equipment manufacturers, such as Alcatel, Ericsson, Lucent, Nokia, Nortel and   
Siemens. STAR-GATE also supports interfaces to packet data networks, such as the
Internet and Voice over Internet Protocol (VoIP), as well as general packet     
radio services.                                                                 

    Verint's RELIANT and VANTAGE product lines provide intelligent
recording and analysis solutions for communications interception activities for 
law enforcement organizations and intelligence agencies. The RELIANT and VANTAGE
solutions are comprised of a system administration workstation, an operator     
workstation, and collection and storage databases and servers. RELIANT and      
VANTAGE collect intercepted communications from multiple channels and stores    
them for immediate access and further analysis. The system enables the review of
intercepted voice, fax and data transmissions in their original forms through an
easy to use interface and analytics to generate actionable intelligence from the
large amounts of information that can be collected. Law enforcement agencies,   
ranging from local police agencies to national law enforcement agencies, are    
using RELIANT to comply with communications interception legal regulations and  
to generate evidence from intercepted communications that is admissible in a    
court of law.                                                                   

       Verint Networked Video Solutions enable government and commercial
organizations to enhance the security of their facilities and infrastructure and
improve the performance of their operations by networking video across multiple 
locations and applying advanced content analytics to extract actionable         
intelligence from live and stored video. By alerting security personnel to      
potential security threats, Verint Networked Video Solutions are designed to    
help organizations prevent security breaches, improve response time and enhance 
operational efficiency.                                                         

         Verint's ULTRA products record and analyze customer interactions to
provide enterprises with business intelligence about their customers and help   
monitor and improve the performance of their contact centers.                   

SERVICE ENABLING SIGNALING SOFTWARE                                             

          The Company's Ulticom subsidiary provides service enabling signaling
software for wireline, wireless and Internet communications. Ulticom's          
Signalware family of products are used by equipment manufacturers, application  
developers and communication service providers to deploy revenue generating     
infrastructure and enhanced services within the mobility, messaging, payment and
location segments. Signalware products also are embedded in a range of packet   
softswitching products to interoperate or converge voice and data networks and  
facilitate services such as VoIP, hosted IP telephony, and virtual private      
networks.                                                                       

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           Signalware supports a range of applications across multiple networks.
In wireline networks, Signalware has been deployed as part of applications such 
as voice messaging, calling name, and 800 number services. Signalware enables   
wireless infrastructure applications such as global roaming and emergency-911,  
and enhanced services such as text messaging and prepaid calling. Signalware    
also enables the deployment of broadband services such as VoIP in wireline,     
wireless and cable service provider networks.                                   

   Signalware provides signaling system #7 ("SS7"), the globally
accepted signaling standard protocol, which interconnects the complex switching,
database and messaging systems, and manages vital number, routing and billing   
information that form the backbone of today's telecommunications networks.      
Signalware works with multiple SS7 networks, supports a wide variety of SS7     
protocol elements, and enables analog or digital wireline and wireless          
transmissions. It provides the functionality needed for call set-up/termination 
and call routing/billing. Signalware products also include features that enable 
the transition from SS7 signaling to emerging packet signaling standards, as    
defined by the Internet Engineering Task Force, such as Signaling Transport     
("SIGTRAN") and Session Initiation Protocol ("SIP"). New solutions include a    
Signalware SIGTRAN Gateway for enabling circuit to packet network               
interoperability and Signalware SIP for developing next generation services for 
all IP networks.                                                                

   Signalware solutions run on a range of hardware platforms and
operating systems, including Sun Solaris, IBM AIX and Red Hat Linux. These      
solutions can be used in single or multiple computing configurations for fault  
resiliency and reliability. Signalware customers include equipment              
manufacturers, such as Alcatel, Ericsson and Siemens; application developers,   
such as Comverse, Fujitsu and Sonus; and service providers, such as Orange      
Personal Communications, Reliance Infocomm, and Telefonica.                     

OTHER TELECOMMUNICATIONS PRODUCTS AND SERVICES                                  

      The Company's other telecommunications products and services are
developed and marketed through subsidiaries in the United States and            
internationally. These include enhanced wireless roaming services, and automatic
call distribution and messaging systems for telephone answering service bureaus 
and other organizations.                                                        

MARKETS, SALES AND MARKETING                                                    

    Comverse is a leading supplier of telecommunications software,
systems, and related services for voice and data value-added enhanced services. 
Comverse's Total Communication software, systems, and related services are      
marketed by Comverse throughout the world, with its own direct sales force as   
well as local distributors, and in cooperation with a number of leading         
international vendors of telecommunications infrastructure equipment.           

   Approximately 400 wireless and wireline TSPs in more than 110
countries, including the majority of the 20 largest telecom companies in the    
world, have selected Comverse's products to provide enhanced telecommunications 
services to their customers. Major network operators and service providers using
Comverse's systems include, among others, AT&T (USA), China Mobile, Cingular    
(USA), Deutsche Telekom (multiple countries), O2 (Germany and UK), Orange       
(multiple countries), Reliance Infocomm (India), SBC Communications (USA),      
Sprint (USA), Telecom Italia (Italy), Telmex (Mexico), Telstra (Australia),     
Verizon (USA), Vimpelcom (Russia), Vivo (Brazil) and Vodafone (multiple         
countries).                                                                     

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           Comverse provides its customers with marketing consultation, seminars
and materials designed to assist them in marketing enhanced telecommunications  
services, and also undertakes to play an ongoing supporting role in their       
business and market planning processes.                                         

           Verint's products are marketed primarily through a combination of its
direct sales force and channels, including agents, distributors, value-added    
resellers and systems integrators. Verint develops strategic marketing alliances
with leading companies in the industry to expand the coverage and support of its
direct sales force.                                                             

   Verint's products are used by over 1000 organizations and are
deployed in over 50 countries, across many industries and markets. Many users of
the products are large corporations or government agencies that operate from    
multiple locations and facilities across large geographic areas and sometimes   
across several countries. These organizations typically implement Verint's      
solutions in stages, with implementation in one or more sites and then gradually
expanding to a full enterprise, networked-based solution.                       

        Verint's customers include Charter One Bank, CIBC, the Home Depot,
HSBC, the Internal Revenue Service, the London Underground, Orange, Target, the 
U.S. Capitol, and U.S. Department of Defense. These are examples of Verint's    
customers, though not necessarily representative, because Verint is often       
restricted from disclosing the names of its customers for security reasons,     
particularly its communications interception customers.                         

   Ulticom's products are used by more than 50 customers and are
deployed by more than 300 service providers in more than 100 countries. Ulticom 
markets its products and services primarily through a direct sales organization 
and through distributors. Customers include network equipment manufacturers such
as Alcatel, Ericsson and Siemens; application developers such as Comverse,      
Fujitsu, and Sonus; and service providers such as Orange Personal               
Communications, Reliance Infocomm, and Telefonica.                              

        See "Financial Statements" in Item 15 for information on revenues,
operating profit and total assets of each of the Company's segments.            

RESEARCH AND DEVELOPMENT                                                        

           Because of the continuing technological changes that characterize the
telecommunications and computer industries, the Company's success will depend,  
to a considerable extent, upon its ability to continue to develop competitive   
products through its research and development efforts. The Company currently    
employs more than 2,000 scientists, engineers and technicians in its research   
and development efforts, located predominantly in the United States and Israel  
with additional offices in France, Germany, India and Malaysia, with broad      
experience in the areas of digital signal processing, computer architecture,    
telephony, IP, data networking, multi-processing, databases, real-time software 
design and application software design, among others.                           

    A portion of the Company's research and development operations
benefit from financial incentives provided by government agencies to promote    
research and development activities performed in Israel. The cost of such       
operations is and will continue to be affected by the continued availability of 
financial incentives under such programs. During the past fiscal year, the      
Company's research and development activities included projects submitted for   
partial funding under a program administered by the Office of the Chief         
Scientist of the Ministry of Industry and Trade of the State of Israel ("OCS"), 
under which reimbursement of a portion of the Company's research and development
expenditures will be made subject to final approval of project budgets. During  
the year ended January 31, 2003, Comverse finalized an arrangement with the OCS 
under which Comverse no longer would owe royalties to the OCS in return for a   
lump sum payment for all past amounts received from the OCS. Under the          
arrangement, Comverse began to receive lower amounts from the OCS than it had   

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historically received, but is not required to pay royalty amounts on such future
grants. Other subsidiaries of CTI were not part of Comverse's arrangement with  
the OCS and they continue to owe royalties on their sale of certain products    
developed, in part, with funding supplied under such programs. 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 
such programs. In order to obtain such permission the Company will 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
transfer outside of Israel of any intellectual property rights resulting from   
research and development activities funded under OCS programs is not permitted. 
See "Financial Statements" in Item 15, "Licenses and Royalties" and "Operations 
in Israel" in Item 1 and "Management's Discussion and Analysis of Financial     
Condition and Results of Operations" in Item 7.                                 

PATENTS AND INTELLECTUAL PROPERTY RIGHTS                                        

      The Company holds a number of United States and foreign patents.
While the Company files patent applications periodically, no assurance can be   
given that patents will be issued on the basis of such applications or that, if 
patents are issued, the claims allowed will be sufficiently broad to protect the
Company's technology. In addition, no assurance can be given that any patents   
issued to the Company will not be challenged, invalidated or circumvented or    
that the rights granted under the patents will provide significant benefits to  
the Company.                                                                    

      In order to safeguard its unpatented proprietary know-how, trade
secrets and technology, the Company relies primarily upon trade secret          
protection and non-disclosure provisions in agreements with employees and others
having access to confidential information. There can be no assurance that these 
measures will adequately protect the Company from disclosure or misappropriation
of its proprietary information.                                                 

The Company and its customers from time to time receive   
communications from third parties, including some of the Company's competitors, 
alleging infringement by the Company of such parties' patent rights. While such 
communications are common in the computer and telecommunications industries and 
the Company has in the past been able to obtain any necessary licenses on       
commercially reasonable terms, there can be no assurance that the Company would 
prevail in any litigation to enjoin the Company from selling certain of its     
products on the basis of such alleged infringement, or that the Company would be
able to license any valid patents on reasonable terms.                          

          The Company attempts to avoid infringing known proprietary rights of
third parties in its product development efforts. The Company does not, however,
regularly conduct comprehensive patent searches to determine whether the        
technology used in its products infringes patents held by third parties.        

    In January 2000, the Company and Lucent Technologies GRL Corp.
("Lucent") entered into a non-exclusive cross-licensing arrangement covering    
current and certain future patents issued to the Company and its affiliates and 
a portfolio of current and certain future patents in the area of                
telecommunications technology issued to Lucent and its affiliates.              

LICENSES AND ROYALTIES                                                          

          The Company licenses certain technology, know-how and related rights
for use in the manufacture and marketing of its products, and pays royalties to 
third parties under such licenses and under other agreements. The Company       
believes that its rights under such licenses and other agreements are sufficient
for the manufacturing and marketing of its products and, in the case of         
licenses, extend for periods at least equal to the estimated useful lives of the
related technology and know-how.                                                

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DOMESTIC AND INTERNATIONAL SALES AND LONG-LIVED ASSETS                          

           See "Financial Statements" in Item 15 for a breakdown of the domestic
and international sales and long-lived assets for the years ended January 31,   
2003, 2004 and 2005, and see "Certain Trends and Uncertainties" in Item 7 for a 
description of risks attendant to the Company's foreign operations.             

BACKLOG                                                                         

 At January 31, 2005, the backlog of the Company amounted to
approximately $568 million compared to approximately $400 million as of January 
31, 2004. The Company believes that substantially all of such backlog will be   
delivered within the next 12 months.                                            

SERVICE AND SUPPORT                                                             

        The Company has a strong commitment to provide product service and
support to its customers and emphasizes such commitment in its marketing.       
Because of the intensity of use of systems by telecommunications network        
operators and other customers of the Company's products, and their low tolerance
for down-time, the Company is required to make a greater commitment to service  
and support of systems used by these customers, and such commitment increases   
operating costs.                                                                

       The Company's general warranty policy is to replace or repair any
component that fails during a specified warranty period. Broader warranty and   
service coverage is provided in many cases, and is sometimes made available to  
customers on a contractual basis for an additional charge.                      

      The Company provides technical assistance from several locations
around the world. Technical support is available for the Company's customers 24 
hours-a-day, seven days-a-week.                                                 

COMPETITION                                                                     

        The Company faces strong competition in the markets for all of its
products. The market for Total Communication software, systems, and related     
services is highly competitive, and includes numerous products offering a broad 
range of features and capacities. The primary competitors are suppliers of      
turnkey systems and software, and indirect competitors that supply certain      
components to systems integrators. Many of Comverse's competitors specialize in 
a subset of Comverse's portfolio of products. Direct and/or indirect competitors
include, among others, Alcatel, Boston Communications, Ericsson, Glenayre,      
Huawei, IBM, InterVoice, LogicaCMG, Lucent, Motorola, NEC, Nokia, Openwave, SS8 
Networks, Tecnomen, Telcordia, and Unisys. Competitors of Comverse that         
manufacture other telecommunications equipment may derive a competitive         
advantage in selling systems to customers that are purchasing or have previously
purchased other compatible equipment from such manufacturers.                   

        The Company faces indirect competition is from messaging and other
enhanced communication products employed at end-user sites as an alternative to 
the use of services available through telecommunications network operators. This
"enterprise-based equipment" includes a broad range of products, such as        
stand-alone voicemail systems, answering machines, telephone handsets with call 
answering and other enhanced services capabilities, products offering "call     
processing" services that are supplied with voicemail features or integrated    
with other voicemail systems, as well as personal computer modems and add-on    
cards and software designed to furnish enhanced communication capabilities.     

           Comverse believes that competition in the sale of Total Communication
systems is based on a number of factors, the most important of which are product
features and functionality, system capacity and reliability, marketing and      
distribution capability and price. Other important competitive factors include  

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service and support and the capability to integrate systems with a variety of   
telecom networks, IP networks and Operation and Support Systems (OSS). Comverse 
believes that the range of capabilities provided by, and the ease of use of, its
systems compare favorably with other products currently marketed. Comverse      
anticipates that a number of its direct and indirect competitors will introduce 
new or improved systems during the next several years.                          

           Verint faces strong competition in the markets for its products, both
in the United States and internationally. Verint expects competition to persist 
and intensify in the security market, primarily due to increased demand for     
homeland defense and security solutions. Verint's primary competitors are       
suppliers of security and recording systems and software, and indirect          
competitors that supply certain components to systems integrators. In the       
business intelligence market, Verint faces competition from organizations       
emerging from the traditional call logging or call recording market as well as  
software companies that develop and sell products that perform specific         
functions for this market. In addition, many of Verint's competitors specialize 
in a subset of Verint's portfolio of products and services. Primary competitors 
include, among others, Bosch, eTalk, ETI, General Electric, JSI Telecom, March  
Networks, NICE Systems, Pelco, Raytheon, Siemens, SS8 Networks, Tyco, Honeywell 
and Witness Systems. Verint believes it competes principally on the basis of    
product performance and functionality, knowledge and experience in the industry,
product quality and reliability, customer service and support, and price.       

          Verint believes that its success depends primarily on its ability to
provide technologically advanced and cost effective solutions and to continue to
provide its customers with prompt and responsive customer support. Competitors  
that manufacture other security-related systems or other recording systems may  
derive a competitive advantage in selling to customers that are purchasing or   
have previously purchased other compatible equipment from such manufacturers.   
Further, Verint expects that competition will increase as other established and 
emerging companies enter its markets and as new products, services and          
technologies are introduced.                                                    

Competitors of Ulticom primarily are internal development 
organizations within equipment manufactures and application developers who seek,
in a build-versus-buy decision, to develop substitutes for its products. Ulticom
also competes with a number of companies ranging from SS7 software solution     
providers, such as Hughes Software Systems and SS8 Networks, to vendors of      
communication and computing platforms, such as Continuous Computing Corporation 
and Hewlett-Packard Company. Ulticom believes it competes principally on the    
basis of product performance and functionality, product quality and reliability,
customer service and support, and price.                                        

 Many of the Company's present and potential competitors are
considerably larger than the Company, are more established, have a larger       
installed base of customers and have greater financial, technical, marketing and
other resources.                                                                

MANUFACTURING AND SOURCES OF SUPPLIES                                           

       The Company's manufacturing operations consist primarily of final
assembly and testing, involving the application of extensive testing and quality
control procedures to materials, components, subassemblies and systems. The     
Company primarily uses third parties to perform modules and subsystem assembly, 
component testing and sheet metal fabrication. Although the Company generally   
uses standard parts and components in its products, certain components and      
subassemblies are presently available only from a limited number of sources. To 
date, the Company has been able to obtain adequate supplies of all components   
and subassemblies in a timely manner from existing sources or, when necessary,  
from alternative sources or redesign the system to incorporate new modules, when
applicable. However, the inability to obtain sufficient quantities of components
or to locate alternative sources of supply if and as required in the future,    
would adversely affect the Company's operations.                                

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           The Company maintains organization-wide quality assurance procedures,
coordinating the quality control activities of the Company's research and       
development, manufacturing and service departments.                             

CAPITAL MARKET ACTIVITIES                                                       

           The Company seeks to identify and implement suitable investments, and
engages in portfolio investment and capital market activities, including venture
capital investments directly and indirectly through private equity funds. Both  
directly and through a joint venture formed by the Company in partnership with  
Quantum Industrial Holdings Ltd., an investment company managed by Soros Fund   
Management LLC, the Company invests in venture capital in high technology firms,
and engages in other investment activities. The Company has significantly       
reduced its new venture capital investments in recent periods.                  

OPERATIONS IN ISRAEL                                                            

      A substantial portion of the Company's research and development,
manufacturing and other operations are located in Israel and, accordingly, may  
be affected by economic, political and military conditions in that country.     
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 and may in the future, lead to security and economic problems for Israel.  
Current and future conflicts and political, economic and/or military conditions 
in Israel and the Middle East region can directly affect the Company's          
operations in Israel. From October 2000, until recently, terrorist violence in  
Israel increased significantly, primarily in the West Bank and Gaza Strip, and  
Israel has experienced terrorist incidents within its borders. There can be no  
assurance that the recent relative calm and renewed discussions with Palestinian
representatives will continue. The Company could be materially 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 materially adversely affected in certain countries
by restrictive laws, policies or practices directed toward Israel or companies  
having operations in Israel. The continuation or exacerbation of violence in    
Israel or the outbreak of violent conflicts involving Israel may impede the     
Company's ability to sell its products or otherwise adversely affect the        
Company. In addition, many of the Company's Israeli employees in Israel are     
required to perform annual compulsory military service in Israel, 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 upon   
the Company's operations.                                                       

          Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development, and the        
International Finance Corporation, and is a signatory to the General Agreement  
on Tariffs and Trade, which provides for reciprocal lowering of trade barriers  
among its members. In addition, Israel has been granted preferences under the   
Generalized System of Preferences from the United States, Australia, Canada, and
Japan. These preferences allow Israel to export the products covered by such    
programs either duty-free or at reduced tariffs.                                

          Israel has entered into free trade agreements with its major trading
partners. Israel and the European Union are parties to a Free Trade Agreement   
pursuant to which, subject to rules of origin, Israel's industrial exports to   
the European Union are exempt from customs duties and other non-tariff barriers 
and import restrictions. Israel also has an agreement with the United States    
that established a Free Trade Area eliminating all tariff and certain non-tariff
barriers on most trade between the two countries. Israel has also entered into  
an agreement with the European Free Trade Association ("EFTA"), which currently 
includes Iceland, Liechtenstein, Norway and Switzerland, that established a     
free-trade zone between Israel and EFTA nations exempting manufactured goods and
some agricultural goods and processed foods from customs duties, while reducing 
duties on other goods. Israel also has free trade agreements with a number of   
other countries, such as Canada, Mexico and various European countries. The end 
of the Cold War has also enabled Israel to establish commercial and trade       
relations with a number of nations, including Russia and certain countries from 
the former Soviet Union, China, India and the nations of Eastern Europe, with   
whom Israel had not previously had such relations.                              

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   The Company's business is dependent to some extent on trading
relationships between Israel and other countries. Certain of the Company's      
products incorporate components imported into Israel from the United States and 
other countries and most of the Company's products are sold outside of Israel.  
Accordingly, the Company's operations would be adversely affected if trade      
between Israel and its current trading partners were interrupted or curtailed.  
The sale of products manufactured in Israel has been adversely affected in      
certain markets by restrictive laws, policies or practices directed toward      
Israel or companies having operations in Israel. The continuation or            
exacerbation of conflicts involving Israel and other nations may impede the     
Company's ability to sell its products in certain markets.                      

     The Company benefits from various policies of the Government of
Israel, including reduced taxation and special subsidy programs, designed to    
stimulate economic activity, particularly the high technology exporting         
industry, in that country. As a condition of its receipt of funds for various   
research and development projects conducted under programs sponsored by the     
Government of Israel, permission from the Government of Israel is required for  
the Company to manufacture outside of Israel products resulting from the        
research and development activities funded under these programs. In addition,   
the transfer outside of Israel of any intellectual property rights resulting    
from research and development activities funded under the program is not        
permitted.                                                                      

           The results of operations of the Company have been favorably affected
by participation in Israeli government programs related to research and         
development, as well as utilization of certain tax incentives and other         
incentives available under applicable Israeli laws and regulations, some of     
which have been reduced, discontinued or otherwise modified in recent years. In 
addition, the Company's ability to obtain benefits under various discretionary  
funding programs has declined and may continue to decline. The results of       
operations of the Company could be adversely affected if these programs were    
further reduced or eliminated and not replaced with equivalent programs or if   
its ability to participate in these programs were to be reduced significantly.  

EMPLOYEES                                                                       

   At January 31, 2005, the Company employed approximately 5,050
individuals, of whom approximately 80% are scientists, engineers and technicians
engaged in research and development, marketing, support and operations          
activities. The Company considers its relationship with its employees to be     
good.                                                                           

      The Company is not a party to any collective bargaining or other
agreement with any labor organization; however, 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 Industrialists' Association) are applicable to the Company's     
Israeli employees by order of the Israeli Ministry of Labor. Israeli law        
generally requires the payment by employers of severance pay upon the death of  
an employee, his or her retirement or upon termination of his or her employment,
and the Company provides for such payment obligations through monthly           
contributions to an insurance fund. Israeli employees are required to pay and   
employers are required to pay and withhold certain payroll, social security and 
health tax payments, in respect of national health insurance and social security
benefits.                                                                       

          The continuing success of the Company will depend, to a considerable
extent, on the contributions of its senior management and key employees, many of
whom would be difficult to replace, and on the Company's ability to attract and 
retain qualified employees in all areas of its business. Competition for such   

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personnel is intense. In order to attract and retain talented personnel, and to 
provide incentives for their performance, the Company has emphasized the award  
of stock options as an important element of its compensation program, including 
options to purchase shares in certain of the Company's subsidiaries, and        
provides cash bonuses based on several parameters, including the profitability  
of the recipients' respective business units.                                   

ITEM 2.  PROPERTIES.                                                            

As of January 31, 2005, the Company leased an aggregate of
approximately 2,199,000 square feet of office space and manufacturing and       
related facilities for its operations worldwide, including approximately        
1,284,000 square feet in Tel Aviv, Israel, approximately 367,000 square feet in 
Wakefield, Massachusetts, approximately 63,000 square feet in Long Island, New  
York, approximately 85,000 square feet in Mt. Laurel, New Jersey, an aggregate  
of approximately 132,000 square feet at various other locations in the United   
States and an aggregate of approximately 268,000 square feet at various         
locations in Europe, Asia-Pacific, South America, Africa and Canada.            
Approximately 161,000 square feet of this space is sub-leased to others. The    
aggregate base monthly rent for the facilities under lease as of January 31,    
2005, net of sub-lease income, was approximately $2,548,000, and all of such    
leases are subject to various pass-throughs and escalation adjustments.         

      In addition, the Company owns office space and manufacturing and
related facilities of approximately 40,000 square feet in Durango, Colorado,    
approximately 29,000 square feet in Bexbach, Germany, and approximately 423,000 
square feet of unimproved land in Ra'anana, Israel and 25 acres of land in      
Durango, Colorado.                                                              

        The Company believes that its facilities currently under lease are
more than adequate for its current operations, and may endeavor selectively to  
reduce its existing facilities commitments as circumstances may warrant.        

ITEM 3.  LEGAL PROCEEDINGS.                                                     

On March 16, 2004, BellSouth Intellectual Property Corp.  
("BellSouth") filed a complaint in the United States District Court for the     
Northern District of Georgia against Comverse Technology, Inc. alleging         
infringement of Patent Nos. 5,857,013 and 5,764,747 (the "Patents"), and it     
subsequently amended the complaint to include Comverse Inc., in an action       
captioned: BellSouth Intellectual Property Corp. v. Comverse Technology, Inc.   
and Comverse, Inc., Civil Action No. 1:04-CV-0739. BellSouth alleged that the   
Patents cover certain aspects of some of the Company's voicemail systems. The   
Company retained outside legal counsel specializing in patent litigation, and   
filed an Answer and Counterclaim denying all allegations. On or about December  
20, 2004, the Company executed a settlement agreement with BellSouth and some of
its related entities covering the Company and the Company's customers.          

  From time to time, the Company is subject to claims in legal
proceedings arising in the normal course of its business. The Company does not  
believe that it is currently a party to any pending legal action that could     
reasonably be expected to have a material adverse effect on its business,       
financial condition and results of operations.                                  

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                

        No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year 2004.                                             

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 PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY                                  
AND RELATED STOCKHOLDER MATTERS.                              

         The Common Stock of CTI trades on the NASDAQ National Market System
under the symbol CMVT. The following table sets forth the range of closing      
prices of the Common Stock as reported on NASDAQ for the past two fiscal years: 

  YEAR              FISCAL QUARTER              LOW         HIGH

   2003           2/1/03   -    4/30/03         $ 8.82      $13.33
                  5/1/03   -    7/31/03         $12.08      $16.64
                  8/1/03   -   10/31/03         $13.41      $18.04
                 11/1/03   -    1/31/04         $16.55      $19.95

   2004           2/1/04   -    4/30/04         $16.36      $20.69
                  5/1/04   -    7/31/04         $16.10      $19.94
                  8/1/04   -   10/31/04         $15.48      $20.99
                 11/1/04   -    1/31/05         $20.59      $25.03

           There were 1,584 holders of record of Common Stock at March 24, 2005.
Such record holders include a number of holders who are nominees for an         
undetermined number of beneficial owners. The Company believes that the number  
of beneficial owners of the shares of Common Stock outstanding at such date was 
approximately 40,000.                                                           

           The Company has not declared or paid any cash dividends on its equity
securities and currently does not expect to pay any cash dividends in the near  
future, but rather intends to retain its earnings to finance the development of 
the Company's business. Any future determination as to the declaration and      
payment of dividends will be made by the Board of Directors in its discretion,  
and will depend upon the Company's earnings, financial condition, capital       
requirements and other relevant factors. See "Management's Discussion and       
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."                                                                     

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ITEM 6.  SELECTED FINANCIAL DATA.                                               

The following tables present selected consolidated financial data for the       
Company for the years ended January 31, 2001, 2002, 2003, 2004 and 2005. Such   
information has been derived from the Company's audited consolidated financial  
statements and should be read in conjunction with the Company's consolidated    
financial statements and the notes to the consolidated financial statements     
included elsewhere in this report. All per share data has been restated to      
reflect a two-for-one stock split effected as a 100% stock dividend to          
shareholders of record on March 27, 2000, distributed on April 3, 2000.         

                                                        [Enlarge/Download Table]


                                                                      YEAR ENDED JANUARY 31,                          
                                           ---------------------------------------------------------------------------
                                                 2001             2002           2003          2004           2005    
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)                   
                                                                                                                      
Statement of Operations Data:                                                                                         

Sales                                          $1,225,058      $1,270,218      $735,889       $765,892       $959,442 

Acquisition expenses                               15,971               -             -              -          4,635 

Workforce reduction, restructuring and                                                                                
impairment charges (credits)                            -          63,562        66,714         (2,123)            62 

Income (loss) from operations                     234,624          64,844      (182,741)       (30,378)        46,933 

Net income (loss)                                 249,136          54,619      (129,478)        (5,386)        57,330 

Earnings (loss) per share - diluted                  1.39            0.29         (0.69)         (0.03)          0.28 

                                                                             JANUARY 31,                              
                                           ---------------------------------------------------------------------------
                                                 2001             2002           2003          2004           2005    
                                                                            (IN THOUSANDS)                            
Balance Sheet Data:                                                                                                   

Working capital                                $1,860,379      $2,030,250    $1,766,507     $2,141,277     $2,139,789 

Total assets                                    2,625,264       2,704,163     2,403,659      2,728,042      2,925,286 

Long-term debt, including current portion         906,723         648,611       439,628        555,941        518,254 

Stockholders' equity                            1,236,165       1,616,408     1,549,692      1,672,546      1,794,029 


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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.                                                

CRITICAL ACCOUNTING POLICIES                                                    

         Critical accounting policies are those that are both most important
to the portrayal of a company's financial position and results of operations,   
and require management's most difficult, subjective or complex judgments.       
Although not all of the Company's critical accounting policies require          
management to make difficult, subjective or complex judgments or estimates, the 
following policies and estimates are those that the Company deems most critical.

