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þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 11-3200514 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
330 South Service Road, Melville, New York | 11747 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large Accelerated Filero | Accelerated Filerþ | Non-Accelerated Filero | Smaller Reporting Companyo | |||
(Do not check if a smaller reporting company) |
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60 | ||||||||
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
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• | risks relating to the filing of our Securities and Exchange Commission (“SEC”) reports, including the occurrence of known contingencies or unforeseen events that could delay our future filings, management distraction, and significant expense; |
• | risks that our credit rating could be downgraded or placed on a credit watch based on, among other things, our financial results or delays in the filing of our periodic reports; |
• | risks associated with being a consolidated, controlled subsidiary of Comverse Technology, Inc. (“Comverse”) and formerly part of Comverse’s consolidated tax group, including risk of any future impact on us resulting from Comverse’s special committee investigation and restatement or related effects, and risks related to our dependence on Comverse to provide us with accurate financial information, including with respect to stock-based compensation expense and net operating loss carryforwards (“NOLs”), for our financial statements; |
• | uncertainties regarding the impact of general economic conditions, particularly in information technology spending, on our business; |
• | risks that our financial results will cause us not to be compliant with the leverage ratio covenant under our credit facility or that any delays in the filing of future SEC reports could cause us not to be compliant with the financial statement delivery covenant under our credit facility; |
• | risks that customers or partners delay or cancel orders or are unable to honor contractual commitments due to liquidity issues, challenges in their business, or otherwise; | ||
• | risks that we will experience liquidity or working capital issues and related risk that financing sources will be unavailable to us on reasonable terms or at all; |
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• | uncertainties regarding the future impact on our business of our now concluded internal investigation, restatement, and extended filing delay, including customer, partner, employee, and investor concern, and potential customer and partner transaction deferrals or losses; |
• | risks relating to the remediation or inability to adequately remediate material weaknesses in our internal controls over financial reporting and relating to the proper application of highly complex accounting rules and pronouncements in order to produce accurate SEC reports on a timely basis; |
• | risks relating to our implementation and maintenance of adequate systems and internal controls for our current and future operations and reporting needs; |
• | risks of possible future restatements if the processes used to produce the financial statements contained in our SEC reports are inadequate; |
• | risks associated with future regulatory actions or private litigations relating to our internal investigation, restatement, or previous delays in filing required SEC reports; |
• | risks that we will be unable to maintain our listing on the NASDAQ Global Market; |
• | risks associated with Comverse controlling our board of directors and a majority of our common stock (and therefore the results of any significant stockholder vote); |
• | risks associated with significant leverage resulting from our current debt position; |
• | risks due to aggressive competition in all of our markets, including with respect to maintaining margins and sufficient levels of investment in the business and with respect to introducing quality products which achieve market acceptance; |
• | risks created by continued consolidation of competitors or introduction of large competitors in our markets with greater resources than us; |
• | risks associated with significant foreign and international operations, including exposure to fluctuations in exchange rates; |
• | risks associated with complex and changing local and foreign regulatory environments; |
• | risks associated with our ability to recruit and retain qualified personnel in all geographies in which we operate; |