           The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires          
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at   
the date of the financial statements and the reported amounts of revenues and   
expenses during the reporting period. Actual results could differ from those    
estimates.                                                                      

          The Company recognizes revenues in accordance with the provisions of
Statement of Position 97-2, "Software Revenue Recognition", and related         
Interpretations. The Company's systems are generally a bundled hardware and     
software solution that are shipped together. Revenue is generally recognized at 
the time of shipment for sales of systems which do not require significant      
customization to be performed by the Company when the following criteria are    
met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred
and acceptance is determinable, (3) the fee is fixed or determinable and (4)    
collectibility is probable.                                                     

        Amounts received from customers pursuant to the terms specified in
contracts but for which revenue has not yet been recognized are recorded as     
advance payments from customers.                                                

         Post-contract customer support ("PCS") services are sold separately
or as part of a multiple element arrangement, in which case the related PCS     
element is determined based upon vendor-specific objective evidence of fair     
value, such that the portion of the total fee allocated to PCS services is      
generally recognized as revenue ratably over the term of the PCS arrangement.   

          Revenues from certain development contracts are recognized under the
percentage-of-completion method on the basis of physical completion to date or  
using actual costs incurred to total expected costs under the contract.         
Revisions in estimates of costs and profits are reflected in the accounting     
period in which the facts that require the revision become known. At the time a 
loss on a contract is known, the entire amount of the estimated loss is accrued.
Amounts received from customers in excess of revenues earned under the          
percentage-of-completion method are recorded as advance payments from customers.

Cost of sales include material costs, subcontractor costs,
personnel-related costs for the operations and service departments, depreciation
and amortization of equipment used in the operations and service departments,   
amortization of capitalized software development costs, royalties and license   
fee costs, travel costs and an overhead allocation. Research and development    
costs include subcontractor costs, personnel-related costs, travel, depreciation
and amortization of research and development equipment, an overhead allocation, 
as well as other costs associated with research and development activities.     
Selling, general and administrative costs include personnel-related costs, sales
commissions, bad debt expense, travel, depreciation and amortization, marketing 
and promotional materials, professional fees, insurance costs, facility costs,  
as well as other costs associated with sales, marketing, finance and            
administrative departments.                                                     

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           Accounts receivable are generally diversified due to the large number
of commercial and government entities comprising the Company's customer base and
their dispersion across many geographical regions. As of January 31, 2005, there
was no single customer balance that comprised 10% of the overall accounts       
receivable balance. The Company is required to estimate the collectibility of   
its accounts receivable each accounting period and record a reserve for bad     
debts. A considerable amount of judgment is required in assessing the           
realization of these receivables, including the current creditworthiness of each
customer, current and historical collection history and the related aging of    
past due balances. The Company evaluates specific accounts when it becomes aware
of information indicating that a customer may not be able to meet its financial 
obligations due to deterioration of its financial condition, lower credit       
ratings, bankruptcy or other factors affecting the ability to render payment.   
Reserve requirements are based on the facts available and are re-evaluated and  
adjusted as additional information is received. The Company's policy is to      
account for recoveries of previously reserved for doubtful accounts upon the    
receipt of cash where there is no evidence of recoverability for items          
specifically reserved for prior to the receipt of cash. During the year ended   
January 31, 2005, the Company recorded expenses of approximately $7.1 million,  
which increased the allowance for doubtful accounts. The Company recorded       
recoveries of approximately $19.4 million for the year ended January 31, 2005,  
which reduced the allowance for doubtful accounts. The recoveries were recorded 
in the period that the cash was received from customers for items that had      
previously been reserved for as doubtful of collection.                         

          Software development costs are capitalized upon the establishment of
technological feasibility and are amortized over the estimated useful life of   
the software, which to date has been four years or less. Amortization begins in 
the period in which the related product is available for general release to     
customers. During the year ended January 31, 2005, the Company capitalized      
approximately $4.2 million of software development costs and amortized          
approximately $14.3 million of such costs. In addition, during the year ended   
January 31, 2005, the Company recorded write-downs of approximately $5.0 million
of capitalized software development costs to its estimated net realizable value,
primarily as a result of the Company's transition to its newer product line as  
well as duplicative technology that arose as a result of Verint's acquisitions  
during the period.                                                              

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RESULTS OF OPERATIONS                                                           

HISTORICAL RESULTS                                                              

          Consolidated results of operations in dollars and as a percentage of
sales for each of the three years in the period ended January 31, 2005 were as  
follows:                                                                        

                                                        [Enlarge/Download Table]


                                           January 31,            January 31,              January 31,        
                                              2003        %          2004           %         2005         %  
                                              ----       ----        ----          ----       ----        ----
                                                                     (In thousands)                           
                                                                                                              
Sales:                                                                                                        
   Product revenues                       $   547,141    74.4%  $   534,585       69.8%  $   700,970     73.1%
   Service revenues                           188,748    25.6%      231,307       30.2%      258,472     26.9%
                                          ------------          ------------             ------------         
                                              735,889   100.0%      765,892      100.0%      959,442    100.0%

Cost of sales:                                                                                                
   Product costs                              184,413    33.7%      181,059       33.9%      215,023     30.7%
   Service costs                              153,708    81.4%      146,501       63.3%      165,687     64.1%
                                          ------------          ------------             ------------         
                                              338,121    45.9%      327,560       42.8%      380,710     39.7%

Gross margin                                  397,768    54.1%      438,332       57.2%      578,732     60.3%

Operating expenses:                                                                                           
Research and development, net                 232,593    31.6%      216,457       28.3%      236,657     24.7%
Selling, general and administrative           281,202    38.2%      254,376       33.2%      290,445     30.3%
In-process research and development                                                                           
   and other acquisition-related charges            -     0.0%            -        0.0%        4,635      0.5%
Workforce reduction, restructuring                                                                            
   and impairment charges (credits)            66,714     9.1%       (2,123)      -0.3%           62      0.0%
                                          ------------          ------------             ------------         

Income (loss) from operations                (182,741)  -24.8%      (30,378)      -4.0%       46,933      4.9%

Interest and other income, net                 58,902     8.0%       38,958        5.1%       36,223      3.8%
                                          ------------          ------------             ------------         

Income (loss) before income tax                                                                               
 provision, minority interest and                                                                             
 equity in the earnings                                                                                       
 (losses) of affiliates                      (123,839)  -16.8%        8,580        1.1%       83,156      8.7%

Income tax provision                            3,294     0.4%        8,206        1.1%       13,214      1.4%

Minority interest and equity in the                                                                           
   earnings (losses) of affiliates             (2,345)   -0.3%       (5,760)      -0.8%      (12,612)    -1.3%
                                          ------------          ------------             ------------         

Net income (loss)                         $  (129,478)  -17.6%  $    (5,386)      -0.7%  $    57,330      6.0%
                                          ============          ============             ============         


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          A detailed description of the Company's business segments as well as
additional financial data, can be found in Note 19 of the Notes to the          
Consolidated Financial Statements. The following is a summary of sales and      
income (loss) from operations by segment in dollars and as a percentage of      
sales, for each segment and in total, for each of the three years in the period 
ended January 31, 2005:                                                         

                                                        [Enlarge/Download Table]


                                 January 31,           January 31,               January 31,        
                                    2003         %        2004              %       2005         %  
                                    ----        ---       ----             ---      ----        --- 
                                                         (In thousands)                             
                                                                                                    
Sales:                                                                                              
------                                                                                              

   CNS                          $   542,984    73.8%  $   529,597        69.1%  $   642,692    67.0%
   Ulticom                           29,231     4.0%       38,378         5.0%       63,436     6.6%
   Verint                           157,775    21.4%      192,744        25.2%      249,824    26.0%
   All other                          9,602     1.3%        9,983         1.3%       10,132     1.1%
   Reconciling items                 (3,703)   -0.5%       (4,810)       -0.6%       (6,642)   -0.7%
                                ------------          ------------              ------------        

Consolidated total              $   735,889   100.0%     $765,892       100.0%     $959,442   100.0%
                                ============          ============              ============        

Income (loss) from operations:                                                                      
------------------------------                                                                      

   CNS                          $  (179,492)  -33.1%  $   (40,913)       -7.7%  $    20,550     3.2%
   Ulticom                           (8,362)  -28.6%        2,824         7.4%       20,566    32.4%
   Verint                            10,051     6.4%       17,189         8.9%       17,384     7.0%
   All other                           (615)   -6.4%       (1,152)      -11.5%         (788)   -7.8%
   Reconciling items                 (4,323)     n/m       (8,326)         n/m      (10,779)     n/m
                                ------------          ------------              ------------        

Consolidated total              $  (182,741)  -24.8%  $   (30,378)       -4.0%  $    46,933     4.9%
                                ============          ============              ============        

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 that has been experiencing a challenging capital   
spending environment, although there is evidence of recent improvement. Both    
business units achieved year over year revenue, operating income and net income 
growth during the year ended January 31, 2005. Verint, which services the       
security and business intelligence markets, achieved record revenue, operating  
income and net income during the year ended January 31, 2005 based, in part, on 
increased sales due to heightened awareness surrounding homeland defense and    
security related initiatives in the United States and abroad as well as         
increased business intelligence sales. Overall, for the year ended January 31,  
2005, the Company experienced year over year sales growth of approximately      
25.3%, with a substantial majority of sales generated from activities serving   
the telecommunications industry. The Company generated operating and net income 
for the year ended January 31, 2005.                                            

  During the year ended January 31, 2005, the Company recorded
recoveries of approximately $19.4 million, which reduced the allowance for      
doubtful accounts and increased the Company's operating and net income. The     
recoveries were recorded as a result of cash being collected from approximately 
20 customers for items that previously had been reserved for as doubtful of     
collection during the period that the telecommunications industry experienced a 
severe capital spending recession. Such recoveries, which the Company attributes
to factors including the improved environment for the telecommunications        
industry as a whole, and the Company's wireless carrier customers in particular,
were recorded in the period that the cash was received. In addition, the Company
recorded expenses of approximately $7.1 million during the year ended January   
31, 2005, which increased the allowance for doubtful accounts thereby reducing  
the Company's operating and net income.                                         

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  During the year ended January 31, 2005, the Company recorded
write-downs of approximately $4.1 million of fixed assets to its estimated net  
realizable value, primarily as a result of the obsolescence of such fixed       
assets. Such write-downs reduced Property and Equipment, Net and decreased      
operating and net income. In addition, during the year ended January 31, 2005,  
the Company recorded write-downs of approximately $5.0 million of capitalized   
software development costs to its estimated net realizable value, primarily as a
result of the Company's transition to its newer product line as well as         
duplicative technology that arose as a result of Verint's acquisitions during   
the period. Such write-downs reduced Other Assets and decreased operating and   
net income. In addition, during the year ended January 31, 2005, the Company    
incurred approximately $0.9 million of transaction costs as a result of the     
Company's offer to exchange its Zero Yield Puttable Securities ("ZYPS") (the    
"Existing ZYPS") for new ZYPS (the "New ZYPS"). Such costs are included in      
`Interest and other income, net' in the Consolidated Statements of Operations.  
Also, during the year ended January 31, 2005, the Company incurred a charge of  
approximately $3.1 million of purchased in-process research and development as a
result of Verint's purchase of ECtel's government surveillance business.        

YEAR ENDED JANUARY 31, 2005 COMPARED TO YEAR ENDED JANUARY 31, 2004             

      Sales. Sales for the fiscal year ended January 31, 2005 ("fiscal
2004") increased by approximately $193.6 million, or 25%, compared to the fiscal
year ended January 31, 2004 ("fiscal 2003"). This increase is attributable to an
increase in sales in the Company's three primary business units. CNS sales      
increased by approximately $113.1 million, due primarily to increased business  
in Europe and the Americas. Security and business intelligence recording sales  
increased by approximately $57.1 million, and service enabling signaling        
software sales increased by approximately $25.1 million. On a consolidated      
basis, service revenues represented approximately 27% and 30% of sales for      
fiscal 2004 and fiscal 2003, respectively, and sales to international customers 
represented approximately 69% and 66% of sales for fiscal 2004 and fiscal 2003, 
respectively.                                                                   

Cost of Sales. Cost of sales for fiscal 2004 increased by 
approximately $53.2 million, or 16%, compared to fiscal 2003. The increase in   
cost of sales is primarily attributable to increased materials and overhead     
costs net of overhead absorption of approximately $35.9 million, due primarily  
to increased sales, increased personnel-related costs of approximately $18.0    
million and write-downs of approximately $3.6 million of capitalized software   
development costs to its estimated net realizable value, primarily as a result  
of the Company's transition to its newer product line. Such increases were      
partially offset by increased recoveries of doubtful debts, which increased from
approximately $1.5 million in fiscal 2003 to approximately $5.8 million in      
fiscal 2004, an increase of approximately $4.3 million. Gross margins increased 
to approximately 60.3% in fiscal 2004 from approximately 57.2% in fiscal 2003.  

          Research and Development, Net. Net research and development expenses
for fiscal 2004 increased by approximately $20.2 million, or 9%, compared to    
fiscal 2003. However, net research and development expenses as a percentage of  
sales decreased to approximately 24.7% in fiscal 2004 from approximately 28.3%  
in fiscal 2003. The increase in the dollar amount of net research and           
development expenses is primarily attributable to increased subcontractor costs 
of approximately $12.0 million and increased personnel-related costs of         
approximately $8.7 million, partially offset by a net decrease in various other 
costs of approximately $0.5 million.                                            

Selling, General and Administrative. Selling, general and 
administrative expenses for fiscal 2004 increased by approximately $36.1        
million, or 14%, compared to fiscal 2003. However, selling, general and         
administrative expenses as a percentage of sales decreased to approximately     
30.3% in fiscal 2004 from approximately 33.2% in fiscal 2003. The increase in   
the dollar amount of selling, general and administrative expenses is primarily  
attributable to increased personnel-related costs, employee and agent sales     
commissions, professional fees and travel costs of approximately $20.7 million, 
$14.4 million, $4.0 million and $3.2 million, respectively, and net increase in 
various other costs of approximately $2.1 million. Such increases were partially
offset by decreased bad debt expense of approximately $5.4 million and increased
recoveries of doubtful debts, which increased from approximately $10.7 million  
in fiscal 2003 to approximately $13.6 million in fiscal 2004, an increase of    
approximately $2.9 million.                                                     

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       In-process Research and Development and Other Acquisition-related
Charges. During fiscal 2004, the Company incurred approximately $4.6 million for
in-process research and development and other acquisition-related charges       
resulting from Verint's purchase of ECtel's government surveillance business, as
follows: (i) approximately $3.1 million of purchased in-process research and    
development, which was charged to expense at the acquisition, and (ii)          
approximately $1.5 million for the write-down of certain capitalized software   
development costs to their net realizable value at the date of acquisition, due 
to impairment caused by the existence of duplicative technology.                

          Workforce reduction, restructuring and impairment charges (credits).
During the year ended January 31, 2002, the Company committed to and began      
implementing a restructuring program to better align its cost structure with the
business environment and to improve the efficiency of its operations via        
reductions in workforce, restructuring of operations and the write-off of       
impaired assets. In connection with the restructuring, the Company changed its  
organizational structure and product offerings, resulting in the impairment of  
certain assets. In connection with these actions, during fiscal 2003 and fiscal 
2004, the Company incurred net charges (credits) to operations of approximately 
$(2.1) million and $0.1 million, respectively. The fiscal 2003 net credit of    
approximately $2.1 million is comprised of a charge of approximately $4.5       
million for severance and other related costs, a credit of approximately $8.0   
million for the reversal of a previously taken charge for the elimination of    
excess facilities and related leasehold improvements, primarily as a result of  
the sublet of a portion of the excess facilities, and a charge of approximately 
$1.4 million for the write-off of certain property and equipment. The fiscal    
2004 net charge of approximately $0.1 million is comprised of a charge of       
approximately $0.6 million for severance and other related costs, a credit of   
approximately $0.7 million for the reversal of a previously taken charge for the
elimination of excess facilities and related leasehold improvements, primarily  
as a result of the sublet of a portion of the excess facilities, and a charge of
approximately $0.2 million for the write-off of certain property and equipment. 
The Company expects to pay out approximately $0.1 million for severance and     
related obligations through July 31, 2005 and approximately $21.5 million for   
facilities and related obligations at various dates through January 2011.       

      Income (Loss) from Operations. Income (loss) from operations for
fiscal 2004 increased by approximately $77.3 million compared to fiscal 2003,   
and as a percentage of sales was approximately 4.9% in fiscal 2004 compared to  
approximately (4.0)% in fiscal 2003. These changes resulted primarily from the  
factors described above.                                                        

        On a business segment basis, income (loss) from operations for CNS
for fiscal 2004 increased by approximately $61.5 million compared to fiscal     
2003, and as a percentage of sales was approximately 3.2% in fiscal 2004        
compared to approximately (7.7)% in fiscal 2003. Income from operations for     
Verint for fiscal 2004 increased by approximately $0.2 million compared to      
fiscal 2003, but as a percentage of sales decreased to approximately 7.0% in    
fiscal 2004 from approximately 8.9% in fiscal 2003. Income from operations for  
Ulticom for fiscal 2004 increased by approximately $17.7 million compared to    
fiscal 2003, and as a percentage of sales increased to approximately 32.4% in   
fiscal 2004 from approximately 7.4% in fiscal 2003.                             

        Interest and Other Income, Net. Interest and other income, net for
fiscal 2004 decreased by approximately $2.7 million compared to fiscal 2003. The
principal reasons for the decrease are (i) a decrease in the gain recorded as a 
result of the Company's repurchases of its 1.50% convertible senior debentures  
due December 2005 (the "Debentures") of approximately $9.9 million; (ii) a      
decrease in foreign currency gains of approximately $2.2 million; (iii)         
approximately $0.9 million of transaction costs incurred during fiscal 2004 as a
result of the Company's offer to exchange the Existing ZYPS for the New ZYPS;   
and (vi) other decreases of approximately $1.1 million, net. Such items were    

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offset by (i) increased interest and dividend income of approximately $6.5      
million, due primarily to the rise in interest rates; (ii) decreased interest   
expense of approximately $3.0 million, due primarily to the Company's           
repurchases of its Debentures and other debt reduction; and (iii) a change in   
the net gains/losses from the sale and write-down of investments of             
approximately $1.9 million.                                                     

      Income Tax Provision. Provision for income taxes for fiscal 2004
increased by approximately $5.0 million, or 61%, compared to fiscal 2003, due   
primarily to increased pre-tax income accompanied by shifts in the underlying   
mix of pre-tax income by entity and tax jurisdiction. The Company's effective   
tax rate was approximately 16% for fiscal 2004 compared to approximately 96% for
fiscal 2003. The Company's overall rate of tax is reduced significantly by the  
existence of net operating loss carryforwards for Federal income tax purposes in
the United States, as well as 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.                              

          Minority Interest and Equity in the Earnings (Losses) of Affiliates.
Minority interest and equity in the earnings (losses) of affiliates increased by
approximately $6.9 million as a result of increased minority interest expense of
approximately $5.6 million, primarily attributable to overall increased earnings
at majority-owned subsidiaries, and a change in equity in the earnings (losses) 
of affiliates of approximately $1.3 million.                                    

           Net Income (Loss). Net income (loss) increased by approximately $62.7
million in fiscal 2004 compared to fiscal 2003, while as a percentage of sales  
was approximately 6.0% in fiscal 2004 compared to approximately (0.7)% in fiscal
2003. These changes resulted primarily from the factors described above.        

YEAR ENDED JANUARY 31, 2004 COMPARED TO YEAR ENDED JANUARY 31, 2003             

   Sales. Sales for fiscal 2003 increased by approximately $30.0
million, or 4%, compared to the fiscal year ended January 31, 2003 ("fiscal     
2002"). This increase is primarily attributable to an increase in security and  
business intelligence recording sales of approximately $35.0 million, primarily 
as a result of increased security and surveillance sales, and increased service 
enabling signaling software sales of approximately $9.1 million. These increases
were partially offset by a decrease in CNS sales of approximately $13.4 million.
The decrease in CNS sales was due primarily to decreased business in Asia       
Pacific and the Americas, only partially offset by increased business in Europe.
On a consolidated basis, service revenues represented approximately 30% and 26% 
of sales for fiscal 2003 and fiscal 2002, respectively, and sales to            
international customers represented approximately 66% and 65% of sales for      
fiscal 2003 and fiscal 2002, respectively.                                      

Cost of Sales. Cost of sales for fiscal 2003 decreased by 
approximately $10.6 million, or 3%, compared to fiscal 2002. The decrease in    
cost of sales is primarily attributable to decreased personnel-related and      
travel costs of approximately $18.1 million and $4.9 million, respectively,     
primarily the result of workforce reduction and other cost reduction efforts,   
and net decrease in various other costs of approximately $0.1 million, partially
offset by increased royalty expense of approximately $12.5 million, primarily   
the result of a prior period credit realized upon a settlement with the OCS.    
Gross margins increased to approximately 57.2% in fiscal 2003 from approximately
54.1% in fiscal 2002.                                                           

          Research and Development, Net. Net research and development expenses
for fiscal 2003 decreased by approximately $16.1 million, or 7%, compared to    
fiscal 2002. This decrease is primarily attributable to decreased               
personnel-related costs of approximately $17.2 million, which is primarily the  
result of workforce reduction and other cost reduction efforts and a reduction  
of research and development projects.                                           

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Selling, General and Administrative. Selling, general and 
administrative expenses for fiscal 2003 decreased by approximately $26.8        
million, or 10%, compared to fiscal 2002, and as a percentage of sales decreased
to approximately 33.2% in fiscal 2003 from approximately 38.2% in fiscal 2002.  
The decrease in the dollar amount of selling, general and administrative        
expenses is primarily attributable to lower bad debt expense of approximately   
$42.2 million, partially offset by increased personnel-related costs of         
approximately $13.6 million, due primarily to an overall increase in sales and  
marketing staff, increased headcount at Verint and increased sales commissions, 
and net increase in various other costs of approximately $1.8 million.          

          Workforce Reduction, Restructuring and Impairment Charges (Credits).
During the year ended January 31, 2002, the Company committed to and began      
implementing a restructuring program to better align its cost structure with the
business environment and to improve the efficiency of its operations via        
reductions in workforce, restructuring of operations and the write-off of       
impaired assets. In connection with the restructuring, the Company changed its  
organizational structure and product offerings, resulting in the impairment of  
certain assets. In connection with these actions, during fiscal 2002 and fiscal 
2003, the Company incurred charges (credits) to operations of approximately     
$66.7 million and $(2.1) million, respectively. The fiscal 2002 charge of       
approximately $66.7 million is comprised of approximately $26.8 million for     
severance and other related costs, approximately $19.4 million for the          
elimination of excess facilities and related leasehold improvements and         
approximately $20.5 million for the write-off of certain property and equipment,
including a reduction in the value of certain unimproved land in Israel, that   
the Company had acquired with a view to the future construction of facilities   
for its Israeli operations. The fiscal 2003 net credit of approximately $2.1    
million is comprised of a charge of approximately $4.5 million for severance and
other related costs, a credit of approximately $8.0 million for the reversal of 
a previously taken charge for the elimination of excess facilities and related  
leasehold improvements, primarily as a result of the sublet of a portion of the 
excess facilities, and a charge of approximately $1.4 million for the write-off 
of certain property and equipment. The Company expects to pay out approximately 
$3.1 million for severance and related obligations during the year ended January
31, 2005 and approximately $26.4 million for facilities and related obligations 
at various dates through January 2011.                                          

          Loss from Operations. Loss from operations for fiscal 2003 decreased
by approximately $152.4 million, or 83%, compared to fiscal 2002, and as a      
percentage of sales was approximately (4.0)% in fiscal 2003 compared to         
approximately (24.8)% in fiscal 2002. These changes resulted primarily from the 
factors described above.                                                        

          On a business segment basis, loss from operations for CNS for fiscal
2003 decreased by approximately $138.6 million, or 77%, compared to fiscal 2002,
and as a percentage of sales was approximately (7.7)% in fiscal 2003 compared to
approximately (33.1)% in fiscal 2002, as a result of the decrease in workforce  
reduction, restructuring and impairment charges (credits) of approximately $66.2
million and the decrease in other costs and expenses of approximately $85.8     
million, primarily the result of workforce reduction and other cost reduction   
efforts, partially offset by decreased sales of approximately $13.4 million.    
Income from operations for Verint for fiscal 2003 increased by approximately    
$7.1 million, or 71%, compared to fiscal 2002, and as a percentage of sales     
increased to approximately 8.9% in fiscal 2003 from approximately 6.4% in fiscal
2002. Income (loss) from operations for Ulticom for fiscal 2003 increased by    
approximately $11.2 million compared to fiscal 2002, and as a percentage of     
sales increased to approximately 7.4% in fiscal 2003 from approximately (28.6)% 
in fiscal 2002.                                                                 

         Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 2003 decreased by approximately $19.9 million compared
to fiscal 2002. The principal reasons for the decrease are (i) a decrease in the
gain recorded as a result of the Company's repurchases of its 1.50% convertible 
senior debentures due December 2005 (the "Debentures") of approximately $29.2   
million; (ii) a decrease in foreign currency gains of approximately $22.8       
million; (iii) decreased interest and dividend income of approximately $12.7    

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million due primarily to the decline in interest rates partially offset by an   
increase in invested assets; and (iv) other decrease of approximately $0.2      
million, net. Such items were offset by (i) a decrease in net losses from the   
sale and write-down of investments of approximately $40.4 million; and (ii)     
decreased interest expense of approximately $4.6 million due primarily to the   
Company's repurchases of its Debentures and other debt reduction.               

     Income Tax Provision. Provision for income taxes increased from
fiscal 2002 to fiscal 2003 by approximately $4.9 million, or 149%, due primarily
to shifts in the underlying mix of pre-tax income by entity and tax             
jurisdiction. The Company's overall rate of tax is reduced significantly by the 
existence of net operating loss carryforwards for Federal income tax purposes in
the United States, as well as 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.                              

          Minority Interest and Equity in the Earnings (Losses) of Affiliates.
Minority interest and equity in the earnings (losses) of affiliates increased by
approximately $3.4 million as a result of increased minority interest expense of
approximately $5.7 million, primarily attributable to overall increased earnings
at majority-owned subsidiaries, partially offset by a change in equity in the   
earnings (losses) of affiliates of approximately $2.3 million.                  

     Net Loss. Net loss decreased by approximately $124.1 million in
fiscal 2003 compared to fiscal 2002, while as a percentage of sales was         
approximately (0.7)% in fiscal 2003 compared to approximately (17.6)% in fiscal 
2002. These changes resulted primarily from the factors described above.        

LIQUIDITY AND CAPITAL RESOURCES                                                 

    The Company's working capital at January 31, 2005 and 2004 was
approximately $2,139.8 million and $2,141.3 million, respectively. At January   
31, 2005 and 2004, the Company had total cash and cash equivalents, bank time   
deposits and short-term investments of approximately $2,249.6 million and       
$2,198.5 million, respectively.                                                 

    Operations for fiscal 2004, fiscal 2003 and fiscal 2002, after
adjustment for non-cash items, provided (used) cash of approximately $150.6     
million, $80.3 million and $(34.1) million, respectively. During such years,    
other changes in operating assets and liabilities provided (used) cash of       
approximately $(33.6) million, $48.3 million and $130.9 million, respectively.  
This resulted in net cash provided by operating activities of approximately     
$117.0 million, $128.6 million and $96.8 million during fiscal 2004, fiscal 2003
and fiscal 2002, respectively.                                                  

       Investing activities for fiscal 2004, fiscal 2003 and fiscal 2002
used cash of approximately $(57.9) million, $(500.8) million and $(436.6)       
million, respectively. These amounts include (i) net maturities and sales       
(purchases) of bank time deposits and investments of approximately $38.1        
million, $(451.8) million and $(358.0) million, respectively; (ii) purchases of 
property and equipment of approximately $(46.2) million, $(35.4) million and    
$(34.1) million, respectively; (iii) capitalization of software development     
costs of approximately $(4.2) million, $(7.8) million and $(13.4) million,      
respectively; and (iv) net assets acquired as a result of acquisitions of       
approximately $(45.6) million, $(5.9) million and $(31.1) million in fiscal     
2004, fiscal 2003 and fiscal 2002, respectively.                                