• | challenges in accurately forecasting revenue and expenses; | ||
• | risks associated with acquisitions and related system integrations; |
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• | risks relating to our ability to improve our infrastructure to support growth; |
• | risks that our intellectual property rights may not be adequate to protect our business or that others may make claims on our intellectual property or claim infringement on their intellectual property rights; |
• | risks associated with a significant amount of our business coming from domestic and foreign government customers; |
• | risks that we improperly handle sensitive or confidential information or perception of such mishandling; |
• | risks associated with dependence on a limited number of suppliers for certain components of our products; |
• | risks that we are unable to maintain and enhance relationships with key resellers, partners, and systems integrators; and |
• | risks that use of our tax benefits may be restricted or eliminated in the future. |
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Item 1. | Financial Statements. |
July 31, 2010 and January 31, 2010
July 31, | January 31, | |||||||
(in thousands, except share and per share data) | 2010 | 2010 | ||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 128,199 | $ | 184,335 | ||||
Restricted cash and bank time deposits | 14,893 | 5,206 | ||||||
Accounts receivable, net | 132,553 | 127,826 | ||||||
Inventories | 16,271 | 14,373 | ||||||
Deferred cost of revenue | 8,536 | 11,232 | ||||||
Prepaid expenses and other current assets | 59,263 | 64,554 | ||||||
Total current assets | 359,715 | 407,526 | ||||||
Property and equipment, net | 22,683 | 24,453 | ||||||
Goodwill | 733,046 | 724,670 | ||||||
Intangible assets, net | 164,716 | 173,833 | ||||||
Capitalized software development costs, net | 7,148 | 8,530 | ||||||
Deferred cost of revenue | 25,702 | 33,019 | ||||||
Other assets | 29,134 | 24,306 | ||||||
Total assets | $ | 1,342,144 | $ | 1,396,337 | ||||
Liabilities, Preferred Stock, and Stockholders’ Equity (Deficit) | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 45,923 | $ | 46,570 | ||||
Accrued expenses and other liabilities | 153,311 | 155,422 | ||||||
Current maturities of long-term debt | — | 22,678 | ||||||
Deferred revenue | 153,203 | 183,719 | ||||||
Liabilities to affiliates | 1,751 | 1,709 | ||||||
Total current liabilities | 354,188 | 410,098 | ||||||
Long-term debt | 598,234 | 598,234 | ||||||
Deferred revenue | 44,724 | 51,412 | ||||||
Other liabilities | 57,814 | 65,618 | ||||||
Total liabilities | 1,054,960 | 1,125,362 | ||||||
Preferred Stock— $0.001 par value; authorized 2,500,000 shares. Series A convertible preferred stock; 293,000 shares issued and outstanding; aggregate liquidation preference and redemption value of $332,196 at July 31, 2010. | 285,542 | 285,542 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ Equity (Deficit): | ||||||||
Common stock — $0.001 par value; authorized 120,000,000 shares. Issued 34,911,000 and 32,687,000 shares, respectively; outstanding 34,651,000 and 32,584,000 shares, as of July 31, 2010 and January 31, 2010, respectively. | 35 | 33 | ||||||
Additional paid-in capital | 478,031 | 451,166 | ||||||
Treasury stock, at cost - 260,000 and 103,000 shares as of July 31, 2010 and January 31, 2010, respectively. | (6,639 | ) | (2,493 | ) | ||||
Accumulated deficit | (425,071 | ) | (420,338 | ) | ||||
Accumulated other comprehensive loss | (46,432 | ) | (43,134 | ) | ||||
Total Verint Systems Inc. stockholders’ deficit | (76 | ) | (14,766 | ) | ||||
Noncontrolling interest | 1,718 | 199 | ||||||
Total stockholders’ equity (deficit) | 1,642 | (14,567 | ) | |||||
Total liabilities, preferred stock, and stockholders’ equity (deficit) | $ | 1,342,144 | $ | 1,396,337 | ||||
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Three and Six Months Ended July 31, 2010 and 2009
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands, except per share data) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenue: | ||||||||||||||||
Product | $ | 93,103 | $ | 88,107 | $ | 185,173 | $ | 185,178 | ||||||||
Service and support | 87,573 | 81,162 | 168,116 | 159,239 | ||||||||||||
Total revenue | 180,676 | 169,269 | 353,289 | 344,417 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Product | 31,909 | 30,900 | 60,255 | 62,957 | ||||||||||||
Service and support | 26,217 | 26,190 | 53,445 | 49,103 | ||||||||||||
Amortization of acquired technology and backlog | 2,220 | 1,977 | 4,453 | 4,076 | ||||||||||||