       Financing activities for fiscal 2004, fiscal 2003 and fiscal 2002
provided (used) cash of approximately $39.1 million, $310.2 million and $(91.8) 
million, respectively. These amounts include (i) net proceeds from the issuance 
of the Company's Existing ZYPS of approximately $412.8 million during fiscal    
2003; (ii) the partial repurchase of the Company's Debentures of approximately  
$(36.9) million, $(253.3) million and $(169.8) million, respectively; (iii)     
proceeds from the issuance of common stock in connection with the exercise of   

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stock options and employee stock purchase plan of approximately $45.5 million,  
$61.3 million and $12.4 million, respectively; (iv) net proceeds from the       
issuance of common stock of subsidiaries in connection with stock sales and the 
exercise of stock options and employee stock purchase plans of approximately    
$32.2 million, $129.0 million and $68.7 million, respectively; (v) repayment of 
bank loan of $(42.0) million in fiscal 2003; and (vi) other, net of             
approximately $(1.7) million, $2.4 million and $(3.1) million in fiscal 2004,   
fiscal 2003 and fiscal 2002, respectively.                                      

      In May 2003, the Company issued $420,000,000 aggregate principal
amount of its Existing ZYPS for net proceeds of approximately $412.8 million. On
January 26, 2005, the Company completed an offer to the holders of the          
outstanding Existing ZYPS to exchange the Existing ZYPS for New ZYPS. Of the    
$420,000,000 worth of Existing ZYPS outstanding prior to the exchange offer,    
approximately $417,700,000 aggregate principal amount representing approximately
99.5% of the original issue of Existing ZYPS were validly tendered in exchange  
for an equal principal amount of New ZYPS. In connection with this offer, the   
Company incurred transaction costs, consisting primarily of professional fees,  
amounting to approximately $903,000 included in `Interest and other income, net'
in the Consolidated Statements of Operations.                                   

        Both the Existing ZYPS and the New ZYPS have a conversion price of
$17.97 per share. The ability of the holders to convert either the Existing ZYPS
or New ZYPS into common stock is subject to certain conditions including: (i)   
during any fiscal quarter, if the closing price per share for a period of at    
least twenty days in the thirty consecutive trading-day period ending on the    
last trading day of the preceding fiscal quarter is more than 120% of the       
conversion price per share in effect on that thirtieth day; (ii) on or before   
May 15, 2018, if during the five business-day period following any ten          
consecutive trading-day period in which the daily average trading price for the 
Existing ZYPS or New ZYPS for that ten trading-day period was less than 105% of 
the average conversion value for the Existing ZYPS or New ZYPS during that      
period; (iii) during any period, if following the date on which the credit      
rating assigned to the Existing ZYPS or New ZYPS by Standard & Poor's Rating    
Services is lower than "B-" or upon the withdrawal or suspension of the Existing
ZYPS or New ZYPS rating at the Company's request; (iv) if the Company calls the 
Existing ZYPS or New ZYPS for redemption; or (v) upon other specified corporate 
transactions. Both the Existing ZYPS and the New ZYPS mature on May 15, 2023. In
addition, the Company has the right to redeem the Existing ZYPS for cash at any 
time on or after May 15, 2008, at their principal amount. The holders have a    
series of put options, pursuant to which they may require the Company to        
repurchase, at par, all or a portion of the Existing ZYPS on each of May 15 of  
2008, 2013, and 2018 and upon the occurrence of certain events. The Existing    
ZYPS holders may require the Company to repurchase the Existing ZYPS 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.                             

         The New ZYPS have substantially similar terms as the Existing ZYPS,
except that the New ZYPS (i) have a net share settlement feature, (ii) allow the
Company to redeem some or all of the New ZYPS at any time on or after May 15,   
2009 (rather than May 15, 2008 as provided for in the Existing ZYPS) and (iii)  
allow the holders of the New ZYPS to require the Company to repurchase their New
ZYPS for cash on each of May 15, 2008, 2009, 2013 and 2018. The net share       
settlement feature of the New ZYPS provides that, upon conversion, the Company  
would pay to the holder cash equal to the lesser of the conversion value and the
principal amount of the New ZYPS being converted, which is currently            
$417,700,000, and would issue to the holder the remainder of the conversion     
value in excess of the principal amount, if any, in shares of the Company's     
common stock (the "New Conversion Method").                                     

          The offer followed the September 30, 2004 conclusion by the Emerging
Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") 
on EITF Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted 
Earnings Per Share" ("EITF 04-8") requiring contingently convertible debt to be 
included in diluted earnings per share computations (if dilutive) as if the     
notes were converted into common shares at the time of issuance (the "if        
converted" method) regardless of whether market price triggers or other         

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contingent features have been met. EITF 04-8 was effective for reporting periods
ending after December 15, 2004. Because these recent accounting changes would   
have required the Company to include the shares of common stock underlying the  
Existing ZYPS in its diluted earnings per share computations, pursuant to the   
exchange offer, the Company offered to the Existing ZYPS holders, New ZYPS      
convertible under the New Conversion Method.                                    

        Under EITF 04-8, the Company is not required to include any shares
issuable upon conversion of the New ZYPS issued in the exchange offer in its    
diluted shares outstanding unless the market price of the Company's common stock
exceeds the conversion price, and would then only have to include that number of
shares as would then be issuable based upon the in-the-money value of the       
conversion rights under the New ZYPS. Therefore, the New ZYPS are dilutive in   
calculating diluted earnings per share if the Company's common stock is trading 
above $17.97 to the extent of the number of shares the Company would be required
to issue to satisfy a conversion right of the New ZYPS over and above           
$417,700,000. For the year ended January 31, 2005, this resulted in             
approximately 1,610,000 of additional share dilution in calculating diluted     
earnings per share. The Existing ZYPS are immediately dilutive in calculating   
diluted earnings per share to the extent of the full number of shares underlying
the Existing ZYPS, which as of January 31, 2005 is 128,516 shares. These shares 
are deemed to be outstanding for the purpose of calculating diluted earnings per
share, whether or not the Existing ZYPS may be converted pursuant to their      
terms, and therefore decreases the Company's diluted earnings per share. The    
adoption of EITF 04-8 did not have an effect on reported diluted earnings (loss)
per share for any periods presented.                                            

           During the fourth quarter of fiscal 2004, the closing price per share
on at least 20 trading days in the 30 consecutive trading-day period ending on  
January 31, 2005 was more than 120% of the conversion price per share for both  
the Existing ZYPS and New ZYPS. As such, a conversion privilege for both the    
Existing ZYPS and the New ZYPS was triggered and both the Existing ZYPS and New 
ZYPS were convertible into cash and/or the Company's common stock at the option 
of the holders for the first fiscal quarter of 2005.                            

     During fiscal 2004, 2003 and 2002 the Company acquired, in open
market purchases, approximately $37.5 million, $266.1 million and $209.2 million
of face amount of the Debentures, respectively, for approximately $36.9 million,
$253.3 million and $169.8 million in cash, respectively, resulting in pre-tax   
gains, net of debt issuance costs, of approximately $0.3 million, $10.2 million 
and $39.4 million, respectively, included in `Interest and other income, net' in
the Consolidated Statements of Operations. As of January 31, 2005, the Company  
had outstanding Debentures of approximately $87.3 million, included in the      
current liabilities section of the Consolidated Balance Sheets.                 

     In January 2002, Verint took a bank loan in the amount of $42.0
million. The loan, which matured in February 2003, bore interest at LIBOR plus  
0.55% and was guaranteed by CTI. During February 2003, Verint repaid the bank   
loan.                                                                           

           In May 2002, Verint issued 4,500,000 shares of its common stock in an
initial public offering. Proceeds from the offering, based on the offering price
of $16.00 per share, totaled approximately $65.4 million, net of offering       
expenses. The Company recorded a gain of approximately $48.1 million during the 
year ended January 31, 2003, which was recorded as an increase in stockholders' 
equity as a result of the issuance.                                             

          In June 2003, Verint completed a public offering of 5,750,000 shares
of its common stock at a price of $23.00 per share. The shares offered included 
149,731 shares issued to Smartsight Networks Inc.'s ("Smartsight") former       
shareholders in connection with its acquisition. The proceeds of the offering   
were approximately $122.2 million, net of offering expenses. The Company        
recorded a gain of approximately $62.9 million, which was recorded as an        
increase in stockholders' equity as a result of the issuance. As of January 31, 
2005, the Company's ownership interest in Verint was approximately 58.9%.       

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        In February 2004, Starhome B.V. ("Starhome"), a subsidiary of CTI,
received equity financing from an unaffiliated investor group of approximately  
$14.5 million, net of expenses. The Company recorded a gain of approximately    
$11.8 million, which was recorded as an increase in stockholders' equity as a   
result of the issuance. Upon the completion of this transaction, the Company's  
ownership interest in Starhome was approximately 69.5%; this interest was       
unchanged as of January 31, 2005. In addition, during the year ended January 31,
2005, Starhome received a commitment for an additional $5.0 million in equity   
financing from the unaffiliated investor group, which funds are currently being 
held in escrow.                                                                 

          In September 2004, Verint, through a subsidiary, acquired all of the
outstanding stock of RP Sicherheitssysteme GmbH ("RP Security"), a company in   
the business of developing and selling mobile digital video security solutions  
for transportation applications. The purchase price consisted of approximately  
$9.0 million in cash and 90,144 shares of Verint's common stock. In addition,   
the shareholders of RP Security will be entitled to receive earn-out payments   
over three years based on Verint's worldwide sales, profitability and backlog of
mobile video products in the transportation market during that period. Shares   
issued as part of the purchase price were accounted for with a value of         
approximately $3.0 million, or $33.03 per share. In connection with this        
acquisition, Verint incurred transaction costs, consisting primarily of         
professional fees, amounting to approximately $0.5 million.                     

       In March 2004, Verint acquired certain assets and assumed certain
liabilities of the government surveillance business of ECtel Ltd. ("ECtel"),    
which provided Verint with additional communications interception capabilities  
for the mass collection and analysis of voice and data communications. The      
purchase price was approximately $35.0 million in cash. Verint incurred         
transaction costs, consisting primarily of professional fees, amounting to      
approximately $1.1 million in connection with this acquisition.                 

           In May 2003, Verint acquired all of the issued and outstanding shares
of Smartsight, a Canadian corporation that develops IP-based video edge devices 
and software for wireless video transmission. The purchase price consisted of   
approximately $7.1 million in cash and 149,731 shares of Verint common stock,   
valued at approximately $3.1 million, or $20.46 per share.                      

   In February 2002, Verint acquired the digital video recording
business of Lanex, LLC ("Lanex"). The Lanex business provides digital video     
recording solutions for security and surveillance applications primarily to     
North American banks. The purchase price consisted of approximately $9.5 million
in cash and a $2.2 million non-interest bearing note, guaranteed by CTI, and    
convertible in whole or in part, into shares of Verint's common stock at a      
conversion price of $16.06 per share. The note matured and was converted into   
shares of Verint common stock on February 1, 2004.                              

 In June 2002, the Company acquired Odigo, Inc. ("Odigo"), a
privately-held provider of instant messaging and presence management solutions  
to service providers. The purchase price was approximately $20.1 million in     
cash. Prior to the acquisition, the Company was a strategic partner with Odigo, 
holding an equity position which it previously acquired for approximately $3    
million.                                                                        

   The ability of CTI's Israeli subsidiaries to pay dividends is
governed by Israeli law, which provides that dividends may be paid by an Israeli
corporation only out of its earnings as defined in accordance with the Israeli  
Companies Law of 1999, provided that there is no reasonable concern that such   
payment will cause such subsidiary to fail to meet its current and expected     
liabilities as they come due. In the event of a devaluation of the Israeli      
currency against the dollar, the amount in dollars available for payment of cash
dividends out of prior years' earnings will decrease accordingly. Cash dividends
paid by an Israeli corporation to United States resident corporate parents are  
subject to the Convention for the Avoidance of Double Taxation between Israel   
and the United States. Under the terms of the Convention, such dividends are    
subject to taxation by both Israel and the United States and, in the case of    
Israel, such dividends out of income derived in respect of a period for which an
Israeli company is entitled to the reduced tax rate applicable to an Approved   

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Enterprise are generally subject to withholding of Israeli income tax at source 
at a rate of 15%. The Israeli company is also subject to additional Israeli     
taxes in respect of such dividends, generally equal to the tax benefits         
previously granted in respect of the underlying income by virtue of the Approved
Enterprise status.                                                              

          The Company's liquidity and capital resources have not been, and are
currently 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.                               

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 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, on both a consolidated and individual    
business segment basis.                                                         

CERTAIN TRENDS AND UNCERTAINTIES                                                

The Company derives the majority of its revenue from the  
telecommunications industry, which has experienced a challenging capital        
spending environment. Although the capital spending environment has improved    
recently and the Company's revenues have increased in recent quarters, the      
Company has experienced significant revenue declines from historical peak       
revenue levels, and if capital spending and technology purchasing by            
telecommunications service providers ("TSP") does not continue to improve or    
declines, revenue may stagnate or decrease, and the Company's operating results 
may be adversely affected. Although the Company currently has good near term    
visibility, 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, including the 
Company, 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 broadband services and
reductions in TSPs' actual and projected revenues and deterioration in their    
actual and projected operating results. Accordingly, TSPs, including the        
Company's customers, 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.                                                                

    Certain TSPs also 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, which also has made it very difficult for 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.             

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       Recently, there have been announcements of several mergers in the
telecommunications industry. To the extent that the Company's customer base     
consolidates, the Company may have an increased dependence on a smaller number  
of customers who may be able to exert increased pressure on the Company's prices
and contractual terms in general. Consolidation also may result in the loss of  
both existing and potential customers of the Company.                           

      The Company has experienced declines in revenue from some of its
traditional products sold to TSPs compared with prior years. The Company is     
executing a strategy to capitalize on growth opportunities in new and emerging  
products to offset such declines. While certain of these new products have met  
with initial success, it is unclear whether they will be widely adopted by the  
Company's customers and TSPs in general. Increases in revenue from these new    
products also may not exceed declines the Company may experience in revenue from
the sale of its traditional products. If revenue from sales of its traditional  
products declines faster than revenue from new products increases, the Company's
revenue and operating results will be adversely affected.                       

        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 deterioration in its operating        
results, and may determine to modify its plan for future operations accordingly,
which may include, among other things, reductions in its workforce.             

        The Company intends to continue to make significant investments in
its business, and to examine opportunities for growth. 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 predicted 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 examines opportunities for growth through merger and
acquisitions. If the Company does make acquisitions, it may not discover all    
potential risks and liabilities of the newly acquired business through the due  
diligence process, will inherit the acquired companies' past financial          
statements with their associated risks and may enter an industry in which it has
limited or no experience. Also, the Company 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 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.                       

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   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     
investments on acceptable terms, or at all. In addition, even if the Company    
makes investments, it may not gain strategic benefits from those investments.   

   Currently, the Company accounts for employee stock options in
accordance with Accounting Principles Board ("APB") Opinion No. 25 and related  
Interpretations, which provide that any compensation expense relative to        
employee stock options be measured based on intrinsic value of the stock        
options. As a result, when options are priced at or above fair market value of  
the underlying stock on the date of the grant, as currently is the Company's    
practice, the Company incurs no compensation expense. In December 2004, the     
Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised      
2004), "Share-Based Payment" ("SFAS No. 123(R)") which revises SFAS No. 123 and 
supersedes APB Opinion No. 25. SFAS No. 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be valued at fair  
value on the date of grant, and to be expensed over the applicable vesting      
period. Pro forma disclosure of the income statement effects of share-based     
payments is no longer an alternative. SFAS No. 123(R) is effective for reporting
periods beginning after June 15, 2005, which for the Company is August 1, 2005  
(the "Effective Date"). Beginning on the Effective Date, the Company must (i)   
expense all options granted after the Effective Date over the applicable vesting
period, and (ii) expense the non-vested portions of existing option grants going
forward over their remaining vesting period. Compensation expense for the       
non-vested portions of existing option grants as of the Effective Date will be  
recorded based on the fair value of the awards previously calculated in         
developing the pro forma disclosures in accordance with the provisions of SFAS  
No. 123. Under SFAS No. 123(R), the Company is required to adopt a fair         
value-based method for measuring the compensation expense related to employee   
stock and stock options awards; this will lead to substantial additional        
compensation expense. Any such expense, although it would not affect the        
Company's cash flows, will have a material negative impact on the Company's     
future reported results of operations beginning on the Effective Date. The      
Company currently anticipates such expense may be up to $12 million per quarter 
for each of the quarters ending October 31, 2005 and January 31, 2006.          

      In May 2003, the Company issued $420,000,000 aggregate principal
amount of Zero Yield Puttable Securities ("ZYPS") (the "Existing ZYPS"). On     
January 26, 2005, the Company completed an offer to the holders of the          
outstanding Existing ZYPS to exchange the Existing ZYPS for new ZYPS (the "New  
ZYPS"). Of the $420,000,000 worth of Existing ZYPS outstanding prior to the     
exchange offer, approximately $417,700,000 aggregate principal amount           
representing approximately 99.5% of the original issue of Existing ZYPS were    
validly tendered in exchange for an equal principal amount of New ZYPS.         

        Both the Existing ZYPS and the New ZYPS have a conversion price of
$17.97 per share. The ability of the holders to convert either the Existing ZYPS
or New ZYPS into common stock is subject to certain conditions including: (i)   
during any fiscal quarter, if the closing price per share for a period of at    
least twenty days in the thirty consecutive trading-day period ending on the    
last trading day of the preceding fiscal quarter is more than 120% of the       
conversion price per share in effect on that thirtieth day; (ii) on or before   
May 15, 2018, if during the five business-day period following any ten          
consecutive trading-day period in which the daily average trading price for the 
Existing ZYPS or New ZYPS for that ten trading-day period was less than 105% of 
the average conversion value for the Existing ZYPS or New ZYPS during that      
period; (iii) during any period, if following the date on which the credit      
rating assigned to the Existing ZYPS or New ZYPS by Standard & Poor's Rating    
Services is lower than "B-" or upon the withdrawal or suspension of the Existing
ZYPS or New ZYPS rating at the Company's request; (iv) if the Company calls the 
Existing ZYPS or New ZYPS for redemption; or (v) upon other specified corporate 
transactions. Both the Existing ZYPS and the New ZYPS mature on May 15, 2023.   

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        In addition, the Company has the right to redeem the Existing ZYPS
for cash at any time on or after May 15, 2008, at their principal amount. The   
holders have a series of put options, pursuant to which they may require the    
Company to repurchase, at par, all or a portion of the Existing ZYPS on each of 
May 15 of 2008, 2013, and 2018 and upon the occurrence of certain events. The   
Existing ZYPS holders may require the Company to repurchase the Existing ZYPS 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. The Company cannot  
ensure, however, that sufficient funds will be available at the time of payment 
required on the Existing ZYPS or that the Company will be able to arrange       
financing to make any such required cash payments.                              

         The New ZYPS have substantially similar terms as the Existing ZYPS,
except that the New ZYPS (i) have a net share settlement feature, (ii) allow the
Company to redeem some or all of the New ZYPS at any time on or after May 15,   
2009 (rather than May 15, 2008 as provided for in the Existing ZYPS) and (iii)  
allow the holders of the New ZYPS to require the Company to repurchase their New
ZYPS for cash on each of May 15, 2008, 2009, 2013 and 2018. The Company cannot  
ensure, however, that sufficient funds will be available at the time of payment 
required on the New ZYPS or that the Company will be able to arrange financing  
to make any such required cash payments.                                        

          The net share settlement feature of the New ZYPS provides that, upon
conversion, the Company would pay to the holder cash equal to the lesser of the 
conversion value and the principal amount of the New ZYPS being converted, which
is currently $417,700,000, and would issue to the holder the remainder of the   
conversion value in excess of the principal amount, if any, in shares of the    
Company's common stock (the "New Conversion Method"). The offer followed the    
September 30, 2004 conclusion by the Emerging Issues Task Force ("EITF") of the 
Financial Accounting Standards Board's ("FASB") on EITF Issue No. 04-8, "The    
Effect of Contingently Convertible Debt on Diluted Earnings Per Share" ("EITF   
04-8") requiring contingently convertible debt to be included in diluted        
earnings per share computations (if dilutive) as if the notes were converted    
into common shares at the time of issuance (the "if converted" method)          
regardless of whether market price triggers or other contingent features have   
been met. EITF 04-8 was effective for reporting periods ending after December   
15, 2004. Because these recent accounting changes would have required the       
Company to include the shares of common stock underlying the Existing ZYPS in   
its diluted earnings per share computations, pursuant to the exchange offer, the
Company offered to the Existing ZYPS holders, New ZYPS convertible under the New
Conversion Method.                                                              

        Under EITF 04-8, the Company is not required to include any shares
issuable upon conversion of the New ZYPS issued in the exchange offer in its    
diluted shares outstanding unless the market price of the Company's common stock
exceeds the conversion price, and would then only have to include that number of
shares as would then be issuable based upon the in-the-money value of the       
conversion rights under the New ZYPS. Therefore, the New ZYPS are dilutive in   
calculating diluted earnings per share if the Company's common stock is trading 
above $17.97 to the extent of the number of shares the Company would be required
to issue to satisfy a conversion right of the New ZYPS over and above           
$417,700,000. For the year ended January 31, 2005 this resulted in approximately
1,610,000 of additional share dilution in calculating diluted earnings per      
share. The Existing ZYPS are immediately dilutive in calculating diluted        
earnings per share to the extent of the full number of shares underlying the    
Existing ZYPS, which as of January 31, 2005 is 128,516 shares. These shares are 
deemed to be outstanding for the purpose of calculating diluted earnings per    
share, whether or not the Existing ZYPS may be converted pursuant to their      
terms, and therefore decreases the Company's diluted earnings per share. The    
adoption of EITF 04-8 did not have an effect on reported diluted earnings (loss)
per share for any periods presented.                                            

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          During the fourth quarter of fiscal year 2004, the closing price per
share on at least 20 trading days in the 30 consecutive trading-day period      
ending on January 31, 2005 was more than 120% of the conversion price per share 
for both the Existing ZYPS and New ZYPS. As such, a conversion privilege for    
both the Existing ZYPS and the New ZYPS was triggered and both the Existing ZYPS
and New ZYPS were convertible into cash and/or the Company's common stock at the
option of the holders for the first fiscal quarter of 2005.                     

        The Company's products involve sophisticated hardware and software
technology that performs critical functions to highly demanding standards. If   
the Company's current or future products develop operational problems, the      
Company may incur fees and penalties in connection with such problems, which    
could have a material adverse effect on the Company. The Company offers complex 
products that may contain undetected defects or errors, particularly when first 
introduced or as new versions are released. The Company may not discover such   
defects or errors until after a product has been released and used by the       
customer. Significant costs may be incurred to correct undetected defects or    
errors in the Company's products and these defects or errors could result in    
future lost sales. Defects or errors in the Company's products also may result  
in product liability claims, which could cause adverse publicity and impair     
their market acceptance.                                                        

       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. In addition, some of 
the Company's products, such as call answering, have experienced declines in    
usage resulting from, among other factors, the introduction of new technologies 
and the adoption and increased use of existing technologies, which may include  
enhanced areas of coverage for mobile telephones and Caller ID type services.   
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. The Company's new product   
offerings may not enter the market in a timely manner for their acceptance. New 
product offerings may not properly integrate into existing platforms and the    
failure of these offerings to be accepted by the market could have a material   
adverse effect on the Company's business, results of operations, and financial  
condition. The Company's sales and operating results may be adversely affected  
in the event customers delay purchases of existing products as they await the   
Company's new product offerings. 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 has made and continues to make significant investments in
the areas of sales and marketing, and research and development. The Company's   
research and development activities, which may be delayed and behind schedule,  
include ongoing significant investment in the development of additional features
and functionality for its existing and new product offerings. The success of    
these initiatives will be dependent upon, among other things, the emergence of a
market for these types of products and their acceptance by existing and new     
customers. The Company's business may be adversely affected by its failure to   
correctly anticipate the emergence of a market demand for certain products or   
services, and changes in the evolution of market opportunities. If a sufficient 
market does not emerge for new or enhanced product offerings developed by the   
Company, if the Company is late in introducing new product offerings, or if the 
Company is not successful in marketing such products, the Company's continued   
growth could be adversely affected and its investment in those products may be  
lost.                                                                           

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           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. 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 could 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. The worldwide enhanced services    
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 enhanced services 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 Company's competitors may be able to develop more quickly or
adapt faster to new or emerging technologies and changes in customer            
requirements, or devote greater resources to the development, promotion and sale
of their products. Some of the Company's competitors have, in relation to it,   
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 and other
resources. New competitors continue to emerge and there continues to be         
consolidation among existing competitors, which may reduce the Company's market 
share. In addition, some of the Company's customers may in the future decide to 
develop internally their own solutions instead of purchasing them from the      
Company. Increased competition could force the Company to lower its prices or   
take other actions to differentiate its products.                               

 The Company's recent growth has strained its managerial and
operational resources. The Company's continued growth may further strain its    
resources, which could hurt its business and results of operations. There can be
no assurance that the Company's managers will be able to manage growth          
effectively. To manage future growth, the Company's management must continue to 
improve the Company's operational and financial systems, procedures and controls
and expand, train, retain and manage its employee base. If the Company's        
systems, procedures and controls are inadequate to support its operations, the  
Company's expansion could slow or come to a halt, and it could lose its         
opportunity to gain significant market share. Any inability to manage growth    
effectively could materially harm the Company's business, results of operations 
and financial condition.                                                        

        The Company's business is subject to evolving corporate governance
and public disclosure regulations that have increased both costs and the risk of
noncompliance, which could have an adverse effect on the Company's stock price. 
Because the Company's common stock is publicly traded on the Nasdaq stock       
market, the Company is subject to rules and regulations promulgated by a number 
of governmental and self-regulated organizations, including the SEC, Nasdaq and 
the Public Company Accounting Oversight Board, which monitors the accounting    
practices of public companies. Many of these regulations have only recently been
enacted, and continue to evolve, making compliance more difficult and uncertain.
In addition, the Company's efforts to comply with these new regulations have    
resulted in, and are likely to continue to result in, increased general and     
administrative expenses and a diversion of management time and attention from   
revenue-generating activities to compliance activities. In particular, Section  
404 of Sarbanes-Oxley Act of 2002 and related regulations require the Company to
include a management assessment of its internal controls over financial         
reporting and auditor attestation of that assessment in its annual report for   
the Company's fiscal year ending January 31, 2005. While the Company is able to 
assert, in the management certifications filed with this Annual Report on Form  
10-K, that the Company's internal control over financial reporting is effective 
as of January 31, 2005 and that no material weaknesses have been identified, the

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Company must continue to monitor and assess the internal control over financial 
reporting. The Company cannot provide any assurances that material weaknesses   
will not be discovered in the future. If, in the future, the Company's          
management identifies one or more material weaknesses in the internal control   
over financial reporting that remain unremediated, the Company will be unable to
assert such internal control over financial reporting is effective. If the      
Company is unable to assert that the internal control over financial reporting  
is effective for any given reporting period (or if the Company's auditors are   
unable to attest that the management's report is fairly stated or are unable to 
express an opinion on the effectiveness of the internal controls), the Company  
could lose investor confidence in the accuracy and completeness of the Company's
financial reports, which would have an adverse effect on the Company's stock    
price. The effort regarding Section 404 has required, and continues to require, 
the commitment of significant financial and managerial resources.               

        Changes in existing accounting or taxation rules or practices, new
accounting pronouncements or taxation rules or new interpretations of existing  
accounting principles could have a significant adverse effect on the Company's  
results of operations and may affect the Company's reported financial results.  

        The market for Verint's digital security and business intelligence
products in the past has been affected by weakness in general economic          
conditions, delays or reductions in customers' information technology spending  
and uncertainties relating to government expenditure programs. Verint's business
generated from government contracts may be materially and adversely affected if:
(i) Verint's reputation or relationship with government agencies is impaired,   
(ii) Verint is suspended or otherwise prohibited from contracting with a        
domestic or foreign government or any significant law enforcement agency, (iii) 
levels of government expenditures and authorizations for law enforcement and    
security related programs decrease, remain constant or shift to programs in     
areas where Verint does not provide products and services, (iv) Verint is       
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, (v) Verint is not granted  
security clearances required to sell products to domestic or foreign governments
or such security clearances are revoked, (vi) there is a change in government   
procurement procedures or (vii) there is a change in political climate that     
adversely affects Verint's existing or prospective relationships. 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,       
Verint's markets include an increasing number of competitors, including         
companies that are significantly larger and have more resources than Verint. 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 market for actionable intelligence solutions, such as Verint's
security and business intelligence products is still emerging. Verint's growth  
is dependent on, among other things, the size and pace at which the markets for 
its products develop. If the markets for its products decrease, remain constant 
or grow slower than Verint anticipates, Verint will not be able to maintain its 
growth. Continued growth in the demand for Verint's products is uncertain as,   
among other reasons, its existing customers and potential customers may: (i) not
achieve a return on their investment in its products; (ii) experience technical 
difficulty in utilizing its products; or (iii) use alternative solutions to     
achieve their security, intelligence or business objectives. In addition, as    
Verint's business intelligence products are sold primarily to contact centers,  
slower than anticipated growth or a contraction in the number of contact centers
will have a material adverse effect on Verint's ability to maintain its growth. 

          The global market for analytical solutions for security and business
applications is intensely competitive, both in the number and breadth of        
competing companies and products and the manner in which products are sold. For 
example, Verint often competes for customer contracts through a competitive     
bidding process that subjects it to risks associated with: (i) 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; and (ii) the 
substantial time and effort, including design, development and marketing        
activities, required to prepare bids and proposals for contracts that may not be
awarded to Verint.                                                              

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           A subsidiary of Verint, Verint Technology Inc. ("Verint Technology"),
which markets, sells and supports its communications interception solutions to  
various U.S. government agencies, is required by the National Industrial        
Security Program to maintain facility security clearances and to be insulated   
from foreign ownership, control or influence. The Company, Verint, Verint       
Technology and the Department of Defense entered into a proxy agreement, under  
which Verint, among other requirements, appointed three U.S. citizens holding   
the requisite security clearances to exercise all prerogatives of ownership of  
Verint Technology (including, without limitation, oversight of Verint           
Technology's security arrangements) as holders of proxies to vote Verint        
Technology stock. The proxy agreement may be terminated and Verint Technology's 
facility security clearances may be revoked in the event of a breach of the     
proxy agreement, or if it is determined by the Department of Defense that       
termination is in the national interest. If Verint Technology's facility        
security clearance is revoked, sales to U.S. government agencies will be        
adversely affected and may adversely affect sales to other international        
government agencies. In addition, concerns about the security of Verint, its    
personnel or its products may have a material adverse affect on Verint's        
business, financial condition and results of operations, including a negative   
impact on sales to U.S. and international government agencies.                  

        Many of Verint's government contracts contain provisions that give
the governments party to those contracts rights and remedies not typically found
in private commercial contracts, including provisions enabling the governments  
to: (i) terminate or cancel existing contracts for convenience; (ii) in the case
of the U.S. government, suspend Verint from doing business with a foreign       
government or prevent Verint from selling its products in certain countries;    
(iii) audit and object to Verint's contract-related costs and expenses,         
including allocated indirect costs; and (iv) change specific terms and          
conditions in Verint's contracts, including changes that would reduce the value 
of its contracts. In addition, many jurisdictions have laws and regulations that
deem government contracts in those jurisdictions to include these types of      
provisions, even if the contract itself does not contain them. If a government  
terminates a contract with Verint for convenience, Verint may not recover its   
incurred or committed costs, and expenses or profit on work completed prior to  
the termination. If a government terminates a contract for default, Verint may  
not recover those amounts, and, in addition, it may be liable for any costs     
incurred by a government in procuring undelivered items and services from       
another source. Further, an agency within a government may share information    
regarding Verint's termination with other government agencies. As a result,     
Verint's on-going or prospective relationships with such other government       
agencies could be impaired.                                                     

       Verint 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 Verint does business with      
government agencies in various countries and may impose added costs on its      
business. For example, in the United States, Verint is subject to the Federal   
Acquisition Regulations, which comprehensively regulate the formation,          
administration and performance of federal government contracts, and to the Truth
in Negotiations Act, which requires certification and disclosure of cost and    
pricing data in connection with contract negotiations. Verint is subject to     
similar regulations in foreign countries as well.                               

          If a government review or investigation uncovers improper or illegal
activities, Verint may be subject to civil and criminal penalties and           
administrative sanctions, including termination of contracts, forfeiture of     
profits, suspension of payments, fines and suspension or debarment from doing   
business with government agencies, which could materially and adversely affect  
its business, financial condition and results of operations. In addition, a     
government may reform its procurement practices or adopt new contracting rules  
and regulations that could be costly to satisfy or that could impair Verint's   
ability to obtain new contracts.                                                

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          Verint's products are often used by customers to compile and analyze
highly sensitive or confidential information and data, including information or 
data used in intelligence gathering or law enforcement activities. Verint may   
come into contact with such information or data when it performs support or     
maintenance functions for its customers. While Verint has internal policies,    
procedures and training for employees in connection with performing these       
functions, even the perception that such potential contact may pose a security  
risk or that any of Verint's employees has improperly handled sensitive or      
confidential information and data of a customer could harm its reputation and   
could inhibit market acceptance of its products.                                

         As the communications industry continues to evolve, governments may
increasingly regulate products that monitor and record voice, video and data    
transmissions over public communications networks, such as the solutions that   
Verint offers. For example, products which Verint sells in the United States to 
law enforcement agencies and which interface with a variety of wireline,        
wireless and Internet protocol networks, must comply with the technical         
standards established by the Federal Communications Commission pursuant to the  
Communications Assistance for Law Enforcement Act and products that it sells in 
Europe must comply with the technical standards established by the European     
Telecommunications Standard Institute. The adoption of new laws governing the   
use of Verint's products or changes made to existing laws could cause a decline 
in the use of its products and could result in increased expenses for Verint,   
particularly if it is required to modify or redesign its products to accommodate
these new or changing laws.                                                     

       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. Because a significant proportion
of the Company's sales of these large system installations occur in the late    
stages of a quarter, a delay, cancellation or other factor resulting in the     
postponement or cancellation of such sales may cause the Company to miss its    
financial projections, which may not be discernible until the end of a financial
reporting period. The Company's gross margins also may be adversely affected by 
increases in material or labor costs, obsolescence charges, price competition   
and changes in distribution channels or in the mix of products sold.            

        During the period between the evaluation and purchase of a system,
customers may defer or scale down proposed orders of the Company's products for,
among other reasons: (i) changes in budgets and purchasing priorities; (ii)     
reduced need to upgrade existing systems; (iii) deferrals in anticipation of    
enhancements or new products; (iv) introduction of products by the Company's    
competitors; and (v) lower prices offered by the Company's competitors.         

          Geopolitical, economic and military conditions could directly affect
the Company's operations. The outbreak of diseases, such as severe acute        
respiratory syndrome ("SARS"), have curtailed and may in the future curtail     
travel to and from certain countries. Restrictions on travel to and from these  
and other regions on account of additional incidents of diseases, such as SARS, 
could have a material adverse effect on the Company's business, results of      

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operations, and financial condition. The continued threat of terrorism and      
heightened security and military action in response to this threat, or any      
future acts of terrorism, may cause disruptions to the Company's business. To   
the extent that such disruptions result in delays or cancellations of customer  
orders, or the manufacture or shipment of the Company's products, the Company's 
business, operating results and financial condition could be materially and     
adversely affected. More recently, the U.S. military involvement in overseas    
operations including, for example, the war in Iraq and other armed conflicts    
throughout the world, could have a material adverse effect on the Company's     
business, results of operations, and financial condition.                       

    The Company is a highly automated business and a disruption or
failure of its systems in the event of a catastrophic event, such as a major    
earthquake, tsunami or other natural disaster, cyber-attack or terrorist attack 
could cause delays in completing sales and providing services. A catastrophic   
event that results in the destruction or disruption of any of the Company's     
critical business systems could severely affect its ability to conduct normal   
business operations and, as a result, the financial condition and operating     
results could be adversely affected. "Hackers" and others have in the past      
created a number of computer viruses or otherwise initiated "denial of service" 
attacks on computer networks and systems. The Company's information technology  
infrastructure is regularly subject to various attacks and intrusion efforts of 
differing seriousness and sophistication. If such "hackers" are 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 the Company's reputation, and even the perception of 
security risks, whether or not valid, could inhibit market acceptance of the    
Company's products and could harm the Company's business, financial condition   
and operating results. While the Company diligently maintains its information   
technology infrastructure and continuously implements protections against such  
viruses, electronic break-ins, disruptions or intrusions, if the defensive      
measures fail or should similar defensive measures by the Company's customers   
fail, the Company's business could be materially and adversely affected.        

         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 and may in the future, lead to security and economic problems for      
Israel. Current and future conflicts and political, economic and/or military    
conditions in Israel and the Middle East region can directly affect the         
Company's operations in Israel. From October 2000, until recently, terrorist    
violence in Israel increased significantly, primarily in the West Bank and Gaza 
Strip, and Israel has experienced terrorist incidents within its borders. There 
can be no assurance that the recent relative calm and renewed discussions with  
Palestinian representatives will continue. The Company could be materially      
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 materially adversely affected in      
certain countries by restrictive laws, policies or practices directed toward    
Israel or companies having operations in Israel. The continuation or            
exacerbation of violence in Israel or the outbreak of violent conflicts         
involving Israel may impede the Company's ability to sell its products or       
otherwise adversely affect the Company. In addition, many of the Company's      
Israeli employees in Israel are required to perform annual compulsory military  
service in Israel 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 upon the Company's operations.                                   

      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. Recently, the 
weakening of the dollar relative to the shekel has increased the costs of the   
Company's Israeli operations, stated in United States dollars. The Company's    
operations have at times also been affected by 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 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.                                                

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    The Company's historical operating results reflect substantial
benefits 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. The availability of such benefits to 
the Company may be negatively 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 Office of the Chief Scientist of the Ministry of Industry   
and Trade of the State of Israel ("OCS") under which it has received significant
benefits through reimbursement of up to 50% of qualified research and           
development expenditures. Certain of the Company's subsidiaries currently pay   
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 in consideration of benefits received under this       
program. Such royalty payments are currently required to be made until the      
government has been reimbursed the amounts received by the Company, which is    
linked to the U.S. dollar, 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. As of January 31, 2005, such subsidiaries of the Company received     
approximately $57.7 million in cumulative grants from the OCS and recorded      
approximately $26.7 million in cumulative royalties to the OCS. During the year 
ended January 31, 2003, one of the Company's subsidiaries finalized an          
arrangement with the OCS whereby the subsidiary agreed to pay a lump sum royalty
amount for all past amounts received from the OCS. In addition, this subsidiary 
began to receive lower amounts from the OCS than it had historically received,  
but will not have to pay royalty amounts on such grants. The amount of          
reimbursement received by the Company under this program has been reduced       
significantly, and the Company does 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. In order to obtain such permission, the Company will 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
transfer outside of Israel of any intellectual property rights resulting from   
research and development activities funded under OCS programs is not permitted. 
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 in the
future due to, among other factors, the increased proportion of its taxable     
income associated with activities in higher tax jurisdictions, the full         
utilization of net operating loss carry-forwards 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 results of operations and financial condition.                 

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           The ability of the Company's Israeli subsidiaries to pay dividends is
governed by Israeli law, which provides that dividends may be paid by an Israeli
corporation only out of its earnings as defined in accordance with the Israeli  
Companies Law of 1999, provided that there is no reasonable concern that such   
payment will cause such subsidiary to fail to meet its current and expected     
liabilities as they come due. In the event of a devaluation of the Israeli      
currency against the dollar, the amount in dollars available for payment of cash
dividends out of prior years' earnings will decrease accordingly. Cash dividends
paid by an Israeli corporation to United States resident corporate parents are  
subject to the Convention for the Avoidance of Double Taxation between Israel   
and the United States. Under the terms of the Convention, such dividends are    
subject to taxation by both Israel and the United States and, in the case of    
Israel, such dividends out of income derived in respect of a period for which an
Israeli company is entitled to the reduced tax rate applicable to an Approved   
Enterprise are generally subject to withholding of Israeli income tax at source 
at a rate of 15%. The Israeli company is also subject to additional Israeli     
taxes in respect of such dividends, generally equal to the tax benefits         
previously granted in respect of the underlying income by virtue of the Approved
Enterprise status.                                                              

        The Company's success is dependent on recruiting and retaining key
management and highly skilled technical, managerial, sales, and marketing       
personnel. The market for highly skilled personnel remains very competitive. The
Company's ability to attract and retain employees also may be affected by cost  
control actions, which in the past and may again in the future, include         
reductions in the Company's workforce and the associated reorganization of      
operations.                                                                     

      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, results of operations and financial condition. In addition, 
legal uncertainties regarding liability, compliance with local laws and         
regulations, local taxes, 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. Also, the Company's foreign subsidiaries hold a significant amount of  
cash. The repatriation of such cash to the United States is subject to          
withholding tax, which would reduce the total amount of cash the Company would  
receive if such cash is repatriated into the United States.                     

    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, contracts denominated in foreign  
currencies, particularly the euro. As a result of the unpredictable timing of   
purchase orders and the payments under such contracts and other factors, it is  
often not practicable for the Company to effectively hedge the entire risk of   
significant changes in currency rates during the contract period. Although      
recently the Company has significantly increased the amount of its foreign      
currency exposure that it has hedged, the Company may experience adverse        
consequences from not hedging all of its exchange rate risks associated with    
contracts denominated in foreign currencies. The Company's operating results    
have been negatively impacted for certain periods and positively impacted for   
other periods 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 
hedging activities that the Company does undertake.                             

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 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, however, regularly conduct comprehensive patent  
searches to determine whether the technology used in its products infringes     
patents held by third parties. 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 published or 
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    
continue offering these products without obtaining licenses for those products  
or without substantial reengineering of the products. Any reengineering effort  
may not be successful and the Company cannot be certain as to whether such      
licenses would be available. Even if such licenses were available, the Company  
cannot be certain that any licenses would be offered to the Company on          
commercially reasonable terms.                                                  

         While the Company occasionally files patent applications, it cannot
be assured that patents will be issued on the basis of such applications or     
that, if such patents are issued, they will be sufficiently broad to protect its
technology. In addition, the Company cannot be assured that any patents issued  
to it will not be challenged, invalidated or circumvented.                      

          Substantial litigation regarding intellectual property rights exists
in technology related industries, 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 certain 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    

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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. The 
severe decline in the public trading prices of equity securities in the past,   
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. In addition, although interest rates have risen
recently, low interest rates have in the past and may in the future have an     
adverse impact on the Company's results of operations.                          

        The Company issues stock options as a key component of its overall
compensation. There is growing pressure on public companies from shareholders   
generally and various organizations to reduce the rate at which companies,      
including the Company, issue stock options to employees, which may make it more 
difficult to obtain stockholder approval of equity compensation plans when      
required. In addition, FASB has adopted changes to generally accepted accounting
principles (GAAP) that will require the Company to adopt a different method of  
determining the compensation expense for its employee stock options and employee
stock purchase plans beginning in the third quarter of fiscal 2005. As a result,
CTI and certain of its subsidiaries have terminated their employee stock        
purchase plans. In addition, the Company believes expensing stock options will  
increase shareholder pressure to limit future option grants and could make it   
more difficult for the Company to grant stock options to employees in the       
future. As a result, the Company may lose top employees to non-public, start-up 
companies or may generally find it more difficult to attract, retain and        
motivate employees, either of which could materially and adversely affect the   
Company's business, results of operations and financial condition.              

         The Company's operating results have fluctuated in the past and may
do so in the future. 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, which at times is unrelated to the operating       
performance of a company. 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.  

           The Company has not declared or paid any cash dividends on its common
stock and currently does not expect to pay cash dividends in the near future.   
Consequently, any economic return to a shareholder may be derived, if at all,   
from appreciation in the price of the Company's stock, and not as a result of   
dividend payments.                                                              

          The Company may issue additional equity securities, which would lead
to dilution of its issued and outstanding common stock. The Company has used and
may continue to use its common stock or securities convertible into common stock
to acquire technology, products, product rights and businesses, or reduce or    
retire existing indebtedness, among other purposes. The issuance of additional  
equity securities or securities convertible into equity securities for these or 
other purposes would result in dilution of existing shareholders' equity        
interests in the Company.                                                       

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        In addition, the Company's board of directors has the authority to
cause the Company to issue, without vote or action of the Company's             
shareholders, up to 2,500,000 shares of preferred stock in one or more series,  
and has the ability to fix the rights, preferences, privileges and restrictions 
of any such series. Any such series of preferred stock could contain dividend   
rights, conversion rights, voting rights, terms of redemption, redemption       
prices, liquidation preferences or other rights superior to the rights of       
holders of its common stock. The Company's board of directors has no present    
intention of issuing any such preferred series, but reserves the right to do so 
in the future. The Company is also authorized to issue, without shareholder     
approval, common stock under certain circumstances. The issuance of either      
preferred or common stock could have the effect of making it more difficult for 
a person to acquire, or could discourage a person from seeking to acquire,      
control of the Company. If this occurs, investors could lose the opportunity to 
receive a premium on the sale of their shares in a change of control            
transaction.                                                                    

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS            

As part of our ongoing business, we do not participate in 
transactions that generate relationships with unconsolidated entities or        
financial partnerships, such as entities often referred to as structured finance
or special purpose entities ("SPEs"), which would have been established for the 
purpose of facilitating off-balance sheet arrangements or other contractually   
narrow or limited purposes. As of January 31, 2005, we were not involved in any 
unconsolidated SPE transactions.                                                

The Company has obtained bank guaranties primarily for the
performance of certain obligations under contracts with customers as well as for
the guarantee of certain payment obligations. These guaranties, which aggregated
approximately $33.9 million at January 31, 2005, are generally to be released by
the Company's performance of specified contract milestones, which are scheduled 
to be completed at various dates primarily through 2008.                        

   The Company is exposed to market risk from changes in foreign
currency exchange rates and may, from time to time, use foreign currency        
exchange contracts and other derivative instruments to reduce its exposure to   
the risk that the eventual net cash inflows and outflows resulting from the sale
of its products in foreign currency, primarily the Euro, will be adversely      
affected by changes in exchange rates. The objective of these contracts is to   
neutralize the impact of foreign currency exchange rate movements on the        
Company's operating results. These instruments are not designated as hedges and 
the change in fair value is included in income currently. As of January 31,     
2005, the Company had approximately $32.6 million of notional amount of foreign 
exchange forward contracts to sell Euros with an original maturity of up to six 
months. The fair value of these contracts as of January 31, 2005 of             
approximately $(66,000) is included in `Interest and other income, net' in the  
Consolidated Statements of Operations.                                          

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         The impact that our aggregate contractual obligations as of January
31, 2005 are expected to have on our liquidity and cash flow in future periods  
is as follows:                                                                  

                                                        [Enlarge/Download Table]


                                                         PAYMENTS DUE BY PERIOD                      
                                ---------------------------------------------------------------------
                                                 LESS THAN                                  MORE THAN
                                   TOTAL          1 YEAR       1-3 YEARS      3-5 YEARS      5 YEARS 
                                   -----          ------       ---------      ---------      ------- 
                                                           (IN THOUSANDS)                            

                                                                                                     
Long-term debt  obligations,                                                                         
 including current portion (1)  $ 518,254       $  87,913      $   9,259      $     501    $ 420,581 
Operating lease obligations       118,023          28,616         45,587         21,431       22,389 
Purchase obligations (2)           59,727          54,672          4,322            733            - 
Other long-term liabilities         4,976              -           4,976              -            - 
                                ---------------------------------------------------------------------

Total                           $ 700,980        $171,201      $  64,144      $  22,665    $ 442,970 
                                ---------------------------------------------------------------------

  (1) Includes (as > 5 Years) approximately $417.7 million and
approximately $2.3 million, respectively, aggregate principal amount of the New 
ZYPS and Existing ZYPS, which mature on May 15, 2023. See "Liquidity and Capital
Resources" for a description of the New ZYPS and Existing ZYPS including the    
series of put options giving the holders the right to require the Company to    
repurchase all or a portion of the New ZYPS and Existing ZYPS prior to May 2023 
and the Company the right to redeem the New ZYPS and Existing ZYPS prior to May 
2023. The New ZYPS have a net share settlement feature that provides that, upon 
conversion, the Company would pay to the holder cash equal to the lesser of the 
conversion value and the principal amount of the New ZYPS being converted, which
is currently $417.7 million, and would issue to the holder the remainder of the 
conversion value in excess of the principal amount, if any, in shares of the    
Company's common stock.                                                         

      (2) Purchase obligations include agreements to purchase goods or
services that are enforceable and legally binding on the Company 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. Purchase obligations exclude agreements that are     
cancelable without penalty.                                                     

       In 1997, a subsidiary of CTI and Quantum Industrial Holdings Ltd.
organized two new companies to make investments, including investments in high  
technology ventures. Each participant committed a total of $37.5 million to the 
capital of the new companies, for use as suitable investment opportunities are  
identified. Quantum Industrial Holdings Ltd. is a member of the Quantum Group of
Funds managed by Soros Fund Management LLC and affiliated management companies. 
As of January 31, 2005, the Company had invested approximately $26.5 million    
related to these ventures. In addition, the Company has committed approximately 
$9.8 million to various funds, ventures and companies which may be called at the
option of the investee.                                                         

     The Company licenses certain technology, "know-how" and related
rights for use in the manufacture and marketing of its products, and pays       
royalties to third parties, typically ranging up to 6% of net sales of the      
related products, under such licenses and under other agreements entered into in
connection with research and development financing, including projects partially
funded by the OCS, under which the funding organization reimburses a portion of 
the Company's research and development expenditures under approved project      
budgets. Certain of the Company's subsidiaries accrue royalties to the OCS for  
the sale of products incorporating technology developed in these projects in    
varying amounts based upon the revenues attributed to the various components of 
such products. Royalties due to the OCS in respect of research and development  
projects are required to be paid until the OCS has received total royalties up  
to the amounts received by the Company under the approved project budgets, plus 
interest in certain circumstances. As of January 31, 2005, such subsidiaries had
received approximately $57.7 million in cumulative grants from the OCS, and have
recorded approximately $26.7 million in cumulative royalties to the OCS.        

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EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS                                         

          Refer to "Liquidity and Capital Resources" for a description of EITF
04-8 and its impact on the Company's diluted earnings per share calculation for 
the New ZYPS and the Existing ZYPS. For the year ended January 31, 2005, the    
adoption of EITF 04-8 resulted in approximately 1,739,000 (comprised of         
approximately 1,610,000 for New ZYPS and approximately 129,000 for Existing     
ZYPS) of additional share dilution in calculating diluted earnings per share.   
The adoption of EITF 04-8 did not have an effect on reported diluted earnings   
(loss) per share for any periods presented.                                     

         In December 2004, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 123 (revised 2004), "Share-Based Payment", ("SFAS         
No.123(R)") which revises SFAS No. 123 and supersedes APB No. 25. SFAS No.      
123(R) requires all share-based payments to employees, including grants of      
employee stock options, to be valued at fair value on the date of grant, and to 
be expensed over the applicable vesting period. Pro forma disclosure of the     
income statement effects of share-based payments is no longer an alternative.   
SFAS No. 123(R) is effective for reporting periods beginning after June 15,     
2005, which for the Company is August 1, 2005 (the "Effective Date"). Beginning 
on the Effective Date, the Company must (i) expense all options granted after   
the Effective Date over the applicable vesting period, and (ii) expense the     
non-vested portions of existing option grants going forward over their remaining
vesting period. Compensation expense for the non-vested portions of existing    
option grants as of the Effective Date will be recorded based on the fair value 
of the awards previously calculated in developing the pro forma disclosures in  
accordance with the provisions of SFAS No. 123. Under SFAS No. 123(R), the      
Company is required to adopt a fair value-based method for measuring the        
compensation expense related to employee stock and stock options awards; this   
will lead to substantial additional compensation expense. Any such expense,     
although it will not affect the Company's cash flows, will have a material      
negative impact on the Company's reported results of operations.                

           In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies the accounting for  
abnormal amounts of idle facility expense, freight, handling costs, and wasted  
material (spoilage) by requiring that such items be recognized as current-period
charges regardless of whether they meet the ARB No. 43, Chapter 4 criterion of  
"so abnormal." In addition, SFAS No. 151 requires that allocation of fixed      
production overheads to the costs of conversion be based on the normal capacity 
of the production facilities. SFAS No. 151 is effective for inventory costs     
incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS
No. 151 is not expected to have a material effect on the Company's consolidated 
financial statements.                                                           

   In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 29." SFAS No. 153 amends   
APB No. 29 to eliminate the exception for nonmonetary exchanges of similar      
productive assets and replaces it with a general exception for exchanges of     
nonmonetary assets that do not have commercial substance. A nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to 
change significantly as a result of the exchange. SFAS No. 153 is effective for 
reporting periods beginning after June 15, 2005. The adoption of SFAS No. 153 is
not expected to have a material effect on the Company's consolidated financial  
statements.                                                                     

           In March 2004, the EITF of the FASB reached a consensus on EITF Issue
No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments", which provides additional guidance for assessing          
impairment losses on investments. Additionally, EITF 03-1 includes new          
disclosure requirements for investments that are deemed to be temporarily       
impaired. In September 2004, the FASB delayed the accounting provisions of EITF 
03-1; however the disclosure requirements remain effective for annual periods   
ending after June 15, 2004. The Company will evaluate the impact of EITF 03-1   
once final guidance is issued, however the adoption of EITF 03-1 in its current 
form is not expected to have a material effect on the Company's consolidated    
financial statements.                                                           

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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. 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.                             

        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, 
the Company makes 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. 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.        

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.          

   The Company is exposed to market risk from changes in foreign
currency exchange rates, interest rates and equity trading prices, which could  
impact its results of operations and financial condition. The Company manages   
its exposure to these market risks through its regular operating and financing  
activities and, when deemed appropriate, through the use of derivative financial
instruments.                                                                    

      The Company operates internationally and is therefore exposed to
potentially adverse movements in foreign currency exchange rates. The primary   
currencies that the Company is exposed to are the Euro and the Israeli Shekel.  
The Company may, from time to time, use foreign currency exchange contracts and 
other derivative instruments to reduce its exposure to the risk that the        
eventual net cash inflows and outflows resulting from the sale of its products  
in foreign currency, primarily the Euro, will be adversely affected by changes  
in exchange rates. The objective of these contracts is to neutralize the impact 
of foreign currency exchange rate movements on the Company's operating results. 
As of January 31, 2005, the Company had approximately $32.6 million of notional 
amount of foreign exchange forward contracts to sell Euros with a fair value of 
approximately $(66,000) with an original maturity of up to six months. Neither a
10% increase nor decrease from current exchange rates would have a material     
effect on the Company's consolidated financial statements.                      

        Various financial instruments held by the Company are sensitive to
changes in interest rates. Interest rate changes would result in gains or losses
in the market value of the Company's investments in debt securities due to      
differences between the market interest rates and rates at the date of purchase 
of these financial instruments. Neither a 10% increase nor decrease from current
interest rates would have a material effect on the Company's consolidated       
financial statements.                                                           

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        Equity investments held by the Company are subject to equity price
risks. Neither a 10% increase nor decrease in equity prices would have a        
material effect on the Company's consolidated financial statements.             

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                          

           The financial information required by Item 8 is included elsewhere in
this report.                                                                    

See Part IV, Item 15.                                     

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND       
FINANCIAL DISCLOSURE.                                       

None.                                                     

ITEM 9A.  CONTROLS AND PROCEDURES.                                              

           (a) The Company's management evaluated, with the participation of the
Company's principal executive and principal financial officers, the             
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as     
amended (the "Exchange Act")), as of January 31, 2005. Based on their           
evaluation, the Company's principal executive and principal financial officers  
concluded that the Company's disclosure controls and procedures were effective  
as of January 31, 2005.                                                         

         (b) There has been no change in the Company's internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the      
Exchange Act) that occurred during the Company's fiscal quarter ended January   
31, 2005, that has materially affected, or is reasonably likely to materially   
affect, the Company's internal control over financial reporting.                

  See the Management Report on Internal Control Over Financial
Reporting, which appears on page F-2 of this report. The Company's management,  
including the Chief Executive Officer and Chief Financial Officer, does not     
expect the Company's disclosure controls and procedures or its internal         
controls, to prevent all error and fraud. A control system, no matter how well  
conceived and operated, can provide only reasonable, not absolute, assurance    
that the objectives of the control system are met. Further, the design of a     
control system must reflect the fact that there are resource constraints, and   
the benefits of controls must be considered relative to their costs. Because of 
the inherent limitations in all control systems, no evaluation of controls can  
provide absolute assurance that all control issues and instances of fraud, if   
any, with the Company have been detected.                                       

ITEM 9B.  OTHER INFORMATION.                                                    

Not applicable.                                           

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                   

           Information required by this item is incorporated herein by reference
to the information in the Company's Notice of Annual Meeting of Shareholders and
Proxy Statement relating to the Annual Meeting of Shareholders to be held on    
June 14, 2005 (the "Proxy Statement") under the captions "Codes of Business     
Conduct and Ethics", "Background of Directors and Executive Officers", "Audit   
Committee", and "Section 16(a) Beneficial Ownership Reporting Compliance".      