Total cost of revenue | 60,346 | 59,067 | 118,153 | 116,136 | ||||||||||||
Gross profit | 120,330 | 110,202 | 235,136 | 228,281 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development, net | 22,049 | 20,638 | 48,481 | 39,539 | ||||||||||||
Selling, general and administrative | 69,144 | 70,258 | 156,161 | 127,484 | ||||||||||||
Amortization of other acquired intangible assets | 5,338 | 5,586 | 10,677 | 11,516 | ||||||||||||
Restructuring | — | 11 | — | 24 | ||||||||||||
Total operating expenses | 96,531 | 96,493 | 215,319 | 178,563 | ||||||||||||
Operating income | 23,799 | 13,709 | 19,817 | 49,718 | ||||||||||||
Other income (expense), net: | ||||||||||||||||
Interest income | 117 | 98 | 200 | 245 | ||||||||||||
Interest expense | (5,936 | ) | (6,369 | ) | (11,884 | ) | (12,722 | ) | ||||||||
Other expense, net | (2,448 | ) | (3,106 | ) | (6,146 | ) | (8,069 | ) | ||||||||
Total other expense, net | (8,267 | ) | (9,377 | ) | (17,830 | ) | (20,546 | ) | ||||||||
Income before provision for income taxes | 15,532 | 4,332 | 1,987 | 29,172 | ||||||||||||
Provision for income taxes | 3,141 | 2,850 | 5,212 | 7,118 | ||||||||||||
Net income (loss) | 12,391 | 1,482 | (3,225 | ) | 22,054 | |||||||||||
Net income (loss) attributable to noncontrolling interest | 916 | (116 | ) | 1,508 | 822 | |||||||||||
Net income (loss) attributable to Verint Systems Inc. | 11,475 | 1,598 | (4,733 | ) | 21,232 | |||||||||||
Dividends on preferred stock | (3,554 | ) | (3,406 | ) | (6,957 | ) | (6,668 | ) | ||||||||
Net income (loss) attributable to Verint Systems Inc. common shares | $ | 7,921 | $ | (1,808 | ) | $ | (11,690 | ) | $ | 14,564 | ||||||
Net income (loss) per share attributable to Verint Systems Inc. | ||||||||||||||||
Basic | $ | 0.24 | $ | (0.06 | ) | $ | (0.35 | ) | $ | 0.45 | ||||||
Diluted | $ | 0.23 | $ | (0.06 | ) | $ | (0.35 | ) | $ | 0.45 | ||||||
Weighted-average common shares outstanding | ||||||||||||||||
Basic | 33,272 | 32,465 | 32,972 | 32,462 | ||||||||||||
Diluted | 35,006 | 32,465 | 32,972 | 32,606 | ||||||||||||
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Six Months Ended July 31, 2010 and 2009
Verint Systems Inc. Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||
Accumulated | Total Verint | |||||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | Systems Inc. | Total | ||||||||||||||||||||||||||||||||
Par | Paid-in | Treasury | Accumulated | Comprehensive | Stockholders’ | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||||
(in thousands) | Shares | Value | Capital | Stock | Deficit | Loss | Deficit | Interest | Equity (Deficit) | |||||||||||||||||||||||||||
Balances as of January 31, 2009 | 32,535 | $ | 32 | $ | 419,937 | $ | (2,353 | ) | $ | (435,955 | ) | $ | (58,404 | ) | $ | (76,743 | ) | $ | 673 | $ | (76,070 | ) | ||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | 21,232 | — | 21,232 | 822 | 22,054 | |||||||||||||||||||||||||||
Unrealized gains on derivative financial instruments, net | — | — | — | — | — | 1,439 | 1,439 | — | 1,439 | |||||||||||||||||||||||||||
Unrealized gains on available for sale securities, net | — | — | — | — | — | 9 | 9 | — | 9 | |||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | 24,417 | 24,417 | 13 | 24,430 | |||||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | 21,232 | 25,865 | 47,097 | 835 | 47,932 | |||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 15,532 | — | — | — | 15,532 | — | 15,532 | |||||||||||||||||||||||||||
Common stock issued for stock awards | 20 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Forfeitures of restricted stock awards | (3 | ) | — | 23 | (23 | ) | — | — | — | — | — | |||||||||||||||||||||||||
Purchases of treasury stock | (8 | ) | — | — | (50 | ) | — | — | (50 | ) | — | (50 | ) | |||||||||||||||||||||||
Balances as of July 31, 2009 | 32,544 | $ | 32 | $ | 435,492 | $ | (2,426 | ) | $ | (414,723 | ) | $ | (32,539 | ) | $ | (14,164 | ) | $ | 1,508 | $ | (12,656 | ) | ||||||||||||||
Balances as of January 31, 2010 | 32,584 | $ | 33 | $ | 451,166 | $ | (2,493 | ) | $ | (420,338 | ) | $ | (43,134 | ) | $ | (14,766 | ) | $ | 199 | $ | (14,567 | ) | ||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | — | (4,733 | ) | — | (4,733 | ) | 1,508 | (3,225 | ) | ||||||||||||||||||||||||
Unrealized losses on derivative financial instruments, net | — | — | — | — | — | (5 | ) | (5 | ) | — | (5 | ) | ||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | — | (3,293 | ) | (3,293 | ) | 11 | (3,282 | ) | ||||||||||||||||||||||||