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ITEM 11.  EXECUTIVE COMPENSATION.                                               

       Information required by this Item is incorporated by reference to
"Executive Compensation" and "Compensation of Directors" in the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND    
RELATED STOCKHOLDER MATTERS.                                

       Information required by this Item is incorporated by reference to
"Security Ownership of Management and Principal Shareholders" and "Equity       
Compensation Plan Information" in the Proxy Statement.                          

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                       

       Information required by this Item is incorporated by reference to
"Certain Relationships and Related Transactions" in the Proxy Statement.        

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.                               

       Information required by this Item is incorporated by reference to
"Independent Accounting Firm Fees" and "Policy for Audit, Audit Related and     
Non-Audit Services" in the Proxy Statement.                                     

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 PART IV

ITEM 15.          EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.                   

                                                        [Enlarge/Download Table]
                                                                                      

                                                                                  Page
                                                                                  ----

(a) Documents filed as part of this report.                                           
    --------------------------------------                                            

         (1)      Financial Statements.                                               
                  --------------------                                                

                  Index to Consolidated Financial Statements                       F-1

                  Management Report on Internal Control Over Financial Reporting   F-2

                  Report of Independent Registered Public Accounting Firm on          
                  Internal Control over Financial Reporting                        F-3

                  Report of Independent Registered Public Accouting Firm on           
                  the Consolidated Financial Statements                            F-4

                  Consolidated Balance Sheets as of                                   
                  January 31, 2004 and 2005                                        F-5

                  Consolidated Statements of Operations for the                       
                  Years Ended January 31, 2003, 2004 and 2005                      F-6

                  Consolidated Statements of Stockholders' Equity for the             
                  Years Ended January 31, 2003, 2004 and 2005                      F-7

                  Consolidated Statements of Cash Flows for the                       
                  Years Ended January 31, 2003, 2004 and 2005                      F-8

                  Notes to Consolidated Financial Statements                       F-9


(2) Financial Statement Schedules.                            
-----------------------------                         

None.                     

(3) Exhibits.                                                 
--------                                              

             The Index of Exhibits commences on the following page. Exhibits
              numbered 10.1 through 10.4, 10.6 through 10.12 and 10.19 through
            10.21 comprise material compensatory plans and arrangements of
the registrant.                                   

(c)      Index of Exhibits                                                      
-----------------                                             

No.      Exhibit Description                                                    
---      -------------------                                                    

3        Articles of Incorporation and By-Laws:                                 

        3.1*       Certificate of Incorporation. (Incorporated by reference to
             the Registrant's Annual Report on Form 10-K under the
                   Securities Exchange Act of 1934 for the year ended December
31, 1987.)                              

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     3.2*       Certificate of Amendment of Certificate of Incorporation
                  effective February 26, 1993. (Incorporated by reference to
             the Registrant's Annual Report on Form 10-K under the
                   Securities Exchange Act of 1934 for the year ended December
31, 1992.)                              

     3.3*       Certificate of Amendment of Certificate of Incorporation
                 effective January 12, 1995. (Incorporated by reference to
             the Registrant's Annual Report on Form 10-K under the
                   Securities Exchange Act of 1934 for the year ended December
31, 1994.)                              

     3.4*       Certificate of Amendment of Certificate of Incorporation
                 dated October 18, 1999. (Incorporated by reference to the
                    Registrant's Annual Report on Form 10-K under the Securities
                  Exchange Act of 1934 for the year ended January 31, 2000.)

     3.5*       Certificate of Amendment of Certificate of Incorporation
                   dated September 19, 2000. (Incorporated by reference to the
                    Registrant's Annual Report on Form 10-K under the Securities
                  Exchange Act of 1934 for the year ended January 31, 2001.)

   3.6*       By-Laws, as amended. (Incorporated by reference to the
                    Registrant's Annual Report on Form 10-K under the Securities
                  Exchange Act of 1934 for the year ended January 31, 2003.)

4    Instruments defining the rights of security holders including indentures:  

      4.1*       Specimen stock certificate. (Incorporated by reference to
             the Registrant's Annual Report on Form 10-K under the
                   Securities Exchange Act of 1934 for the year ended December
31, 1992.)                              

  4.2*       Indenture dated as of November 22, 2000 from Comverse
              Technology, Inc. to The Chase Manhattan Bank, Trustee.
                   (Incorporated by reference to the Registrant's Registration
               Statement on Form S-3 under the Securities Act of 1933,
Registration No. 333-55526.)            

   4.3*       Specimen 1 1/2% Convertible Senior Debenture Due 2005.
                   (Incorporated by reference to the Registrant's Registration
               Statement on Form S-3 under the Securities Act of 1933,
Registration No. 333-55526.)            

        4.4*       Indenture dated as of May 7, 2003 from Comverse Technology,
               Inc., to JPMorgan Chase Bank, Trustee. (Incorporated by
                    reference to the Registrant's Registration Statement on Form
              S-3 under the Securities Act of 1933, Registration No.
333-106391.)                            

      4.5*       Specimen Zero Yield Puttable Securities Due May 15, 2023.
                   (Incorporated by reference to the Registrant's Registration
               Statement on Form S-3 under the Securities Act of 1933,
Registration No. 333-106391.)           

        4.6*       Specimen for New Zero Yield Puttable Securities Due May 15,
                    2023. (Incorporated by reference to the Registrant's Current
                    Report on Form 8-K under the Securities Exchange Act of 1934
filed on January 26, 2005.)             

      4.7*       Indenture, dated as of January 26, 2005, between Comverse
                   Technology, Inc., and JPMorgan Chase Bank, N.A. as Trustee.
              (Incorporated by reference to the Registrant's Current
                    Report on Form 8-K under the Securities Exchange Act of 1934
filed on January 26, 2005.)             

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10       Material contracts:                                                    

   10.1*      Form of Stock Option Agreement pertaining to shares of
         certain subsidiaries of Comverse Technology, Inc.
                    (Incorporated by reference to the Registrant's Annual Report
                  on Form 10-K under the Securities Exchange Act of 1934 for
the year ended December 31, 1993.)      

       10.2*      Form of Incentive Stock Option Agreement. (Incorporated by
                    reference to the Registrant's Registration Statement on Form
              S-1 under the Securities Act of 1933, Registration No.
33-9147.)                               

  10.3*      Form of Stock Option Agreement for options other than
                  Incentive Stock Options. (Incorporated by reference to the
                    Registrant's Annual Report on Form 10-K under the Securities
                   Exchange Act of 1934 for the year ended December 31, 1987.)

 10.4*      Form of Restricted Stock Agreement. (Incorporated by
                reference to the Registrant's Annual Report on Form 10-K
                    under the Securities Exchange Act of 1934 for the year ended
January 31, 2004.)                      

     10.5*      Form of Indemnity Agreement between Comverse Technology,
             Inc. and its Officers and Directors. (Incorporated by
                reference to the Registrant's Annual Report on Form 10-K
                    under the Securities Exchange Act of 1934 for the year ended
January 31, 2003.)                      

         10.6*      1997 Employee Stock Purchase Plan, as amended. (Incorporated
              by reference to the Definitive Proxy Materials for the
                 Registrant's Annual meeting of Shareholders held June 15,
2001.)                                  

       10.7*      2004 Management Incentive Plan. (Incorporated by reference
              to the Definitive Proxy Materials for the Registrant's
               Annual Meeting of Shareholders held December 16, 2003.)

         10.8*      2002 Employee Stock Purchase Plan, as amended. (Incorporated
              by reference to the Definitive Proxy Materials for the
                 Registrant's Annual Meeting of Shareholders held December
16, 2003.)                              

     10.9*      1997 Stock Incentive Compensation Plan. (Incorporated by
           reference to the Definitive Proxy Materials for the
                    Registrant's Annual Meeting of Shareholders held January 13,
1998.)                                  

     10.10*     1999 Stock Incentive Compensation Plan. (Incorporated by
           reference to the Definitive Proxy Materials for the
                   Registrant's Annual Meeting of Shareholders held October 8,
1999.)                                  

     10.11*     2000 Stock Incentive Compensation Plan. (Incorporated by
           reference to the Definitive Proxy Materials for the
                  Registrant's Annual Meeting of Shareholders held September
15, 2000.)                              

     10.12*     2001 Stock Incentive Compensation Plan. (Incorporated by
           reference to the Definitive Proxy Materials for the
                 Registrant's Annual Meeting of Shareholders held June 15,
2001.)                                  

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         10.13*     Lease dated November 5, 1990 between Boston Technology, Inc.
         and Wakefield Park Limited Partnership ("Lease").
                 (Incorporated by reference to the Annual Report of Boston
                   Technology, Inc. on Form 10-K under the Securities Exchange
         Act of 1934 for the year ended January 31, 1991.)

        10.14*     First Amendment to Lease dated as of March 31, 1993 between
             Boston Technology, Inc. and WBAM Limited Partnership.
                    (Incorporated by reference to the Quarterly Report of Boston
                   Technology, Inc. on Form 10-Q under the Securities Exchange
            Act of 1934 for the quarter ended October 31, 1993.)

  10.15*     Second Amendment to Lease dated as of August 31, 1994
        between Boston Technology, Inc. and WBAM Limited
                    Partnership. (Incorporated by reference to the Annual Report
                    of Boston Technology, Inc. on Form 10-K under the Securities
                  Exchange Act of 1934 for the year ended January 31, 1995.)

      10.16*     Third Amendment to Lease dated as of June 7, 1996 between
             Boston Technology, Inc. and WBAM Limited Partnership.
                 (Incorporated by reference to the Annual Report of Boston
                   Technology, Inc. on Form 10-K under the Securities Exchange
         Act of 1934 for the year ended January 31, 1997.)

    10.17*     Fourth Amendment to Lease dated as of December 21, 1998
               between Wakefield 100 LLC and Comverse Technology, Inc.
                    (Incorporated by reference to the Registrant's Annual Report
                  on Form 10-K under the Securities Exchange Act of 1934 for
the year ended January 31, 2003.)       

   10.18*     Fifth Amendment to Lease dated as of September 5, 2002
                    between SC Wakefield 200, Inc. and Comverse Technology, Inc.
                    (Incorporated by reference to the Registrant's Annual Report
                  on Form 10-K under the Securities Exchange Act of 1934 for
the year ended January 31, 2003.)       

      10.19*     Employment, Non-Disclosure and Non-Competition Agreement,
                dated as of August 19, 2004 between Comverse Technology,
                   Inc. and David Kreinberg. (Incorporated by reference to the
            Registrant's Quarterly Report on Form 10-Q under the
                  Securities Exchange Act of 1934 for the quarter ended July
31, 2004.)                              

    10.20*     2004 Stock Incentive Compensation Plan (Incorporated by
           reference to the Definitive Proxy Materials for the
                 Registrant's Annual meeting of Shareholders held June 15,
2004.)                                  

         10.21*    Form of Agreement evidencing a grant of Stock Options under
                  the Comverse Technology, Inc. Stock Incentive Compensation
             Plans. (Incorporated by reference to the Registrant's
                    Current Report on Form 8-K under the Securities Exchange Act
of 1934 filed on December 7, 2004.)     

        10.22*     Form of Agreement evidencing a grant of Stock Options under
                  the Comverse Technology, Inc. Stock Incentive Compensation
                 Plans to its directors. (Incorporated by reference to the
                    Registrant's Current Report on Form 8-K under the Securities
  Exchange Act of 1934 on February 3, 2005.)

21.1**     Subsidiaries of Registrant.                        

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23.1**     Consent of Deloitte & Touche LLP.                  

    24.1       Powers of Attorney (see signature page to this report.)

         31.1**     Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.  

         31.2**     Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.  

         32***      Certification of Chief Executive Officer and Chief Financial
                    Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                   

-----------------                                                               

*    Incorporated by reference.                                                 

**   Filed herewith.                                                            

***  This exhibit is being "furnished" pursuant to Item 601(b)(32) of SEC       
    Regulation S-K 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.                                                                 

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SIGNATURES
----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange  
Act of 1934, the Registrant has duly caused this report to be signed on its     
behalf by the undersigned, thereunto duly authorized.                           

                                           COMVERSE TECHNOLOGY, INC.
                                      (Registrant)

                     April 4, 2005       By:  /s/ Kobi Alexander
                                                     ---------------------------
                                        Kobi Alexander
                                               Chairman of the Board
                                                     and Chief Executive Officer

                     April 4, 2005       By: /s/ David Kreinberg
                                                     ---------------------------
                                         David Kreinberg
                                                  Executive Vice President
                                                     and Chief Financial Officer

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature      
appears below constitutes and appoints Kobi Alexander and David Kreinberg and   
each of them, jointly and severally, his attorneys-in-fact, each with full power
of substitution, for him in any and all capacities, to sign any and all         
amendments to this Form 10-K, and to file the same, with exhibits thereto and   
other documents in connection therewith, with the Securities and Exchange       
Commission, hereby ratifying and confirming all that each said attorneys-in-fact
or his substitutes, may do or cause to be done by virtue hereof.                

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the 
capacities and on the dates indicated.                                          

/s/ Kobi Alexander                                              April 4, 2005   
---------------------------------                                               
Kobi Alexander,                                                                 
Chairman and CEO, Director                                                      

/s/ David Kreinberg                                             April 4, 2005   
---------------------------------                                               
David Kreinberg,                                                                
Executive Vice President and CFO                                                

/s/ Raz Alon                                                    April 4, 2005   
---------------------------------                                               
Raz Alon, Director                                                              

/s/ Itsik Danziger                                              April 4, 2005   
---------------------------------                                               
Itsik Danziger, Director                                                        

/s/ John H. Friedman                                            April 4, 2005   
---------------------------------                                               
John H. Friedman, Director                                                      

/s/ Ron Hiram                                                   April 4, 2005   
---------------------------------                                               
Ron Hiram, Director                                                             

/s/ Sam Oolie                                                   April 4, 2005   
---------------------------------                                               
Sam Oolie, Director                                                             

/s/ William F. Sorin                                            April 4, 2005   
---------------------------------                                               
William F. Sorin, Director                                                      

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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES                                      
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                      
--------------------------------------------------------------------------------

                                                            PAGE

Management Report on Internal Control Over Financial Reporting       F-2        

Report of Independent Registered Public Accounting Firm on                      
Internal Control over Financial Reporting                            F-3        

Report of Independent Registered Public Accouting Firm on                       
the Consolidated Financial Statements                                F-4        

Consolidated Balance Sheets as of January 31, 2004 and 2005          F-5        

Consolidated Statements of Operations for the                                   
Years Ended January 31, 2003, 2004 and 2005                       F-6     

Consolidated Statements of Stockholders' Equity for the                         
Years Ended January 31, 2003, 2004 and 2005                       F-7     

Consolidated Statements of Cash Flows for the                                   
Years Ended January 31, 2003, 2004 and 2005                       F-8     

Notes to Consolidated Financial Statements                           F-9        

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MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING                  

       The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in    
Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934. Those     
rules define internal control over financial reporting as a process designed 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 and includes those policies and   
procedures that:                                                                

o    Pertain to the maintenance of records that in reasonable detail  
          accurately and fairly reflect the transactions and dispositions of the
assets of the Company;                                      

o    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

    o    Provide reasonable assurance regarding prevention or timely detection
    of unauthorized acquisition, use or disposition of the Company's
         assets that could have a material effect on the financial statements.

          Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may    
become inadequate because of changes in conditions, or that the degree of       
compliance with the policies or procedures may deteriorate.                     

          The Company's management assessed the effectiveness of the Company's
internal control over financial reporting as of January 31, 2005. In making this
assessment, the Company's management used the criteria established in Internal  
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.                                                     

          Based on our assessment and those criteria, the Company's management
believes that, as of January 31, 2005, the Company's internal control over      
financial reporting is effective.                                               

The Company's independent registered public accounting firm, Deloitte & Touche  
LLP, has issued an attestation report on management's assessment of the         
Company's internal control over financial reporting, which appears on pages F-3 
and F-4.                                                                        

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL     
OVER FINANCIAL REPORTING                                                        

To the Board of Directors and Stockholders of Comverse Technology, Inc.         
New York, New York                                                              

           We have audited management's assessment, included in the accompanying
Management Report On Internal Control Over Financial Reporting, that Comverse   
Technology, Inc. and subsidiaries (the "Company") maintained effective internal 
control over financial reporting as of January 31, 2005, based on criteria      
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting 
and for its assessment of the effectiveness of internal control over financial  
reporting. Our responsibility is to express an opinion on management's          
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.                                    

           We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether      
effective internal control over financial reporting was maintained in all       
material respects. Our audit included obtaining an understanding of internal    
control over financial reporting, evaluating management's assessment, testing   
and evaluating the design and operating effectiveness of internal control, and  
performing such other procedures as we considered necessary in the              
circumstances. We believe that our audit provides a reasonable basis for our    
opinions.                                                                       

        A company's internal control over financial reporting is a process
designed by, or under the supervision of, the company's principal executive and 
principal financial officers, or persons performing similar functions, and      
effected by the company's board of directors, management, and other personnel to
provide reasonable assurance regarding the reliability of financial reporting   
and the preparation of financial statements for external purposes in accordance 
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to  
the maintenance of records that, in reasonable detail, accurately and fairly    
reflect the transactions and dispositions of the assets of the company; (2)     
provide reasonable assurance that transactions are recorded as necessary to     
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are    
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's     
assets that could have a material effect on the financial statements.           

  Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper         
management override of controls, material misstatements due to error or fraud   
may not be prevented or detected on a timely basis. Also, projections of any    
evaluation of the effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may become          
inadequate because of changes in conditions, or that the degree of compliance   
with the policies or procedures may deteriorate.                                

         In our opinion, management's assessment that the Company maintained
effective internal control over financial reporting as of January 31, 2005, is  
fairly stated, in all material respects, based on the criteria established in   
Internal Control--Integrated Framework issued by the Committee of Sponsoring    
Organizations of the Treadway Commission. Also in our opinion, the Company      
maintained, in all material respects, effective internal control over financial 
reporting as of January 31, 2005, based on the criteria established in Internal 
Control--Integrated Framework issued by the Committee of Sponsoring             
Organizations of the Treadway Commission.                                       

          We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated financial  
statements as of and for the year ended January 31, 2005 of the Company and our 
report dated April 1, 2005 expressed an unqualified opinion on those financial  
statements.                                                                     

/s/ Deloitte & Touche LLP                                                       

Jericho, New York                                                               
April 1, 2005                                                                   

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED     
FINANCIAL STATEMENTS                                                            

To the Board of Directors and Stockholders of Comverse Technology, Inc.         
New York, New York                                                              

     We have audited the accompanying consolidated balance sheets of
Comverse Technology, Inc. and subsidiaries (the "Company") as of January 31,    
2005 and 2004, and the related consolidated statements of operations,           
stockholders' equity, and cash flows for each of the three years in the period  
ended January 31, 2005. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these      
financial statements based on our audits.                                       

     We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards      
require that we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement. An audit    
includes examining, on a test basis, evidence supporting the amounts and        
disclosures in the financial statements. An audit also includes assessing the   
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our 
audits provide a reasonable basis for our opinion.                              

    In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Comverse Technology,
Inc. and subsidiaries as of January 31, 2005 and 2004, and the results of their 
operations and their cash flows for each of the three years in the period ended 
January 31, 2005, in conformity with accounting principles generally accepted in
the United States of America.                                                   

          We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the    
Company's internal control over financial reporting as of January 31, 2005,     
based on the criteria established in Internal Control--Integrated Framework     
issued by the Committee of Sponsoring Organizations of the Treadway Commission  
and our report dated April 1, 2005 expressed an unqualified opinion on          
management's assessment of the effectiveness of the Company's internal control  
over financial reporting and an unqualified opinion on the effectiveness of the 
Company's internal control over financial reporting.                            

/s/ Deloitte & Touche LLP                                                       

Jericho, New York                                                               
April 1, 2005                                                                   

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                                                        [Enlarge/Download Table]

COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES                                                                                          
CONSOLIDATED BALANCE SHEETS                                                                                                         
JANUARY 31, 2004 AND 2005                                                                                                           
(IN THOUSANDS, EXCEPT SHARE DATA)                                                                                                   
------------------------------------------------------------------------------------------------------------------------------------
                                                                                      2004                       2005               
                                                                                      ----                       ----               
                                                                                                                                    
ASSETS                                                                                                                              
------                                                                                                                              
CURRENT ASSETS:                                                                                                                     
     Cash and cash equivalents                                                    $   623,063               $   721,350             
     Bank time deposits                                                                   888                     2,317             
     Short-term investments                                                         1,574,548                 1,525,963             
     Accounts receivable, net                                                         158,236                   199,571             
     Inventories                                                                       54,751                   107,552             
     Prepaid expenses and other current assets                                         50,798                    70,335             
                                                                                  ------------              ------------            
TOTAL CURRENT ASSETS                                                                2,462,284                 2,627,088             
PROPERTY AND EQUIPMENT, net                                                           125,023                   122,174             
OTHER ASSETS                                                                          140,735                   176,024             
                                                                                  ------------              ------------            
TOTAL ASSETS                                                                      $ 2,728,042               $ 2,925,286             
                                                                                  ============              ============            

LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                
------------------------------------                                                                                                

CURRENT LIABILITIES:                                                                                                                
     Accounts payable and accrued expenses                                        $   229,296               $   291,005             
     Convertible debt                                                                       -                    87,253             
     Bank loans and other debt                                                          2,649                       660             
     Advance payments from customers                                                   89,062                   108,381             
                                                                                  ------------              ------------            
TOTAL CURRENT LIABILITIES                                                             321,007                   487,299             
CONVERTIBLE DEBT                                                                      544,723                   420,000             
LIABILITY FOR SEVERANCE PAY                                                            12,324                    15,803             
OTHER LIABILITIES                                                                      15,964                    12,330             
                                                                                  ------------              ------------            
TOTAL LIABILITIES                                                                     894,018                   935,432             
                                                                                  ------------              ------------            

MINORITY INTEREST                                                                     161,478                   195,825             
                                                                                  ------------              ------------            
COMMITMENTS AND CONTINGENCIES (Note 20)                                                                                             
STOCKHOLDERS' EQUITY:                                                                                                               
     Preferred stock, $0.01 par value - authorized, 2,500,000                                                                       
         shares; issued, none                                                                                                       
     Common stock, $0.10 par value -                                                                                                
         authorized, 600,000,000 shares;                                                                                            
         issued and outstanding 194,549,886 and 198,878,553 shares                     19,454                    19,887             
     Additional paid-in capital                                                     1,210,547                 1,284,298             
     Unearned stock compensation                                                       (6,707)                  (14,432)            
     Retained earnings                                                                439,899                   497,229             
     Accumulated other comprehensive income                                             9,353                     7,047             
                                                                                  ------------              ------------            
TOTAL STOCKHOLDERS' EQUITY                                                          1,672,546                 1,794,029             
                                                                                  ------------              ------------            
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $ 2,728,042               $ 2,925,286             
                                                                                  ============              ============            

See notes to consolidated financial statements. 

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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES                                                                                          
CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                               
YEARS ENDED JANUARY 31, 2003, 2004 AND 2005                                                                                         
(IN THOUSANDS, EXCEPT PER SHARE DATA)                                                                                               
------------------------------------------------------------------------------------------------------------------------------------
                                                                          JANUARY 31,       JANUARY 31,        JANUARY 31,          
                                                                             2003              2004               2005              
                                                                             ----              ----               ----              

                                                                                                                                    
Sales:                                                                                                                              
      Product revenues                                                    $  547,141        $  534,585       $  700,970             
      Service revenues                                                       188,748           231,307          258,472             
                                                                          -----------       -----------      -----------            
                                                                             735,889           765,892          959,442             
                                                                          -----------       -----------      -----------            
Cost of sales:                                                                                                                      
      Product costs                                                          184,413           181,059          215,023             
      Service costs                                                          153,708           146,501          165,687             
                                                                          -----------       -----------      -----------            
                                                                             338,121           327,560          380,710             
                                                                          -----------       -----------      -----------            

Gross margin                                                                 397,768           438,332          578,732             

Operating expenses:                                                                                                                 
      Research and development, net                                          232,593           216,457          236,657             
      Selling, general and administrative                                    281,202           254,376          290,445             
      In-process research and development                                                                                           
            and other acquisition-related charges                                  -                 -            4,635             
      Workforce reduction, restructuring                                                                                            
            and impairment charges (credits)                                  66,714            (2,123)              62             
                                                                          -----------       -----------      -----------            

      Income (loss) from operations                                         (182,741)          (30,378)          46,933             

      Interest and other income, net                                          58,902            38,958           36,223             
                                                                          -----------       -----------      -----------            

Income (loss) before income tax provision, minority                                                                                 
      interest and equity in the earnings (losses) of affiliates            (123,839)            8,580           83,156             

Income tax provision                                                           3,294             8,206           13,214             

Minority interest and equity in the earnings (losses)                                                                               
      of affiliates                                                           (2,345)           (5,760)         (12,612)            
                                                                          -----------       -----------      -----------            

Net income (loss)                                                         $ (129,478)       $   (5,386)      $   57,330             
                                                                          ===========       ===========      ===========            

Earnings (loss) per share:                                                                                                          
            Basic                                                         $    (0.69)       $    (0.03)      $     0.29             
                                                                          ===========       ===========      ===========            
            Diluted                                                       $    (0.69)       $    (0.03)      $     0.28             
                                                                          ===========       ===========      ===========            

 See notes to consolidated financial statements.

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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES                                      
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                 
YEARS ENDED JANUARY 31, 2003, 2004 AND 2005                                     
(IN THOUSANDS, EXCEPT SHARE DATA)                                               

                                                        [Enlarge/Download Table]

                                                                                               Accumulated Other                    
                                                                                              Comprehensive Income                  
                                           Common Stock                                       --------------------                  
                                           ------------   Additional    Unearned              Unrealized  Cumulative      Total     
                                   Number of       Par      Paid-in       Stock       Retained    Gains   Translation  Stockholders'
                                    Shares        Value     Capital    Compensation   Earnings   (Losses)  Adjustment     Equity    
                                    ------        -----     -------    ------------   --------   --------  ----------     ------    

                                                                                                                                    
BALANCE, FEBRUARY 1, 2002         186,248,350   $ 18,625  $ 1,018,232   $    -       $ 574,763    $ 4,299   $    489   $ 1,616,408  
Comprehensive loss:                                                                                                                 
Net loss                                                                              (129,478)                                     
Unrealized gain on                                                                                                                  
 available-for-sale securities                                                                        827                           
Translation adjustment                                                                                         1,297                
Total comprehensive loss                                                                                                  (127,354) 
Common stock issued for employee                                                                                                    
 stock purchase plan                  975,396         97        8,097                                                        8,194  
Exercise of stock options             530,661         53        4,121                                                        4,174  
Issuance of subsidiary shares                                  47,996                                                       47,996  
Tax benefit of dispositions of                                                                                                      
 stock options                                                    274                                                          274  
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2003         187,754,407     18,775    1,078,720        -         445,285      5,126      1,786     1,549,692  
Comprehensive loss:                                                                                                                 
Net loss                                                                                (5,386)                                     
Unrealized loss on                                                                                                                  
 available-for-sale securities                                                                        (53)                          
Translation adjustment                                                                                         2,494                
Total comprehensive loss                                                                                                    (2,945) 
Common stock issued for employee                                                                                                    
 stock purchase plan                  711,138         71        6,012                                                        6,083  
Common stock issued for restricted                                                                                                  
 stock grant                          314,300         31        5,218     (5,249)                                              -    
Exercise of stock options           5,770,041        577       54,610                                                       55,187  
Issuance of subsidiary shares                                  64,616     (1,672)                                           62,944  
Tax benefit of dispositions of                                                                                                      
 stock options                                                  1,371                                                        1,371  
Amortization of unearned                                                                                                            
 stock compensation                                                          214                                               214  
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2004         194,549,886     19,454    1,210,547     (6,707)      439,899      5,073      4,280     1,672,546  
Comprehensive income:                                                                                                               
Net income                                                                              57,330                                      
Unrealized loss on                                                                                                                  
 available-for-sale securities                                                                     (3,588)                          
Translation adjustment                                                                                         1,282                
Total comprehensive income                                                                                                  55,024  
Common stock issued for employee                                                                                                    
 stock purchase plan                  554,586         55        7,718                                                        7,773  
Common stock issued for restricted                                                                                                  
 stock grant                          327,100         33        7,508     (7,541)                                              -    
Exercise of stock options           3,446,981        345       37,415                                                      37,760   
Issuance of subsidiary shares                                  19,193     (2,281)                                          16,912   
Tax benefit of dispositions of                                                                                                      
 stock options                                                  1,917                                                       1,917   
Amortization of unearned stock                                                                                                      
 compensation                                                              2,097                                            2,097   
------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 31, 2005         198,878,553   $ 19,887  $ 1,284,298  $ (14,432)    $ 497,229    $ 1,485    $ 5,562  $ 1,794,029   
                                  ===========   ========  ===========  ==========    =========    =======    =======  ===========   

 See notes to consolidated financial statements.

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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES                                                                                          
CONSOLIDATED STATEMENTS OF CASH FLOW                                                                                                
YEARS ENDED JANUARY 31, 2003, 2004 AND 2005                                                                                         
(IN THOUSANDS)                                                                                                                      
------------------------------------------------------------------------------------------------------------------------------------

                                                                                     JANUARY 31,    JANUARY 31,     JANUARY 31,     
                                                                                        2003            2004            2005        
                                                                                        ----            ----            ----        
                                                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                               
     Net income (loss)                                                              $  (129,478)   $    (5,386)     $   57,330      
     Adjustments to reconcile net income (loss) to net cash provided                                                                
           by operating activities:                                                                                                 
        Depreciation and amortization                                                    67,355         71,771          66,692      
        Minority interest                                                                 1,570          7,246          12,861      
        Operating asset write-downs and impairments                                      26,445          6,684          13,681      
        Changes in operating assets and liabilities:                                                                                
           Accounts receivable, net                                                     161,737         56,395         (40,545)     
           Inventories                                                                   13,446        (14,071)        (52,696)     
           Prepaid expenses and other current assets                                     19,728         11,123         (13,262)     
           Accounts payable and accrued expenses                                        (74,856)       (33,302)         57,146      
           Advance payments from customers                                               13,822         35,565          19,319      
           Liability for severance pay                                                     (426)         2,407           3,380      
           Other, net                                                                    (2,497)        (9,812)         (6,878)     
                                                                                    ------------   ------------     -----------     
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                96,846        128,620         117,028      
                                                                                    ------------   ------------     -----------     

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                               
     Maturities and sales (purchases) of bank time deposits                                                                         
        and investments, net                                                           (358,007)      (451,826)         38,119      
     Purchase of property and equipment                                                 (34,092)       (35,352)        (46,151)     
     Capitalization of software development costs                                       (13,391)        (7,759)         (4,198)     
     Net assets acquired                                                                (31,130)        (5,910)        (45,634)     
                                                                                    ------------   ------------     -----------     
NET CASH USED IN INVESTING ACTIVITIES                                                  (436,620)      (500,847)        (57,864)     
                                                                                    ------------   ------------     -----------     

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                               
     Net proceeds from issuance of convertible debt                                           -        412,766               -      
     Repurchase of convertible debt                                                    (169,788)      (253,254)        (36,873)     
     Proceeds from issuance of common stock in connection                                                                           
        with exercise of stock options and employee stock purchase plan                  12,368         61,270          45,533      
     Net proceeds from issuance of common stock of subsidiaries                          68,695        129,032          32,161      
     Repayment of bank loan                                                                   -        (42,000)              -      
     Other, net                                                                          (3,058)         2,381          (1,698)     
                                                                                    ------------   ------------     -----------     
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                     (91,783)       310,195          39,123      
                                                                                    ------------   ------------     -----------     

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   (431,557)       (62,032)         98,287      
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          1,116,652        685,095         623,063      
                                                                                    ------------   ------------     -----------     
CASH AND CASH EQUIVALENTS, END OF YEAR                                              $   685,095    $   623,063       $ 721,350      
                                                                                    ============   ============     ===========     

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                                                                  
     Cash paid during the year for interest                                         $    10,458    $     4,512       $   1,975      
                                                                                    ============   ============     ===========     
     Cash paid during the year for income taxes                                     $    11,682    $    10,503       $   8,015      
                                                                                    ============   ============     ===========     


 See notes to consolidated financial statements.

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COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES                                      
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
YEARS ENDED JANUARY 31, 2003, 2004 AND 2005                                     
--------------------------------------------------------------------------------

1.   ORGANIZATION AND BUSINESS                                                  

   Comverse Technology, Inc. ("CTI" and, together with its subsidiaries, the
 "Company") was organized as a New York corporation in October 1984. The
   Company is engaged in the design, development, manufacture, marketing and
support of special purpose computer and telecommunications systems and
software for multimedia communications and information processing     
applications.                                                         

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

     PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
   the accounts of CTI and its wholly-owned and majority-owned subsidiaries.
   All material intercompany balances and transactions have been eliminated.

     MINORITY INTEREST - The interest of minority stockholders in the net assets
  of consolidated subsidiaries, relating primarily to CTI's Verint Systems
    Inc. ("Verint") and Ulticom, Inc. ("Ulticom") majority-owned subsidiaries,
are presented in the Consolidated Balance Sheets separately from      
     liabilities and stockholders' equity. The minority interest included in the
   Consolidated Statements of Operations represents the interest of minority
stockholders in the net income of such consolidated subsidiaries.     

   CASH, CASH EQUIVALENTS AND BANK TIME DEPOSITS - The Company considers all
highly liquid investments purchased with original maturities of three 
 months or less to be cash equivalents. Bank deposits with maturities in
excess of three months are classified as bank time deposits.          

SHORT-TERM INVESTMENTS - The Company classifies all of its short-term 
investments as available-for-sale, accounted for at fair value, with  
  resulting unrealized gains or losses reported as a separate component of
stockholders' equity.                                                 

  In connection with the preparation of this report, the Company concluded
    that it was appropriate to classify investments in Auction Rate Securities
("ARS") as short-term investments. ARS generally have long-term stated
maturities; however, these investments have characteristics similar to
     short-term investments because at pre-determined intervals, generally every
    7 to 90 days, there is a new auction process at which these securities are
reset to current interest rates. Previously, such investments had been
    classified as cash and cash equivalents due to their liquidity and pricing
   reset feature. Accordingly, the Company has revised the classification to
report these securities as short-term investments in the Consolidated 
Balance Sheets. As of January 31, 2005, the Company held approximately
$1,061,121,000 of investments in ARS that are classified as short-term
investments. The Company reclassified approximately $907,932,000,     
     $717,688,000 and $245,210,000 of investments in ARS as of January 31, 2004,
     2003 and 2002, respectively, that were previously included in cash and cash
equivalents to short-term investments.                                

The Company has also revised the presentation of the Consolidated     
   Statements of Cash Flows for the years ended January 31, 2004 and 2003 to
    reflect the purchases and sales of ARS as investing activities rather than
   as a component of cash and cash equivalents, which is consistent with the
presentation for the year ended January 31, 2005. In the previously   
    reported Consolidated Statements of Cash Flows for the years ended January
   31, 2004 and 2003, net cash used in investing activities related to these
short-term investments of approximately $190,244,000 and $472,478,000,
respectively, were included in cash and cash equivalents.             

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This change in classification does not affect previously reported cash
flows from operations or from financing activities in the Consolidated
    Statements of Cash Flows or previously reported Consolidated Statements of
Operations for any period.                                            

   INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method.                      

  PROPERTY AND EQUIPMENT, NET - Property and equipment are carried at cost
     less accumulated depreciation and amortization. The Company depreciates its
property and equipment primarily on a straight-line basis over periods
 generally ranging from three to seven years. Leasehold improvements are
   amortized over the shorter of their estimated useful lives or the related
     lease term. The cost of maintenance and repairs is charged to operations as
incurred. Significant renewals and improvements are capitalized.      

  INCOME TAXES - The Company accounts for income taxes using the asset and
  liability method. Under this method, deferred tax assets and liabilities
 are determined based on differences between financial reporting and tax
 bases of assets and liabilities, and are measured using the enacted tax
   rates and laws that are expected to be in effect when the differences are
expected to reverse.                                                  

REVENUE AND EXPENSE RECOGNITION - The Company recognizes revenues in  
 accordance with the provisions of Statement of Position 97-2, "Software
  Revenue Recognition", and related Interpretations. The Company's systems
 are generally a bundled hardware and software solution that are shipped
     together. Revenue is generally recognized at the time of shipment for sales
   of systems which do not require significant customization to be performed
     by the Company when the following criteria are met: (1) persuasive evidence
of an arrangement exists, (2) delivery has occurred and acceptance is 
   determinable, (3) the fee is fixed or determinable and (4) collectibility
is probable.                                                          

Amounts received from customers pursuant to the terms specified in    
     contracts but for which revenue has not yet been recognized are recorded as
advance payments from customers.                                      

   Post-contract customer support ("PCS") services are sold separately or as
part of a multiple element arrangement, in which case the related PCS 
     element is determined based upon vendor-specific objective evidence of fair
    value, such that the portion of the total fee allocated to PCS services is
generally recognized as revenue ratably over the term of the PCS      
arrangement.                                                          

Revenues from certain development contracts are recognized under the  
     percentage-of-completion method on the basis of physical completion to date
    or using actual costs incurred to total expected costs under the contract.
     Revisions in estimates of costs and profits are reflected in the accounting
  period in which the facts that require the revision become known. At the
     time a loss on a contract is known, the entire amount of the estimated loss
  is accrued. Amounts received from customers in excess of revenues earned
    under the percentage-of-completion method are recorded as advance payments
from customers. Related contract costs include all direct material and
   labor costs and those indirect costs related to contract performance, and
are included in `Cost of sales' in the Consolidated Statements of     
Operations.                                                           

   Expenses incurred in connection with research and development activities,
 other than certain software development costs that are capitalized, and
   selling, general and administrative expenses are charged to operations as
incurred.                                                             

 SOFTWARE DEVELOPMENT COSTS - Software development costs are capitalized
    upon the establishment of technological feasibility and are amortized over
the estimated useful life of the software, which to date has been four
years or less. The amounts capitalized for the years ended January 31,
2003, 2004 and 2005 were approximately $13,391,000, $7,759,000 and    
  $4,198,000, respectively. Amortization begins in the period in which the
     related product is available for general release to customers. Amortization
    expense amounted to approximately $12,594,000, $15,149,000 and $14,311,000

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for the years ended January 31, 2003, 2004 and 2005, respectively. In 
addition, during the year ended January 31, 2005, the Company recorded
     write-downs of approximately $5,049,000 of capitalized software development
   costs to its estimated net realizable value, primarily as a result of the
Company's transition to its newer product line as well as duplicative 
technology that arose as a result of Verint's acquisitions during the 
period.                                                               

     FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSACTION GAINS AND LOSSES - The
     United States dollar (the "dollar") is the functional currency of the major
   portion of the Company's foreign operations. Most of the Company's sales,
    and materials purchased for manufacturing, are denominated in or linked to
the dollar. Certain operating costs, principally salaries, of foreign 
    operations are denominated in local currencies. In those instances where a
 foreign subsidiary has a functional currency other than the dollar, the
Company records any necessary foreign currency translation adjustment,
 reflected in stockholders' equity, at the end of each reporting period.

  DERIVATIVE FINANCIAL INSTRUMENTS - The Company is exposed to market risk
     from changes in foreign currency exchange rates and may, from time to time,
     use foreign currency exchange contracts and other derivative instruments to
reduce its exposure to the risk that the eventual net cash inflows and
outflows resulting from the sale of its products in foreign currency, 
primarily the Euro, will be adversely affected by changes in exchange 
rates. The objective of these contracts is to neutralize the impact of
foreign currency exchange rate movements on the Company's operating   
   results. These instruments are not designated as hedges and the change in
fair value is included in income currently. As of January 31, 2004 and
2005, the Company had approximately $31,668,000 and $32,583,000,      
   respectively, of notional amount of foreign exchange forward contracts to
     sell Euros with an original maturity of up to six months. The fair value of
     these contracts as of January 31, 2004 and 2005 of approximately $(183,000)
 and $(66,000), respectively, is included in `Interest and other income,
net' in the Consolidated Statements of Operations.                    

  GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill represents the excess of
the purchase price over the fair value of net assets acquired. Other  
  intangible assets include identifiable acquired software and technology,
trade name, customer relationships, sales backlog and non-compete     
 agreements. In accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible 
  Assets", goodwill and certain intangible assets are no longer amortized,
 but rather are reviewed for impairment on at least an annual basis. The
Company has performed these reviews and deemed there to be no such    
  impairment as of January 31, 2004 and 2005. Other intangible assets with
finite lives are amortized using the straight-line method over their  
estimated useful lives of up to ten years.                            

OTHER ASSETS - Licenses of patent rights and acquired "know-how" are  
recorded at cost and amortized using the straight-line method over the
   estimated useful lives of the related technology, generally not exceeding
 four years. Debt issue costs are amortized using the effective interest
method over the term of the related debt.                             

  LONG-LIVED ASSETS - The Company reviews for the impairment of long-lived
assets whenever events or changes in circumstances indicate that the  
carrying amount of an asset may not be recoverable. An impairment loss
    would be recognized when estimated future undiscounted cash flows expected
to result from the use of the asset and proceeds from its eventual    
  disposition are less than its carrying amount. Impairment is measured at
 fair value. In connection with its restructuring plan, during the years
ended January 31, 2003, 2004 and 2005, the Company identified certain 
    impairment losses that are included in `Workforce reduction, restructuring
and impairment charges (credits)' in the Consolidated Statements of   
     Operations. Refer to Note 9 for details. In addition, during the year ended
January 31, 2005, the Company recorded write-downs of approximately   
     $3,849,000 of fixed assets to its estimated net realizable value, primarily
as a result of the obsolescence of such fixed assets.                 

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CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
  expose the Company to concentration of credit risk, consist primarily of
cash investments and accounts receivable. The Company places its cash 
   investments with high-credit quality financial institutions and currently
invests primarily in money market funds placed with major banks and   
 financial institutions, bank time deposits, corporate commercial paper,
ARS, corporate and municipal short and medium term notes, mortgage and
  asset backed securities, U.S. government and U.S. government corporation
     and agency obligations, mutual funds, trusts and closed-end funds investing
in the like and common and preferred stock. The Company believes no   
    significant concentration of credit risk exists with respect to these cash
investments.                                                          

  Accounts receivable are generally diversified due to the large number of
   commercial and government entities comprising the Company's customer base
  and their dispersion across many geographical regions. As of January 31,
   2004 and 2005, there was no single customer balance that comprised 10% of
the overall accounts receivable balance. The Company believes no      
significant concentration of credit risk exists with respect to these 
accounts receivable.                                                  

The Company is required to estimate the collectibility of its accounts
 receivable each accounting period and record a reserve for bad debts. A
     considerable amount of judgment is required in assessing the realization of
     these receivables, including the current creditworthiness of each customer,
     current and historical collection history and the related aging of past due
    balances. The Company evaluates specific accounts when it becomes aware of
information indicating that a customer may not be able to meet its    
financial obligations due to deterioration of its financial condition,
    lower credit ratings, bankruptcy or other factors affecting the ability to
   render payment. Reserve requirements are based on the facts available and
  are re-evaluated and adjusted as additional information is received. The
  Company's policy is to account for recoveries of previously reserved for
  doubtful accounts upon the receipt of cash where there is no evidence of
    recoverability for items specifically reserved for prior to the receipt of
cash.                                                                 

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      The roll forward of the allowance for doubtful accounts is as follows:

                                                                [Download Table]

                                               YEARS ENDED JANUARY 31,       
                                         ------------------------------------
                                             2003       2004         2005    
                                         ----------   ----------   ----------
                                                  (IN THOUSANDS)             

                                                                             
Balance at beginning of period           $  41,955    $  56,759    $  49,958 
Charges to costs and expenses               45,300       12,014        7,063 
Recoveries                                       -      (12,200)     (19,425)
Deductions                                 (30,559)      (9,072)      (7,151)
Other                                           63        2,457         (503)
                                         ----------   ----------   ----------
Balance at end of period                 $  56,759    $  49,958    $  29,942 
                                         ==========   ==========   ==========

   The recoveries of approximately $12,200,000 and $19,425,000 for the years
     ended January 31, 2004 and 2005, respectively, were recorded as a result of
cash being collected from customers for items that had previously been
 reserved for as doubtful of collection, in the period that the cash was
received.                                                             

BANK LOANS - In January 2002, Verint took a bank loan in the amount of
 $42,000,000. The loan, which matured in February 2003, bore interest at
  LIBOR plus 0.55% and was guaranteed by CTI. During February 2003, Verint
repaid the bank loan.                                                 

     ISSUANCE OF SUBSIDIARY STOCK - Sales of stock by subsidiaries are accounted
for as capital transactions with the adjustment to additional paid-in 
capital. No gain or loss is recognized on these transactions.         

  STOCK-BASED COMPENSATION - At January 31, 2005, the Company had in place
the Comverse Stock Incentive Plans, as fully described in Note 14. The
  Company accounts for stock options under the recognition and measurement
   principles of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") and related Interpretations.
     Accordingly, no stock-based employee compensation cost for stock options is
    reflected in net income (loss) for any periods, as all options granted had
an exercise price at least equal to the market value of the underlying
  common stock on the date of grant. Refer to Note 22 for a description of
pending changes to this accounting treatment.                         

  During the years ended January 31, 2004 and 2005, the Company and one of
its subsidiaries granted shares of restricted stock to certain key    
employees. For the years ended January 31, 2003, 2004 and 2005,       
respectively, stock-based employee compensation expense relating to   
   restricted stock of approximately $0, $214,000 and $2,097,000 is included
in `Selling, general and administrative' expenses in the Consolidated 
Statements of Operations.                                             

  The Company estimated the fair value of employee stock options utilizing
the Black-Scholes option valuation model, using the assumptions as    
 described in Note 14, as required under accounting principles generally
accepted in the United States of America. The Black-Scholes model was 
   developed for use in estimating the fair value of traded options and does
   not consider the non-traded nature of employee stock options, vesting and
   trading restrictions, lack of transferability or the ability of employees
to forfeit the options prior to expiry. In addition, option valuation 
 models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock 
   options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can  
 materially affect the fair value estimate, in management's opinion, the
     existing models do not necessarily provide a reliable single measure of the
fair value of the Company's employee stock options.                   

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   The following table illustrates the effect on net income (loss) and
   earnings (loss) per share if the Company had applied the fair value
   recognition provisions of SFAS No. 123, "Accounting for Stock-Based
    Compensation", to stock-based employee compensation for all periods:

                                                        [Enlarge/Download Table]

                                                               YEAR ENDED JANUARY 31,             
                                                               ----------------------             
                                                     2003                2004            2005     
                                                     ----                ----            ----     
                                                                   (IN THOUSANDS)                 

                                                                                                  
Net income (loss), as reported                     $ (129,478)         $   (5,386)     $   57,330 

  Deduct: Total stock-based employee compensation                                                 
expense determined under fair value based method                                                  
for all awards, net of related tax effects           (149,782)           (122,537)       (104,477)
                                                   -----------         -----------     -----------

Pro forma net loss                                 $ (279,260)         $ (127,923)     $  (47,147)
                                                   ===========         ===========     ===========

Earnings (loss) per share:                                                                        

Basic - as reported                                $    (0.69)         $    (0.03)     $     0.29 
Basic - pro forma                                  $    (1.49)         $    (0.67)     $    (0.24)

Diluted - as reported                              $    (0.69)         $    (0.03)     $     0.28 
Diluted - pro forma                                $    (1.49)         $    (0.67)     $    (0.24)


 PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
 States of America requires management to make estimates and assumptions
   that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial     
 statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.   

  RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
 conform to the manner of presentation in the current year. Refer to the
description under Short-Term Investments found earlier in this Note 2 
regarding revisions to the presentation of certain investments in the 
consolidated financial statements.                                    

3.   RESEARCH AND DEVELOPMENT                                                   

    A significant portion of the Company's research and development operations
     are located in Israel where the Company derives benefits from participation
in conditional programs sponsored by the Government of Israel for the 
   support of research and development activities conducted in that country.
Certain of the Company's research and development activities include  
projects partially funded by the Office of the Chief Scientist of the 
 Ministry of Industry and Trade of the State of Israel (the "OCS") under
which the funding organization reimburses a portion of the Company's  
research and development expenditures under approved project budgets. 
   Certain of the Company's subsidiaries accrue royalties to the OCS for the
sale of products incorporating technology developed in these projects.
   During the year ended January 31, 2003, one of the Company's subsidiaries
    finalized an agreement with the OCS whereby the subsidiary agreed to pay a
     lump sum royalty of approximately $26 million for all past amounts received
   from the OCS. The amount and timing of the payments to the OCS under this
     agreement were approximately $3 million in March 2002 and approximately $23
   million in June 2002. In addition, this subsidiary began to receive lower
     amounts from the OCS than it had historically received, but is not required
   to pay royalties on such future grants. Under the terms of the applicable

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  funding agreements, 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. In order
  to obtain such permission, the Company would 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 transfer
outside of Israel of any intellectual property rights resulting from  
research and development activities funded under OCS programs is not  
  permitted. The amounts reimbursed by the OCS for the years ended January
 31, 2003, 2004 and 2005 were approximately $10,540,000, $10,013,000 and
$9,444,000, respectively.                                             

4.   SHORT-TERM INVESTMENTS                                                     

 As previously noted under Short-Term Investments in Note 2, the Company
concluded that it was appropriate to classify investments in ARS as   
 short-term investments. ARS generally have long-term stated maturities;
however, these investments have characteristics similar to short-term 
  investments because at pre-determined intervals, generally every 7 to 90
     days, there is a new auction process at which these securities are reset to
     current interest rates. Previously, such investments had been classified as
     cash and cash equivalents due to their liquidity and pricing reset feature.
 Accordingly, the Company has revised the classification to report these
  securities as short-term investments in the Consolidated Balance Sheets.
The Company classifies all of its short-term investments as           
available-for-sale securities. The following is a summary of          
available-for-sale securities as of January 31, 2005:                 

                                                        [Enlarge/Download Table]

                                                        GROSS            GROSS              ESTIMATED   
                                                      UNREALIZED        UNREALIZED            FAIR      
                                       COST             GAINS            LOSSES               VALUE     
                                ----------------------------------------------------------------------- 
                                                            (IN THOUSANDS)                              

                                                                                                        
Corporate debt securities       $       6,748      $         548    $             8      $        7,288 
U.S. municipal debt securities         10,134                  -                 45              10,089 
U.S. Government corporation                                                                             
   and agency bonds                   428,645                  -              4,507             424,138 
Auction rate securities             1,061,121                  -                  -           1,061,121 
                                --------------     --------------    ---------------     ---------------
Total debt securities               1,506,648                548              4,560           1,502,636 
                                --------------     --------------    ---------------     ---------------

Common stock and                                                                                        
   closed-end funds                    12,587              5,242                  5              17,824 
Mutual funds (1)                        1,863                139                  -               2,002 
Preferred stock                         3,468                109                 76               3,501 
                                --------------     --------------    ---------------     ---------------
Total equity securities                17,918              5,490                 81              23,327 
                                --------------     --------------    ---------------     ---------------

                                $   1,524,566      $       6,038     $        4,641      $    1,525,963 
                                ==============     ==============    ===============     ===============

(1)  Investing in U.S. Government and U.S. Government corporation and agency    
obligations, corporate debt securities, commercial paper and/or       
asset-backed securities.                                              

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The following is a summary of available-for-sale securities as of January 31,   
2004:                                                                           

                                                        [Enlarge/Download Table]

                                                       GROSS              GROSS          ESTIMATED   
                                                    UNREALIZED         UNREALIZED          FAIR      
                                     COST              GAINS             LOSSES            VALUE     
                             ------------------------------------------------------------------------
                                                         (IN THOUSANDS)                              

                                                                                                     
Corporate debt securities    $      35,573     $       1,054      $           -        $      36,627 
U.S. Government corporation                                                                          
   and agency bonds                309,531                 -              1,649              307,882 
Auction rate securities            907,932                 -                  -              907,932 
                             --------------    --------------     --------------       --------------
Total debt securities            1,253,036             1,054              1,649            1,252,441 
                             --------------    --------------     --------------       --------------

Common stock and                                                                                     
   closed-end funds                 27,038             4,951                  -               31,989 
Mutual funds and trust (1)         286,057               196                  -              286,253 
Preferred stock                      3,518               347                  -                3,865 
                             --------------    --------------     --------------       --------------
Total equity securities            316,613             5,494                  -              322,107 
                             --------------    --------------     --------------       --------------

                             $   1,569,649     $       6,548      $       1,649        $   1,574,548 
                             ==============    ==============     ==============       ==============

     (1) Investing in U.S. Government and U.S. Government corporation and agency
obligations, corporate debt securities, commercial paper and/or       
asset-backed securities.                                              

As of January 31, 2005, the Company held certain investments in U.S.  
Government corporation and agency bonds that had been in a continuous 
   unrealized loss position for 12 months or greater, aggregating to a total
 estimated fair value of approximately $196,470,000 and with total gross
  unrealized losses of approximately $3,528,000; the Company held no other
significant investments that had been in a continuous unrealized loss 
    position for 12 months or greater as of January 31, 2005. The Company held
  no significant investments that had been in a continuous unrealized loss
position for 12 months or greater as of January 31, 2004. The Company 
     evaluates investments with unrealized losses to determine if the losses are
  other-than-temporary. The gross unrealized losses as of January 31, 2005
are due primarily to changes in interest rates and the Company has    
determined that such diminution in value is temporary. In making this 
   determination, the Company considered its ability to hold the investments
to maturity, the financial condition and near-term prospects of the   
    issuers, the magnitude of the losses compared to the investments' cost and
the length of time the investments have been in an unrealized loss    
position.                                                             

   During the year ended January 31, 2005, the gross realized gains on sales
of securities totaled approximately $4,163,000, and the gross realized
    losses totaled approximately $3,265,000. During the year ended January 31,
     2004, the gross realized gains on sales of securities totaled approximately
     $5,439,000, and the gross realized losses totaled approximately $1,558,000.
   During the year ended January 31, 2003, the gross realized gains on sales
of securities totaled approximately $3,588,000, and the gross realized
losses totaled approximately $13,644,000. The basis on which cost is  
     generally determined in computing realized gain or loss is by the first-in,
first-out method.                                                     

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       The cost and estimated fair value of debt securities at January 31, 2005,
   by contractual maturity, are as follows; substantially all securities
with maturities after three years are ARS:                        

                                                                [Download Table]

                                                                         ESTIMATED  
                                                      COST              FAIR VALUE  
                                                      ----              ----------  
                                                            (IN THOUSANDS)          

                                                                                    
        Due in one year or less                   $   196,953           $   196,192 
        Due after one year through three years        299,095               295,342 
        Due after three years through five years       23,200                23,200 
        Due after five years through ten years         30,694                31,196 
        Due after ten years through twenty years       68,265                68,265 
        Due after twenty years                        888,441               888,441 
                                                  ------------          ------------

                                                  $ 1,506,648           $ 1,502,636 
                                                  ============          ============

5. INVENTORIES                                                                      

           Inventories consist of:                                                  
                                                               JANUARY 31,          
                                                               -----------          
                                                        2004                2005    
                                                        ----                ----    
                                                             (IN THOUSANDS)         

                Raw materials                     $    23,157           $    34,364 
                Work in process                        12,802                23,640 
                Finished goods                         18,792                49,548 
                                                  ------------          ------------

                                                  $    54,751           $   107,552 
                                                  ============          ============

6.  PROPERTY AND EQUIPMENT, NET                                                     

           Property and equipment consist of:                                       
                                                               JANUARY 31,          
                                                               -----------          
                                                        2004                 2005   
                                                        ----                 ----   
                                                             (IN THOUSANDS)         

                Fixtures and equipment            $   300,946           $   294,867 
                Land and buildings                     22,765                21,942 
                Software                               33,670                35,855 
                Transportation vehicles                 1,293                 1,790 
                Leasehold improvements                 14,604                15,553 
                                                  ------------          ------------
                                                      373,278               370,007 
                Less accumulated depreciation                                       
                       and amortization              (248,255)             (247,833)
                                                  ------------          ------------

                                                  $   125,023           $   122,174 
                                                  ============          ============

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7.      OTHER ASSETS                                                            

                                                                [Download Table]

Other assets consist of:                                                   
                                                     JANUARY 31,           
                                                     -----------           
                                              2004                  2005   
                                              ----                  ----   
                                                   (IN THOUSANDS)          

                                                                           
     Software development costs, net of                                    
         accumulated amortization                                          
         of $52,731 and $53,798          $    32,824           $    17,662 

     Investments                              35,262                38,672 

     Other assets                             72,649               119,690 
                                         ------------          ------------

                                         $   140,735           $   176,024 
                                         ============          ============


8.   BUSINESS COMBINATIONS                                                      

On March 31, 2004, Verint acquired certain assets and assumed certain 
liabilities of the government surveillance business of ECtel Ltd.     
("ECtel"), which provided Verint with additional communications       
     interception capabilities for the mass collection and analysis of voice and
  data communications. The purchase price was approximately $35,000,000 in
cash. Verint incurred transaction costs, consisting primarily of      
     professional fees, amounting to approximately $1,107,000 in connection with
this acquisition.                                                     

   The acquisition was accounted for using the purchase method. The purchase
 price was allocated to the assets and liabilities of ECtel based on the
    estimated fair value of those assets and liabilities as of March 31, 2004.
The results of operations of ECtel have been included in the Company's
    results of operations since March 31, 2004. Identifiable intangible assets
   consist of sales backlog, acquired technology, customer relationships and
 non-competition agreements and have estimated useful lives of up to ten
   years. Purchased in-process research and development represents the value
     assigned to research and development projects of the acquired business that
were commenced but not completed at the date of acquisition, for which
technological feasibility had not been established and which have no  
     alternative future use in research and development activities or otherwise.
 In accordance with SFAS No. 2, "Accounting for Research and Development
Costs" as interpreted by Financial Accounting Standards Board ("FASB")
     Interpretation No. 4, amounts assigned to purchased in-process research and
  development meeting the above criteria must be charged to expense at the
acquisition date. At the acquisition date, it was estimated that the  
purchased in-process research and development was approximately 40%   
complete and it was expected that the remaining 60% would be completed
during the ensuing year. The fair value of the purchased in-process   
research and development was determined with the assistance of an     
    independent appraisal specialist using the income approach, which reflects
the projected free cash flows that will be generated by the purchased 
    in-process research and development projects and discounting the projected
  net cash flows back to their present value using a discount rate of 21%.

   As a result of the acquisition of the government surveillance business of
ECtel, Verint had certain capitalized software development costs that 
became impaired due to the existence of duplicative technology and,   
     accordingly, were written-down to their net realizable value at the date of
  acquisition. Such impairment charge amounted to approximately $1,481,000
and is included in 'In-process research and development and other     
    acquisition-related charges' in the Consolidated Statements of Operations.

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The following is a summary of the allocation of the purchase price for this     
acquisition:                                                                    

                                                    (IN THOUSANDS)

         Purchase price                              $    35,000
         Acquisition costs                                 1,107
                                                      ------------
             Total purchase price                    $    36,107
                                                      ============

         Fair value of assets acquired               $     1,417
          Fair value of liabilities assumed                (3,282)
         In-process research and development               3,154
         Sales backlog                                       854
         Acquired technology                               5,307
         Customer relationships                            1,382
         Non-competition agreements                        2,221
         Goodwill                                         25,054
                                                      ------------
             Total purchase price                    $    36,107
                                                      ============

  The value allocated to goodwill in ECtel will be deducted for income tax
purposes. A summary of pro forma results of operations has not been   
presented as the effect of this acquisition was not deemed material.  

In September 2004, Verint, through a subsidiary, acquired all of the  
    outstanding stock of RP Sicherheitssysteme GmbH ("RP Security"), a company
 in the business of developing and selling mobile digital video security
    solutions for transportation applications. The purchase price consisted of
approximately $9,028,000 in cash and 90,144 shares of Verint's common 
 stock. In addition, the shareholders of RP Security will be entitled to
receive earn-out payments over three years based on Verint's worldwide
sales, profitability and backlog of mobile video products in the      
transportation market during that period. Shares issued as part of the
     purchase price were accounted for with a value of approximately $2,977,000,
   or $33.03 per share. In connection with this acquisition, Verint incurred
    transaction costs, consisting primarily of professional fees, amounting to
approximately $520,000.                                               

  In May 2003, Verint acquired all of the issued and outstanding shares of
Smartsight Networks Inc. ("Smartsight"), a Canadian corporation that  
develops IP-based video edge devices and software for wireless video  
   transmission. The purchase price consisted of approximately $7,144,000 in
 cash and 149,731 shares of Verint common stock, valued at approximately
$3,063,000, or $20.46 per share.                                      

   In February 2002, Verint acquired the digital video recording business of
   Lanex, LLC ("Lanex"). The Lanex business provides digital video recording
 solutions for security and surveillance applications primarily to North
  American banks. The purchase price consisted of $9,510,000 in cash and a
     $2,200,000 non-interest bearing note, guaranteed by CTI, and convertible in
whole or in part, into shares of Verint's common stock at a conversion
   price of $16.06 per share. The note matured and was converted into shares
of Verint common stock on February 1, 2004.                           

    In June 2002, the Company acquired Odigo, Inc. ("Odigo"), a privately-held
    provider of instant messaging and presence management solutions to service
    providers. The purchase price was approximately $20,100,000 in cash. Prior
     to the acquisition, the Company was a strategic partner with Odigo, holding
an equity position which it previously acquired for approximately     
$3,000,000.                                                           

  The RP Security, Smartsight, Lanex and Odigo acquisitions were accounted
     for using the purchase method and, accordingly, the Consolidated Statements
of Operations include the results of operations from the date of      
acquisition. Assets acquired and liabilities assumed were recorded at 
  estimated fair values as determined by the Company's management based on

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information then available and through the assistance of independent  
appraisal specialists, where applicable. After allocating the purchase
   price, including the direct costs of the acquisition, to net tangible and
   identifiable intangible assets, any excess of cost over fair value of net
     assets acquired was recorded as goodwill, included in `Other assets' in the
Consolidated Balance Sheets. A summary of the assets acquired and     
   liabilities assumed in these acquisitions as well as pro forma results of
operations have not been presented because the effects of these       
acquisitions were not deemed material.                                

9.   WORKFORCE REDUCTION, RESTRUCTURING AND IMPAIRMENT CHARGES (CREDITS)        

    During the year ended January 31, 2002, the Company committed to and began
implementing a restructuring program, including changes to its        
  organizational structure and product offerings, to better align its cost
  structure with the business environment and to improve the efficiency of
     its operations via reductions in workforce, restructuring of operations and
    the write-off of impaired assets. In connection with these actions, during
   the years ended January 31, 2003, 2004 and 2005, the Company incurred net
    charges (credits) to operations of approximately $66,714,000, $(2,123,000)
and $62,000, respectively, primarily pertaining to severance and other
   related costs, the elimination of excess facilities and related leasehold
    improvements and the write-off of certain property and equipment and other
impaired assets.                                                      

An analysis of the total charges of approximately $66,714,000 incurred
during the year ended January 31, 2003 as well as a rollforward of the
workforce reduction and restructuring accrual for that period is as   
follows:                                                              

                                                        [Enlarge/Download Table]


                                             WORKFORCE                                             
                                             REDUCTION,                                  ACCRUAL   
                        ACCRUAL BALANCE   RESTRUCTURING &                               BALANCE AT 
                         AT FEBRUARY 1,      IMPAIRMENT         CASH       NON-CASH     JANUARY 31,
                              2002            CHARGES         PAYMENTS      CHARGES       2003     
                              ----            -------         --------      -------       ----     
                                                         (IN THOUSANDS)                            

                                                                                                   
Severance and related      $    11,862      $   26,857      $   29,352   $        -   $      9,367 
Facilities and related          24,347          19,360           3,253            -         40,454 
Property and equipment               -          20,497               -       20,497              - 
                           -------------    -----------     -----------  -----------  -------------
Total                      $    36,209      $   66,714      $   32,605   $   20,497   $     49,821 
                           =============    ===========     ===========  ===========  =============


       An analysis of the net credit of approximately $2,123,000 incurred during
       the year ended January 31, 2004 as well as a rollforward of the workforce
reduction and restructuring accrual for that period is as follows:

                                                        [Enlarge/Download Table]


                                               WORKFORCE                                              
                                               REDUCTION,                                             
                                            RESTRUCTURING &                                 ACCRUAL   
                        ACCRUAL BALANCE       IMPAIRMENT                                   BALANCE AT 
                          AT FEBRUARY 1,        CHARGES             CASH       NON-CASH    JANUARY 31,
                               2003            (CREDITS)          PAYMENTS      CHARGES      2004     
                               ----            ---------          --------      -------      ----     
                                                        (IN THOUSANDS)                                

                                                                                                      

Severance and related        $      9,367      $    4,494      $   10,793   $        -   $      3,068 
Facilities and related             40,454          (8,051)          5,976            -         26,427 
Property and equipment                  -           1,434               -        1,434              - 
                             -------------     -----------     -----------  -----------  -------------
Total                        $     49,821      $   (2,123)     $   16,769   $    1,434   $     29,495 
                             =============     ===========     ===========  ===========  =============

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    An analysis of the net charge of approximately $62,000 incurred during the
year ended January 31, 2005 as well as a rollforward of the workforce 
reduction and restructuring accrual for that period is as follows:    

                                                        [Enlarge/Download Table]


                                               WORKFORCE                                              
                                               REDUCTION,                                             
                                            RESTRUCTURING &                                 ACCRUAL   
                        ACCRUAL BALANCE       IMPAIRMENT                                   BALANCE AT 
                          AT FEBRUARY 1,        CHARGES             CASH       NON-CASH    JANUARY 31,
                               2004            (CREDITS)          PAYMENTS      CHARGES      2005     
                               ----            ---------          --------      -------      ----     
                                                        (IN THOUSANDS)                                
                                                                                                      

Severance and related        $      3,068      $      596      $    3,543   $        -   $        121 
Facilities and related             26,427            (743)          4,202            -         21,482 
Property and equipment                  -             209               -          209              - 
                             -------------     -----------     -----------  -----------  -------------
Total                        $     29,495      $       62      $    7,745   $      209   $     21,603 
                             =============     ===========     ===========  ===========  =============


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 these severance and related costs is expected to be paid through
July 2005.                                                            

   Facilities and related costs consist primarily of contractually obligated
  lease liabilities and operating expenses related to facilities that were
vacated primarily in the United States and Israel as a result of the  
restructuring. During the years ended January 31, 2004 and 2005, the  
  Company reversed approximately $8,051,000 and $743,000, respectively, in
  previously taken restructuring charges for facilities and related costs,
    primarily as a result of the sublet of a portion of the excess facilities.
     The balance of these facilities and related costs is expected to be paid at
various dates through January 2011.                                   

     Property and equipment costs consist primarily of the write-down of various
assets to their current estimable fair value, including the value of  
certain unimproved land in Israel, written down during the year ended 
   January 31, 2003, that the Company had acquired with a view to the future
construction of facilities for its Israeli operations.                

10.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES                                      

Accounts payable and accrued expenses consist of:               

                                                                [Download Table]

                                                           JANUARY 31,         
                                                           -----------         
                                                      2004             2005    
                                                      ----             ----    
                                                         (IN THOUSANDS)        

                                                                               
Accounts payable                                  $    67,110      $    84,875 
Accrued compensation                                   37,088           55,951 
Accrued vacation                                       21,704           24,352 
Accrued royalties                                       7,704            9,976 
Accrued workforce reduction and restructuring          29,495           21,603 
Accrued warranty                                        8,333           10,185 
Other accrued expenses                                 57,862           84,063 
                                                  ------------     ------------

                                                  $   229,296      $   291,005 
                                                  ============     ============

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11.  CONVERTIBLE DEBT                                                           

    In May 2003, the Company issued $420,000,000 aggregate principal amount of
   Zero Yield Puttable Securities ("ZYPS") (the "Existing ZYPS"). On January
    26, 2005, the Company completed an offer to the holders of the outstanding
    Existing ZYPS to exchange the Existing ZYPS for new ZYPS (the "New ZYPS").
Of the $420,000,000 worth of Existing ZYPS outstanding prior to the   
exchange offer, approximately $417,700,000 aggregate principal amount 
 representing approximately 99.5% of the original issue of Existing ZYPS
were validly tendered in exchange for an equal principal amount of New
ZYPS. In connection with this offer, the Company incurred transaction 
costs, consisting primarily of professional fees, amounting to        
  approximately $903,000 included in `Selling, general and administrative'
expenses in the Consolidated Statements of Operations.                

   Both the Existing ZYPS and the New ZYPS have a conversion price of $17.97
   per share. The ability of the holders to convert either the Existing ZYPS
   or New ZYPS into common stock is subject to certain conditions including:
    (i) during any fiscal quarter, if the closing price per share for a period
     of at least twenty days in the thirty consecutive trading-day period ending
   on the last trading day of the preceding fiscal quarter is more than 120%
    of the conversion price per share in effect on that thirtieth day; (ii) on
  or before May 15, 2018, if during the five business-day period following
   any ten consecutive trading-day period in which the daily average trading
     price for the Existing ZYPS or New ZYPS for that ten trading-day period was
     less than 105% of the average conversion value for the Existing ZYPS or New
    ZYPS during that period; (iii) during any period, if following the date on
which the credit rating assigned to the Existing ZYPS or New ZYPS by  
     Standard & Poor's Rating Services is lower than "B-" or upon the withdrawal
or suspension of the Existing ZYPS or New ZYPS rating at the Company's
request; (iv) if the Company calls the Existing ZYPS or New ZYPS for  
  redemption; or (v) upon other specified corporate transactions. Both the
 Existing ZYPS and the New ZYPS mature on May 15, 2023. In addition, the
   Company has the right to redeem the Existing ZYPS for cash at any time on
     or after May 15, 2008, at their principal amount. The holders have a series
of put options, pursuant to which they may require the Company to     
     repurchase, at par, all or a portion of the Existing ZYPS on each of May 15
of 2008, 2013, and 2018 and upon the occurrence of certain events. The
  Existing ZYPS holders may require the Company to repurchase the Existing
     ZYPS 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.   

    The New ZYPS have substantially similar terms as the Existing ZYPS, except
   that the New ZYPS (i) have a net share settlement feature, (ii) allow the
   Company to redeem some or all of the New ZYPS at any time on or after May
  15, 2009 (rather than May 15, 2008 as provided for in the Existing ZYPS)
and (iii) allow the holders of the New ZYPS to require the Company to 
    repurchase their New ZYPS for cash on each of May 15, 2008, 2009, 2013 and
    2018. The net share settlement feature of the New ZYPS provides that, upon
     conversion, the Company would pay to the holder cash equal to the lesser of
the conversion value and the principal amount of the New ZYPS being   
   converted, which is currently $417,700,000, and would issue to the holder
     the remainder of the conversion value in excess of the principal amount, if
     any, in shares of the Company's common stock (the "New Conversion Method").

     The offer followed the September 30, 2004 conclusion by the Emerging Issues
Task Force ("EITF") of the FASB on EITF Issue No. 04-8, "The Effect of
    Contingently Convertible Debt on Diluted Earnings Per Share" ("EITF 04-8")
    requiring contingently convertible debt to be included in diluted earnings
  per share computations (if dilutive) as if the notes were converted into
common shares at the time of issuance (the "if converted" method)     
  regardless of whether market price triggers or other contingent features
   have been met. EITF 04-8 was effective for reporting periods ending after
December 15, 2004. Because these recent accounting changes would have 
   required the Company to include the shares of common stock underlying the
   Existing ZYPS in its diluted earnings per share computations, pursuant to
   the exchange offer, the Company offered to the Existing ZYPS holders, New
ZYPS convertible under the New Conversion Method.                     

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     Under EITF 04-8, the Company is not required to include any shares issuable
     upon conversion of the New ZYPS issued in the exchange offer in its diluted
  shares outstanding unless the market price of the Company's common stock
exceeds the conversion price, and would then only have to include that
number of shares as would then be issuable based upon the in-the-money
    value of the conversion rights under the New ZYPS. Therefore, the New ZYPS
 are dilutive in calculating diluted earnings per share if the Company's
    common stock is trading above $17.97 to the extent of the number of shares
     the Company would be required to issue to satisfy a conversion right of the
    New ZYPS over and above $417,700,000. For the year ended January 31, 2005,
  this resulted in approximately 1,610,000 of additional share dilution in
   calculating diluted earnings per share. The Existing ZYPS are immediately
 dilutive in calculating diluted earnings per share to the extent of the
     full number of shares underlying the Existing ZYPS, which as of January 31,
   2005 is 128,516 shares. These shares are deemed to be outstanding for the
purpose of calculating diluted earnings per share, whether or not the 
Existing ZYPS may be converted pursuant to their terms, and therefore 
  decreases the Company's diluted earnings per share. The adoption of EITF
   04-8 did not have an effect on reported diluted earnings (loss) per share
for any periods presented.                                            

    During the fourth quarter of fiscal year 2004, the closing price per share
     on at least 20 trading days in the 30 consecutive trading-day period ending
  on January 31, 2005 was more than 120% of the conversion price per share
  for both the Existing ZYPS and New ZYPS. As such, a conversion privilege
for both the Existing ZYPS and the New ZYPS was triggered and both the
    Existing ZYPS and New ZYPS were convertible into cash and/or the Company's
   common stock at the option of the holders for the first fiscal quarter of
2005.                                                                 

  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, under certain circumstances, pay the repurchase
price in common stock.                                                

During the years ended January 31, 2003, 2004 and 2005, the Company   
acquired, in open market purchases, $209,162,000, $266,115,000 and    
  $37,470,000 of face amount of the Debentures, respectively, resulting in
  pre-tax gains, net of debt issuance costs, of approximately $39,374,000,
 $10,224,000 and $341,000, respectively, included in `Interest and other
  income, net' in the Consolidated Statements of Operations. As of January
   31, 2005, the Company had outstanding Debentures of $87,253,000, included
in the current liabilities section of the Consolidated Balance Sheets.

12.  LIABILITY FOR SEVERANCE PAY                                                

  Liability for severance pay consists primarily of the Company's unfunded
  liability for severance pay to employees of certain foreign subsidiaries
and accrued severance to the Company's chief executive officer.       

   Under Israeli law, the Company is obligated to make severance payments to
 employees of its Israeli subsidiaries on the basis of each individual's
  current salary and length of employment. These liabilities are currently
    provided primarily by premiums paid by the Company to insurance providers.

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    The Company is obligated under agreements with its chief executive officer
    ("CEO") and chief financial officer ("CFO") to provide a severance payment
  upon the termination of their employment with the Company. Approximately
$3,480,000 and $220,000 has been accrued as of January 31, 2004,      
     respectively, and approximately $4,010,000 and $266,000 has been accrued as
  of January 31, 2005, respectively, relating to these agreements with the
CEO and CFO.                                                          

13.  ISSUANCE OF SUBSIDIARY STOCK                                               

 In April and October 2000, Ulticom issued shares of its common stock in
    public offerings. As of January 31, 2005, the Company's ownership interest
in Ulticom was approximately 68.6%.                                   

In May 2002, Verint issued 4,500,000 shares of its common stock in an 
    initial public offering. Proceeds from the offering, based on the offering
price of $16.00 per share, totaled approximately $65.4 million, net of
offering expenses. The Company recorded a gain of approximately $48.1 
  million during the year ended January 31, 2003, which was recorded as an
increase in stockholders' equity as a result of the issuance.         

     In June 2003, Verint completed a public offering of 5,750,000 shares of its
  common stock at a price of $23.00 per share. The shares offered included
 149,731 shares issued to Smartsight's former shareholders in connection
with its acquisition. The proceeds of the offering were approximately 
  $122.2 million, net of offering expenses. The Company recorded a gain of
approximately $62.9 million, which was recorded as an increase in     
   stockholders' equity as a result of the issuance. As of January 31, 2005,
the Company's ownership interest in Verint was approximately 58.9%.   

     In February 2004, Starhome B.V. ("Starhome"), a subsidiary of CTI, received
equity financing from an unaffiliated investor group of approximately 
    $14,481,000, net of expenses. The Company recorded a gain of approximately
     $11,767,000, which was recorded as an increase in stockholders' equity as a
result of the issuance. Upon the completion of this transaction, the  
Company's ownership interest in Starhome was approximately 69.5%; this
     interest was unchanged as of January 31, 2005. In addition, during the year
  ended January 31, 2005, Starhome received a commitment for an additional
    $5,000,000 in equity financing from the unaffiliated investor group, which
funds are currently being held in escrow.                             

14.  STOCK-BASED COMPENSATION                                                   

OPTION EXCHANGE PROGRAM - 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 were given the opportunity to have
     unexercised stock options previously granted to them cancelled, in exchange
 for replacement options that were granted at a future date. Replacement
options were 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. The exchange program was
 designed in accordance with FASB Interpretation No. 44, "Accounting for
     Certain Transactions Involving Stock Compensation (an interpretation of APB
  Opinion No. 25)", under which, 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.              

    On the date of re-grant, December 23, 2002, replacement options to acquire
     14,208,987 shares of the Company's common stock were granted at an exercise
   price of $10.52 per share, the closing fair market value of the Company's
stock on that date.                                                   

     STOCK OPTIONS - At January 31, 2005, 22,603,387 shares of common stock were
   reserved for issuance upon the exercise of stock options then outstanding
     and 4,333,276 shares were available for future grant under Comverse's Stock
     Incentive Plans, under which options and restricted stock may be granted to
key employees, directors, and other persons rendering services to the 
  Company. Options which are designated as "incentive stock options" under

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the plans may be granted with an exercise price not less than the fair
    market value of the underlying shares at the date of grant and are subject
   to certain quantity and other limitations specified in Section 422 of the
Internal Revenue Code. Options which are not intended to qualify as   
    incentive stock options may be granted at a price below fair market value.
The options and the underlying shares are subject to adjustment in    
 accordance with the terms of the plans in the event of stock dividends,
recapitalizations and similar transactions. The right to exercise the 
     options generally vests in increments over periods of up to four years from
   the date of grant or the date of commencement of the grantee's employment
with the Company, up to a maximum term of ten years for all options   
granted.                                                              

The changes in the number of options were as follows:             

                                                        [Enlarge/Download Table]


                                                    YEAR ENDED JANUARY 31,                 
                                    -------------------------------------------------------
                                           2003                2004               2005     
                                           ----                ----               ----     

                                                                                           
Outstanding at beginning of period       33,089,823         25,079,827          23,287,332 
Granted during the period                15,851,028          5,297,836           3,764,790 
Exercised during the period                (530,661)        (5,770,041)         (3,446,981)
Canceled, terminated and expired        (23,330,363)        (1,320,290)         (1,001,754)
                                    ----------------    ---------------    ----------------

Outstanding at end of period             25,079,827         23,287,332          22,603,387 
                                    ================    ===============    ================


 At January 31, 2005, options to purchase an aggregate of 13,936,807
      shares were vested and currently exercisable under the plans and options
to purchase an additional 8,666,580 shares vest at various dates  
extending through the year 2008.                                  

Weighted average option exercise price information was as follows:

                                                        [Enlarge/Download Table]

                                                  YEAR ENDED JANUARY 31,               
                                    ---------------------------------------------------
                                         2003              2004              2005      
                                         ----              ----              ----      

                                                                                       
Outstanding at beginning of period       $38.24           $12.73            $14.09     
Granted during the period                 10.30            16.56             22.17     
Exercised during the period                7.87             9.56             10.95     
Canceled, terminated and expired          47.42            18.08             25.20     
Outstanding at end of period              12.73            14.09             15.42     
Exercisable at end of period              15.24            13.84             13.81     


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   Significant option groups outstanding at January 31, 2005 and related
weighted average price and life information were as follows:      

                                                        [Enlarge/Download Table]

                                           Weighted                                                    
                                            Average         Weighted                        Weighted   
                                           Remaining        Average                         Average    
   Range of                  Number        Contractual      Exercise        Number          Exercise   
  Exercise Price           Outstanding        Life           Price        Exercisable        Price     
----------------------  ---------------  --------------  --------------  ---------------  -------------
                                                                                                       
$0.01 - 10.42                3,967,964            3.80           $9.58        3,623,404          $9.82 
$10.52                       8,113,518            5.78           10.52        7,250,345          10.52 
$10.95 - 16.05               1,640,881            5.92           15.04        1,258,041          14.92 
$16.70                       4,468,968            8.87           16.70        1,104,511          16.70 
$17.60 - 25.00               3,867,864            9.63           22.12          156,611          20.00 
$25.49 - 119.69                544,192            4.47           73.96          543,895          73.97 
                        ---------------  --------------  --------------  ---------------  -------------
                            22,603,387            6.68          $15.42       13,936,807         $13.81 
                        ===============                                  ===============               

    The weighted average fair value of the options granted for the years ended
     January 31, 2003, 2004 and 2005, respectively, is estimated at $4.66, $9.88
 and $12.98 on the date of grant (using the Black-Scholes option pricing
    model) with the following weighted average assumptions for the years ended
   January 31, 2003, 2004 and 2005, respectively: volatility of 75%, 73% and
   70%; risk-free interest rate of 1.8%, 3.2% and 3.6%; and an expected life
of 2.6, 4.6 and 4.6 years.                                            

   OPTIONS ON SUBSIDIARY SHARES - The Company has granted options to certain
   employees to acquire shares of certain subsidiaries, other than Comverse,
Inc. Such option issuances are not tied to the performance of the     
  subsidiaries, but are intended to incentivize employees in the units for
which they have direct responsibility. Options outstanding for each   
   subsidiary do not exceed 20% of the shares outstanding of such subsidiary
 assuming exercise in full. The options have terms of up to 15 years and
    become exercisable and vest over various periods ranging up to seven years
    from the date of initial grant. The exercise price of each option is equal
 to the higher of the book value of the underlying shares at the date of
  grant or the fair market value of such shares at that date determined on
    the basis of an arms'-length transaction with a third party or, if no such
transactions have occurred, on a reasonable basis as determined by a  
committee of the Board of Directors.                                  

RESTRICTED STOCK - In December 2003 and 2004, CTI granted 314,300 and 
    327,100 shares of restricted stock, respectively, to certain key employees
     of the Company. Unearned stock compensation of approximately $5,249,000 and
  $7,541,000, respectively, was recorded based on the fair market value of
the Company's common stock at the date of grant. Unearned stock       
   compensation is shown as a separate component of stockholders' equity and
     is being amortized to expense pro-rata over the four year vesting period of
   the restricted stock. Amortization of unearned stock compensation for the
years ended January 31, 2004 and 2005 was approximately $157,000 and  
$1,596,000, respectively, and was included in `Selling, general and   
    administrative' expenses in the Consolidated Statements of Operations. The
    restricted stock has all the rights and privileges of the Company's common
stock, subject to certain restrictions and forfeiture provisions. At  
  January 31, 2005, a total of 641,400 shares of restricted stock had been
granted and all were subject to restriction.                          

 In December 2003 and 2004, Verint granted shares of its common stock as
restricted stock to certain of its key employees. Unearned stock      
    compensation of approximately $1,672,000 and $2,281,000, respectively, was
    recorded based on the fair market value of its common stock at the date of
     grant and is being amortized to expense pro-rata over the four year vesting
     period of the restricted stock. Amortization of unearned stock compensation
     for the years ended January 31, 2004 and 2005 was approximately $57,000 and
$501,000, respectively, and was included in `Selling, general and     
administrative' expenses in the Consolidated Statements of Operations.

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15.  EMPLOYEE STOCK PURCHASE PLANS                                              

     Under Comverse's Employee Stock Purchase Plans (the "Plans"), all employees
     who have completed three months of employment are entitled, through payroll
     deductions of amounts up to 10% of their base salary, to purchase shares of
    the Company's common stock at 85% of the lesser of the market price at the
offering commencement date or the offering termination date. The total
   number of shares available under Comverse's Employee Stock Purchase Plans
is 5,000,000, of which approximately 3,456,000 had been issued as of  
 January 31, 2005. CTI has terminated the Plans effective April 1, 2005.

16.  EARNINGS PER SHARE ("EPS")                                                 

     Basic earnings (loss) per share is determined by using the weighted average
  number of shares of common stock outstanding during each period. Diluted
  earnings per share further assumes the issuance of common shares for all
   dilutive potential common shares outstanding. The calculation of earnings
     (loss) per share for the years ended January 31, 2003, 2004 and 2005 was as
follows:                                                              

                                                        [Enlarge/Download Table]


                               JANUARY 31, 2003                      JANUARY 31, 2004              JANUARY 31, 2005          
                               ----------------                      ----------------              ----------------          
                                                Per                                  Per                              Per    
                                               Share          Net                   Share        Net                 Share   
                       Net Loss      Shares    Amount         Loss       Shares     Amount     Income     Shares     Amount  
                       --------      ------    ------         ----       ------     ------     ------     ------     ------  
                                                   (In thousands, except per share data)                                     
                                                                                                                             
BASIC EPS                                                                                                                    
---------                                                                                                                    
Net Income (loss)       $(129,478)   187,212    $(0.69)       $(5,386)    190,351    $(0.03)    $57,330   196,033      $0.29 
                                                =======                              =======                           ======

EFFECT OF DILUTIVE                                                                                                           
SECURITIES                                                                                                                   
----------                                                                                                                   
New and Existing ZYPS                                                                                       1,739            
Options                                                                                                     6,668            
Restricted Stock                                                                                              364            
Subsidiary options                                                                               (953)                       
                        -------------------------------      -------------------------------  -------------------------------
DILUTED EPS             $(129,478)   187,212    $(0.69)       $(5,386)    190,351    $(0.03)   $56,377    204,804      $0.28 
                        ==========   =======    =======       ========    ========   =======   ========   ========     ======

     The diluted loss per share computation for the years ended January 31, 2003
and 2004 excludes incremental shares of approximately 632,000 and     
     5,466,000, respectively, primarily related to employee stock options. These
 shares are excluded due to their antidilutive effect as a result of the
Company's loss during these periods. The shares issuable upon the     
conversion of the Debentures were not included in the computation of  
 diluted earnings (loss) per share for all periods because the effect of
     including them would be antidilutive. Refer to Note 11 for a description of
    EITF 04-8 and the impact of adoption on the Company's diluted earnings per
share calculation for the New ZYPS and the Existing ZYPS. For the year
     ended January 31, 2005, the adoption of EITF 04-8 resulted in approximately
1,739,000 (comprised of approximately 1,610,000 for New ZYPS and      
  approximately 129,000 for Existing ZYPS) of additional share dilution in
   calculating diluted earnings per share. The adoption of EITF 04-8 did not
have an effect on reported diluted earnings (loss) per share for any  
periods presented.                                                    

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17.  INTEREST AND OTHER INCOME, NET                                             

Interest and other income, net, consists of the following:            

                                                                [Download Table]

                                               YEAR ENDED JANUARY 31,             
                                               ----------------------             
                                     2003                2004              2005   
                                     ----                ----              ----   
                                                   (IN THOUSANDS)                 
                                                                                  
Interest and dividend income      $   45,171          $   32,441       $   38,941 
Interest expense                     (11,552)             (6,980)          (4,030)
Investment gains (losses), net       (41,666)             (1,240)             615 
Foreign currency gains, net           27,752               4,938            2,757 
Gain on repurchase of Debentures      39,374              10,224              341 
Other, net                              (177)               (425)          (2,401)
                                  -----------         -----------      -----------
                                  $   58,902          $   38,958       $   36,223 
                                  ===========         ===========      ===========

18.  INCOME TAXES                                                               

The provision for income taxes consists of the following:             

                                                                [Download Table]


                                  YEAR ENDED JANUARY 31,             
                                  ----------------------             
                          2003            2004                2005   
                          ----            ----                ----   
                                     (IN THOUSANDS)                  
                                                                     
Current provision:                                                   
   Federal           $        -       $    1,782          $    6,470 
    State                   886            1,662               2,482 
    Foreign               2,257            3,744               3,497 
                     -----------      -----------         -----------

                          3,143            7,188              12,449 
                     -----------      -----------         -----------

Deferred provision:                                                  
    Federal                (956)               -                 143 
    State                   (20)               -                  54 
    Foreign               1,127            1,018                 568 
                     -----------      -----------         -----------

                            151            1,018                 765 
                     -----------      -----------         -----------

                     $    3,294       $    8,206          $   13,214 
                     ===========      ===========         ===========

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    The reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate is as follows:                                     

                                                        [Enlarge/Download Table]


                                                        YEAR ENDED JANUARY 31,               
                                                        ----------------------               
                                              2003               2004                2005    
                                              ----               ----                ----    

                                                                                             
U.S. Federal statutory rate                    35%                35%                 35%    
Consolidated worldwide income                                                                
   (in excess of) less than U.S. income       (38)                46                 (23)    
Foreign income taxes (benefit)                  2                 (7)                  2     
Permanent differences                          (2)                22                   2     
                                         -------------      -------------       -------------

Company's effective tax rate                   (3)%              96%                  16%    
                                         =============      =============       =============

Deferred income taxes reflect the net tax effects of (a) temporary    
differences between the carrying amounts of assets and liabilities for
   financial reporting purposes and the amounts used for income tax purposes
    and (b) operating loss carryforwards. The tax effects of significant items
  comprising the Company's deferred tax asset and liability at January 31,
2004 and 2005 is as follows:                                          

                                                                [Download Table]

                                                       JANUARY 31,         
                                                   2004            2005    
                                                   ----            ----    
                                                       (IN THOUSANDS)      

                                                                           
Deferred tax liability:                                                    
    Expenses deductible for tax purposes and                               
    not for financial reporting purposes      $     4,169       $    1,289 
                                              ============      ===========

Deferred tax asset:                                                        
    Reserves not currently deductible         $    28,230       $   26,641 
    Tax loss carryforwards                        280,247          277,624 
    Inventory capitalization                           57               60 
                                              ------------      -----------

                                                  308,534          304,325 
Less: valuation allowance                        (297,740)        (288,897)
                                              ------------      -----------

    Total deferred tax asset                  $    10,794       $   15,428 
                                              ============      ===========

   At January 31, 2005, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $731.0 million which will
begin to expire in 2019.                                              

Income tax has not been provided on unrepatriated earnings of foreign 
  subsidiaries as currently it is the intention of the Company to reinvest
such foreign earnings in their operations.                            

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19.  BUSINESS SEGMENT INFORMATION                                               

The Company's reporting segments are as follows:                      

Comverse Network Systems ("CNS") - Enable telecommunications service  
     providers ("TSP") to offer products to enhance the communication experience
    and generate TSP traffic and revenue. These services comprise four primary
categories: call completion and call management solutions; advanced   
messaging solutions for groups, communities and person-to-person      
  communication; solutions and enablers for the management and delivery of
data and content-based services; and real-time billing and account    
    management solutions for dynamic service environments and other components
and applications.                                                     

Service Enabling Signaling Software - Enable equipment manufacturers, 
    application developers, and service providers to deploy revenue generating
  infrastructure and enhanced services for wireline, wireless and Internet
communications. These services include global roaming, voice and text 
messaging, prepaid calling and emergency-911. These products are also 
 embedded in a range of packet softswitching products to interoperate or
converge voice and data networks and facilitate services such as VoIP,
    hosted IP telephony, and virtual private networks. This segment represents
the Company's Ulticom subsidiary.                                     

Security and Business Intelligence Recording - Provides analytic      
   software-based solutions for communications interception, networked video
security and business intelligence. The software generates actionable 
     intelligence through the collection, retention and analysis of unstructured
information contained in voice, fax, video, email, Internet and data  
  transmissions from voice, video and IP networks. This segment represents
the Company's Verint subsidiary.                                      

All Other - Includes other miscellaneous operations.                  

Reconciling items - consists of the following:                        

Sales - elimination of intersegment revenues.                         

   Income (Loss) from Operations - elimination of intersegment income (loss)
from operations and corporate operations.                             

Depreciation and Amortization - corporate operations.                 

Total Assets - elimination of intersegment receivables and unallocated
corporate assets.                                                     

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The table below presents information about sales, income (loss) from  
operations, depreciation and amortization, significant non-cash items 
     consisting of operating asset write-downs and impairments, and total assets
as of and for the years ended January 31, 2003, 2004 and 2005:        

                                                        [Enlarge/Download Table]


                                            Service         Security and                                                        
                          Comverse          Enabling          Business                                                          
                           Network          Signaling       Intelligence                           Reconciling      Consolidated
                           Systems          Software          Recording             All Other        Items            Totals    
                      ----------------------------------------------------------------------------------------------------------
                                                                   (In thousands)                                               
                                                                                                                                
YEAR ENDED                                                                                                                      
JANUARY 31, 2003                                                                                                                
----------------                                                                                                                
Sales                      $542,984           $29,231           $157,775             $9,602          $ (3,703)         $735,889 

Income (Loss) from                                                                                                              
Operations                 (179,492)           (8,362)            10,051               (615)           (4,323)         (182,741)

Depreciation and                                                                                                                
Amortization                 53,166             2,502              9,407                506             1,774            67,355 

Significant Non-Cash                                                                                                            
Items                        26,315               130                  -                  -                 -            26,445 

Total Assets                989,357           237,102            207,050             32,706           937,444         2,403,659 

YEAR ENDED                                                                                                                      
JANUARY 31, 2004                                                                                                                
----------------                                                                                                                
Sales                       529,597            38,378            192,744              9,983            (4,810)          765,892 

Income (Loss) from                                                                                                              
Operations                  (40,913)            2,824             17,189             (1,152)           (8,326)          (30,378)

Depreciation and                                                                                                                
Amortization                 57,619             1,933             10,069                511             1,639            71,771 

Significant Non-Cash                                                                                                            
Items                         6,170                 -                514                  -                 -             6,684 

Total Assets                843,340           242,817            328,706             34,265         1,278,914         2,728,042 

YEAR ENDED                                                                                                                      
JANUARY 31, 2005                                                                                                                
----------------                                                                                                                
Sales                       642,692            63,436            249,824             10,132            (6,642)          959,442 

Income (Loss) from                                                                                                              
Operations                   20,550            20,566             17,384              (788)           (10,779)           46,933 

Depreciation and                                                                                                                
Amortization                 50,341             1,322             12,903                351             1,775            66,692 

Significant Non-Cash                                                                                                            
Items                         7,507                 -              6,174                  -                 -            13,681 

Total Assets              1,011,272            271,992           398,978             39,219         1,203,825         2,925,286 


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Sales by country, based on end-user location, as a percentage of total
     sales, for the years ended January 31, 2003, 2004 and 2005 were as follows:

                                                                [Download Table]

                                          JANUARY 31,            
                                          -----------            
                               2003           2004         2005  
                               ----           ----         ----  

                                                                 
United States                   35%            34%           31% 
Foreign                         65             66            69  
                             -------        -------       -------
Total                          100%           100%          100% 
                             =======        =======       =======

    No customer accounted for 10% or more of sales for the years ended January
31, 2003, 2004 or 2005.                                               

Long-lived assets by country of domicile consist of:                  

                                                                [Download Table]

                                          JANUARY 31,           
                                          -----------           
                                  2004                  2005    
                                  ----                  ----    
                                         (IN THOUSANDS)         
                                                                

United States                   $ 70,317              $  69,006 
Israel                           123,454                113,337 
Other                             11,162                 13,122 
                                ---------             ----------

                                $204,933              $ 195,465 
                                =========             ==========

20.  COMMITMENTS AND CONTINGENCIES                                              

LEASES - The Company leases office, manufacturing, and warehouse space
     under non-cancelable operating leases. Rent expense for all leased premises
  approximated $36,032,000, $31,616,000 and $33,279,000 in the years ended
January 31, 2003, 2004 and 2005, respectively.                        

    As of January 31, 2005, the minimum annual rent obligations of the Company
were approximately as follows:                                        

TWELVE MONTHS ENDED                                   
JANUARY 31,                         AMOUNT    
-----------                         ------    
                                (IN THOUSANDS)

2006                     $      28,616
2007                            24,366
2008                            21,221
2009                            11,053
2010 and thereafter                     32,767        
                          --------------

                         $     118,023
                          ==============

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The Company has entered into various sub-lease agreements to rent out 
   excess space. As of January 31, 2005, the minimum annual sub-lease income
obligation to the Company under such agreements was approximately     
  $1,217,000, $1,008,000, $1,008,000, $960,000 and $252,000 for the twelve
   months ending January 31, 2006, 2007, 2008, 2009 and 2010 and thereafter,
respectively, for a total of approximately $4,445,000.                

     EMPLOYMENT AGREEMENTS - The Company is obligated under employment contracts
   with Kobi Alexander, its Chairman and Chief Executive Officer, to provide
    compensation, severance, insurance and fringe benefits through February 1,
2007. Minimum salary payments under the contracts currently amount to 
     $672,000 per year. Mr. Alexander also is eligible to receive an annual cash
     bonus determined by specific quantitative targets established in advance by
     the Compensation Committee of the Board of Directors. Following termination
   of his employment with the Company the executive is entitled to receive a
    severance payment equal to $181,585 times the number of years from January
  1983, the amount of which payment increases at the rate of 10% per annum
  compounded for each year of employment following December 31, 2005, plus
 continued fringe benefits for three years. In addition to the severance
     payment, if the executive's employment is terminated by the Company without
   "cause", or by the executive for "good reason", the executive is entitled
     to his salary and pro-rata bonus through the date of termination plus three
  times the executive's annual salary and three times his annual bonus. If
such termination occurs within three months before or within two years
     following a change in control of the Company, the executive is additionally
 entitled to the accelerated vesting of all stock options and restricted
stock, and payments sufficient to reimburse any associated excise tax 
   liability and income tax resulting from such reimbursement. Stock options
     and restricted stock granted the executive become fully vested, exercisable
 and nonforfeitable in the event of the executive's death or disability.
Insurance benefits include life insurance providing cumulative death  
    benefits of approximately $30,000,000, including amounts provided under an
     arrangement through which the Company is to be reimbursed premiums from the
benefit payments or cash surrender value.                             

     The Company is obligated under an employment contract with David Kreinberg,
its Executive Vice President and Chief Financial Officer, to provide  
    compensation, severance, insurance and fringe benefits through February 1,
2007. Minimum salary payments under the contract currently amount to  
     $325,000 per year. Mr. Kreinberg also is eligible to receive an annual cash
     bonus determined by specific quantitative targets established in advance by
     the Compensation Committee of the Board of Directors. Following termination
   of his employment with the Company the executive is entitled to receive a
severance payment equal to $24,200 times the number of years from and 
including 1994, the first year of his employment with the Company, the
   amount of which payment increases at the rate of 10% per annum compounded
for each year of employment following January 31, 2005, plus continued
    fringe benefits for eighteen months. In addition to the severance payment,
     if the executive's employment is terminated by the Company without "cause",
 or by the executive for "good reason", the executive is entitled to his
    salary and pro-rata bonus through the date of termination plus one year of
     additional annual salary and bonus. If such termination occurs within three
months before or within two years following a change in control of the
     Company, the executive is entitled to his salary and pro-rata bonus through
    the date of termination plus three times the executive's annual salary and
    three times his annual bonus, the accelerated vesting of all stock options
   and restricted stock, and payments sufficient to reimburse any associated
excise tax liability and income tax resulting from such reimbursement.
Stock options and restricted stock granted the executive become fully 
vested, exercisable and nonforfeitable in the event of the executive's
  death or disability. Insurance benefits include life insurance providing
   cumulative death benefits of approximately $17,500,000, including amounts
     provided under an arrangement through which the Company is to be reimbursed
premiums from the benefit payments or cash surrender value.           

  The Company is obligated under an agreement with Zeev Bregman, the Chief
   Executive Officer of one of its subsidiaries, to provide compensation and
     fringe benefits through February 1, 2007. Minimum salary payments under the
  agreement amount to approximately $275,000 per year. Mr. Bregman also is
eligible to receive an annual cash bonus determined by specific       
   quantitative targets established in advance by the Compensation Committee
     of the Board of Directors. Following termination of his employment with the
     Company the executive is entitled to continued fringe benefits for eighteen
    months. If the executive's employment is terminated by the Company without
   "cause", or by the executive for "good reason", the executive is entitled

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   to his salary and pro-rata bonus through the date of termination plus one
year of additional annual salary and bonus. If such termination occurs
within three months before or within two years following a change in  
control of the Company, the executive is entitled to his salary and   
pro-rata bonus through the date of termination plus three times the   
     executive's annual salary and three times his annual bonus, the accelerated
vesting of all stock options and restricted stock. Stock options and  
     restricted stock granted the executive become fully vested, exercisable and
nonforfeitable in the event of the executive's death or disability.   

Most other employment agreements of the Company are terminable with or
   without cause with prior notice of 90 days or less. In certain instances,
the termination of employment agreements without cause entitles the   
   employees to certain benefits, including severance payments of as much as
one year's compensation.                                              

LICENSES AND ROYALTIES - The Company licenses certain technology,     
   "know-how" and related rights for use in the manufacture and marketing of
    its products, and pays royalties to third parties, typically ranging up to
6% of net sales of the related products, under such licenses and under
   other agreements entered into in connection with research and development
    financing, including projects partially funded by the OCS, under which the
 funding organization reimburses a portion of the Company's research and
 development expenditures under approved project budgets. Certain of the
     Company's subsidiaries accrue royalties to the OCS for the sale of products
 incorporating technology developed in these projects in varying amounts
based upon the revenues attributed to the various components of such  
   products. Royalties due to the OCS in respect of research and development
     projects are required to be paid until the OCS has received total royalties
up to the amounts received by the Company under the approved project  
  budgets, plus interest in certain circumstances. As of January 31, 2005,
such subsidiaries had received approximately $57,700,000 in cumulative
grants from the OCS, and have recorded approximately $26,700,000 in   
cumulative royalties to the OCS.                                      

  DIVIDEND RESTRICTIONS - The ability of CTI's Israeli subsidiaries to pay
    dividends is governed by Israeli law, which provides that dividends may be
paid by an Israeli corporation only out of its earnings as defined in 
   accordance with the Israeli Companies Law of 1999, provided that there is
    no reasonable concern that such payment will cause such subsidiary to fail
     to meet its current and expected liabilities as they come due. In the event
    of a devaluation of the Israeli currency against the dollar, the amount in
dollars available for payment of cash dividends out of prior years'   
earnings will decrease accordingly. Cash dividends paid by an Israeli 
    corporation to United States resident corporate parents are subject to the
Convention for the Avoidance of Double Taxation between Israel and the
United States. Under the terms of the Convention, such dividends are  
   subject to taxation by both Israel and the United States and, in the case
    of Israel, such dividends out of income derived in respect of a period for
    which an Israeli company is entitled to the reduced tax rate applicable to
an Approved Enterprise are generally subject to withholding of Israeli
    income tax at source at a rate of 15%. The Israeli company is also subject
   to additional Israeli taxes in respect of such dividends, generally equal
    to the tax benefits previously granted in respect of the underlying income
by virtue of the Approved Enterprise status.                          

    INVESTMENTS - In 1997, a subsidiary of CTI and Quantum Industrial Holdings
     Ltd. organized two new companies to make investments, including investments
in high technology ventures. Each participant committed a total of    
$37,500,000 to the capital of the new companies, for use as suitable  
   investment opportunities are identified. Quantum Industrial Holdings Ltd.
    is a member of the Quantum Group of Funds managed by Soros Fund Management
   LLC and affiliated management companies. As of January 31, 2004 and 2005,
the Company had invested approximately $26,420,000 and $26,451,000    
    respectively, related to these ventures, included in `Other assets' in the
Consolidated Balance Sheets. In addition, the Company has committed   
     approximately $9,807,000 to various funds, ventures and companies which may
be called at the option of the investee.                              

 GUARANTIES - The Company has obtained bank guaranties primarily for the
   performance of certain obligations under contracts with customers as well
as for the guarantee of certain payment obligations. These guaranties,
which aggregated approximately $33,884,000 at January 31, 2005 are    
     generally to be released by the Company's performance of specified contract
    milestones, which are scheduled to be completed at various dates primarily
through 2008.                                                         

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LITIGATION - On March 16, 2004, BellSouth Intellectual Property Corp. 
     ("BellSouth") filed a complaint in the United States District Court for the
 Northern District of Georgia against Comverse Technology, Inc. alleging
     infringement of Patent Nos. 5,857,013 and 5,764,747 (the "Patents"), and it
   subsequently amended the complaint to include Comverse Inc., in an action
  captioned: BellSouth Intellectual Property Corp. v. Comverse Technology,
   Inc. and Comverse, Inc., Civil Action No. 1:04-CV-0739. BellSouth alleged
   that the Patents cover certain aspects of some of the Company's voicemail
    systems. The Company retained outside legal counsel specializing in patent
   litigation, and filed an Answer and Counterclaim denying all allegations.
    On or about December 20, 2004, the Company executed a settlement agreement
  with BellSouth and some of its related entities covering the Company and
the Company's customers.                                              

  From time to time, the Company is subject to claims in legal proceedings
    arising in the normal course of its business. The Company does not believe
that it is currently party to any pending legal action that could     
   reasonably be expected to have a material adverse effect on its business,
financial condition and results of operations.                        

21.  FAIR VALUE OF FINANCIAL INSTRUMENTS                                        

     The estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies. 
However, considerable judgment is necessarily required in interpreting
market data to develop the estimates of fair value. Accordingly, the  
  estimates presented herein are not necessarily indicative of the amounts
 that the Company could realize in a current market exchange. The use of
 different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.                  

                                                        [Enlarge/Download Table]

                                             JANUARY 31,                                
                   ---------------------------------------------------------------------
                                 2004                                 2005              
                                 ----                                 ----              
                    CARRYING            ESTIMATED           CARRYING          ESTIMATED 
                     AMOUNT             FAIR VALUE           AMOUNT           FAIR VALUE
                     ------             ----------           ------           ----------
                                               (IN THOUSANDS)                           
                                                                                        
Liabilities:                                                                            
    Debentures     $ 124,723            $ 122,229          $   87,253         $   85,944
    Existing ZYPS  $ 420,000            $ 489,300          $    2,310         $    3,116
    New ZYPS       $       -            $       -          $  417,690         $  563,359

CASH AND CASH EQUIVALENTS, BANK TIME DEPOSITS, SHORT-TERM INVESTMENTS,
ACCOUNTS RECEIVABLE, INVESTMENTS, AND ACCOUNTS PAYABLE - The carrying 
amounts of these items are a reasonable estimate of their fair value. 

     CONVERTIBLE DEBT - The fair value of these securities is estimated based on
quoted market prices or recent sales for those securities.            

The fair value estimates presented herein are based on pertinent      
   information available to management as of January 31, 2004 and 2005. Such
amounts have not been comprehensively revalued for purposes of these  
    financial statements since January 31, 2005, and current estimates of fair
value may differ significantly from the amounts presented herein.     

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22.  EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS                                    

Refer to Note 11 for a description of EITF 04-8 and its impact on the 
   Company's diluted earnings per share calculation for the New ZYPS and the
  Existing ZYPS. For the year ended January 31, 2005, the adoption of EITF
04-8 resulted in approximately 1,739,000 (comprised of approximately  
1,610,000 for New ZYPS and approximately 129,000 for Existing ZYPS) of
  additional share dilution in calculating diluted earnings per share. The
   adoption of EITF 04-8 did not have an effect on reported diluted earnings
(loss) per share for any periods presented.                           

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
    Payment", ("SFAS No.123(R)") which revises SFAS No. 123 and supersedes APB
 No. 25. SFAS No. 123(R) requires all share-based payments to employees,
   including grants of employee stock options, to be valued at fair value on
   the date of grant, and to be expensed over the applicable vesting period.
Pro forma disclosure of the income statement effects of share-based   
payments is no longer an alternative. SFAS No. 123(R) is effective for
   reporting periods beginning after June 15, 2005, which for the Company is
     August 1, 2005 (the "Effective Date"). Beginning on the Effective Date, the
    Company must (i) expense all options granted after the Effective Date over
    the applicable vesting period, and (ii) expense the non-vested portions of
   existing option grants going forward over their remaining vesting period.
    Compensation expense for the non-vested portions of existing option grants
  as of the Effective Date will be recorded based on the fair value of the
 awards previously calculated in developing the pro forma disclosures in
    accordance with the provisions of SFAS No. 123. Under SFAS No. 123(R), the
  Company is required to adopt a fair value-based method for measuring the
  compensation expense related to employee stock and stock options awards;
 this will lead to substantial additional compensation expense. Any such
    expense, although it will not affect the Company's cash flows, will have a
   material negative impact on the Company's reported results of operations.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an 
    amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies the accounting
     for abnormal amounts of idle facility expense, freight, handling costs, and
  wasted material (spoilage) by requiring that such items be recognized as
current-period charges regardless of whether they meet the ARB No. 43,
  Chapter 4 criterion of "so abnormal." In addition, SFAS No. 151 requires
     that allocation of fixed production overheads to the costs of conversion be
    based on the normal capacity of the production facilities. SFAS No. 151 is
    effective for inventory costs incurred during fiscal years beginning after
June 15, 2005. The adoption of SFAS No. 151 is not expected to have a 
material effect on the Company's consolidated financial statements.   

   In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
   Assets - an amendment of APB Opinion No. 29." SFAS No. 153 amends APB No.
29 to eliminate the exception for nonmonetary exchanges of similar    
     productive assets and replaces it with a general exception for exchanges of
 nonmonetary assets that do not have commercial substance. A nonmonetary
  exchange has commercial substance if the future cash flows of the entity
    are expected to change significantly as a result of the exchange. SFAS No.
   153 is effective for reporting periods beginning after June 15, 2005. The
   adoption of SFAS No. 153 is not expected to have a material effect on the
Company's consolidated financial statements.                          

   In March 2004, the EITF of the FASB reached a consensus on EITF Issue No.
   03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application
   to Certain Investments", which provides additional guidance for assessing
impairment losses on investments. Additionally, EITF 03-1 includes new
   disclosure requirements for investments that are deemed to be temporarily
    impaired. In September 2004, the FASB delayed the accounting provisions of
    EITF 03-1; however the disclosure requirements remain effective for annual
     periods ending after June 15, 2004. The Company will evaluate the impact of
    EITF 03-1 once final guidance is issued, however the adoption of EITF 03-1
in its current form is not expected to have a material effect on the  
Company's consolidated financial statements.                          

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23.      QUARTERLY INFORMATION (UNAUDITED)                                      

        The following table shows selected results of operations for each of the
quarters during the years ended January 31, 2004 and 2005:      

                                                        [Enlarge/Download Table]

                                                       FISCAL QUARTER ENDED                                                   
                           APRIL 30,     JULY 31,   OCT. 31,      JAN. 31,      APRIL 30,    JULY 31,   OCT. 31,     JAN. 31, 
                            2003          2003       2003          2004           2004         2004       2004         2005   
                            ----          ----       ----          ----           ----         ----       ----         ----   
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                                

                                                                                                                              
Sales                    $ 180,552    $ 188,468   $ 193,843     $ 203,029      $ 221,395    $ 233,427   $ 245,479   $ 259,141 
Gross margin               100,179      107,144     111,174       119,835        131,803      140,303     148,543     158,083 
Net income (loss)           (5,819)      (1,058)     (3,437)        4,928          7,001       13,327      15,959      21,043 

Diluted earnings (loss)                                                                                                       
         per share       $   (0.03)   $   (0.01)  $   (0.02)    $    0.02      $    0.03    $    0.06   $    0.08   $    0.10 
                         ==========   ==========  ==========    ==========     ==========   ==========  ==========  ==========

F-37

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		5/15/23		28		78
		5/15/18		28		78
		5/15/13		28		78
		1/31/10		89					10-K,  NT 10-K
		5/15/09		28		78
		1/31/09		89					10-K,  NT 10-K
		5/15/08		28		78
		1/31/08		89					NT 10-K
		2/1/07		89					4,  8-K
		1/31/07		89					8-K,  NT 10-K
		1/31/06		33		89			NT 10-K
		12/31/05		89
		10/31/05		33					10-Q
		8/1/05		33		92
		7/31/05		24					10-Q
		6/15/05		33		92
		6/14/05		2		49
Filed on:		4/4/05		56
		4/1/05		59		83
		3/24/05		2		17
		2/3/05		54					8-K
For Period End:		1/31/05		1		93			10-K/A,  5
		1/26/05		28		78			8-K
		12/20/04		16		91
		12/15/04		29		78			4
		12/7/04		54					4,  8-K
		9/30/04		28		78
		8/19/04		54
		7/31/04		2		54			10-Q
		6/15/04		47		92			DEF 14A
		3/31/04		74
		3/16/04		16		91
		2/1/04		30		75
		1/31/04		12		93			10-K
		12/16/03		53					3,  DEF 14A
		12/1/03		79
		5/7/03		52					8-K
		1/31/03		10		88			10-K,  10-K/A
		12/23/02		80
		9/5/02		54
		1/31/02		18		76			10-K,  10-K/A
		6/15/01		53					DEF 14A
		1/31/01		18		52			10-K405
		11/22/00		52					S-3
		9/19/00		52
		9/15/00		53					DEF 14A
		4/3/00		18
		3/27/00		18
		1/31/00		52					10-K405,  10-K405/A
		10/18/99		52
		10/8/99		53					DEF 14A
		1/1/99		41
		12/21/98		54
		1/13/98		53
		1/31/97		54
		6/7/96		54
		1/31/95		54
		1/12/95		52
		12/31/94		52					10-K405,  10-K405/A
		8/31/94		54
		12/31/93		53
		10/31/93		54
		3/31/93		54
		2/26/93		52
		12/31/92		52
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