Total comprehensive income (loss) | — | — | — | — | (4,733 | ) | (3,298 | ) | (8,031 | ) | 1,519 | (6,512 | ) | |||||||||||||||||||||||
Stock-based compensation expense | — | — | 15,636 | — | — | — | 15,636 | — | 15,636 | |||||||||||||||||||||||||||
Exercises of stock options | 726 | 1 | 11,934 | — | — | — | 11,935 | — | 11,935 | |||||||||||||||||||||||||||
Common stock issued for stock awards | 1,498 | 1 | (1 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||
Purchases of treasury stock | (157 | ) | — | — | (4,146 | ) | — | — | (4,146 | ) | — | (4,146 | ) | |||||||||||||||||||||||
Tax effects from stock award plans | — | — | (704 | ) | — | — | — | (704 | ) | — | (704 | ) | ||||||||||||||||||||||||
Balances as of July 31, 2010 | 34,651 | $ | 35 | $ | 478,031 | $ | (6,639 | ) | $ | (425,071 | ) | $ | (46,432 | ) | $ | (76 | ) | $ | 1,718 | $ | 1,642 | |||||||||||||||
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Six Months Ended July 31, 2010 and 2009
Six Months Ended July 31, | ||||||||
(in thousands) | 2010 | 2009 | ||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (3,225 | ) | $ | 22,054 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 23,952 | 25,507 | ||||||
Equity-based compensation | 15,636 | 15,532 | ||||||
Non-cash losses on derivative financial instruments, net | 3,347 | 7,035 | ||||||
Other non-cash items, net | 867 | (1,816 | ) | |||||
Changes in operating assets and liabilities, net of effects of business combination: | ||||||||
Accounts receivable | (5,447 | ) | (2,513 | ) | ||||
Inventories | (2,124 | ) | 3,430 | |||||
Deferred cost of revenue | 9,273 | 6,165 | ||||||
Accounts payable and accrued expenses | (3,798 | ) | (11,321 | ) | ||||
Deferred revenue | (33,273 | ) | (518 | ) | ||||
Prepaid expenses and other assets | 2,936 | (8,759 | ) | |||||
Other, net | (2,632 | ) | (2,616 | ) | ||||
Net cash provided by operating activities | 5,512 | 52,180 | ||||||
Cash flows from investing activities: | ||||||||
Cash paid for business combination, net of cash acquired, and payments of contingent consideration associated with business combinations in prior periods | (15,292 | ) | (96 | ) | ||||
Purchases of property and equipment | (3,550 | ) | (2,019 | ) | ||||
Settlements of derivative financial instruments not designated as hedges | (11,997 | ) | (8,261 | ) | ||||
Cash paid for capitalized software development costs | (858 | ) | (1,258 | ) | ||||
Change in restricted cash and bank time deposits | (9,720 | ) | 223 | |||||
Net cash used in investing activities | (41,417 | ) | (11,411 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayments of borrowings and other financing obligations | (22,679 | ) | (5,988 | ) | ||||
Proceeds from exercises of stock options | 11,650 | — | ||||||
Dividends paid to noncontrolling interest | — | (2,142 | ) | |||||
Purchases of treasury stock | (4,146 | ) | — | |||||
Other financing activities | (3,688 | ) | (202 | ) | ||||
Net cash used in financing activities | (18,863 | ) | (8,332 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (1,368 | ) | 5,349 | |||||
Net increase (decrease) in cash and cash equivalents | (56,136 | ) | 37,786 | |||||
Cash and cash equivalents, beginning of period | 184,335 | 115,928 | ||||||
Cash and cash equivalents, end of period | $ | 128,199 | $ | 153,714 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 10,236 | $ | 13,184 | ||||
Cash paid for income taxes | $ | 3,244 | $ | 4,991 | ||||
Non-cash investing and financing transactions: | ||||||||
Accrued but unpaid purchases of property and equipment | $ | 936 | $ | 329 | ||||
Inventory transfers to property and equipment | $ | 87 | $ | 347 | ||||
Stock options exercised, proceeds received subsequent to period end | $ | 285 | $ | — | ||||
Accrued but unpaid debt fees | $ | 310 | $ | — | ||||
Supplier financing arrangments | $ | 1,480 | $ | — | ||||
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(Unaudited)
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Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net income (loss) | $ | 12,391 | $ | 1,482 | $ | (3,225 | ) | $ | 22,054 | |||||||
Net income (loss) attributable to noncontrolling interest | 916 | (116 | ) | 1,508 | 822 | |||||||||||
Net income (loss) attributable to Verint Systems Inc. | 11,475 | 1,598 | (4,733 | ) | 21,232 | |||||||||||
Dividends on preferred stock | (3,554 | ) | (3,406 | ) | (6,957 | ) | (6,668 | ) | ||||||||
Net income (loss) attributable to Verint Systems Inc. for basic net income (loss) per share | 7,921 | (1,808 | ) | (11,690 | ) | 14,564 | ||||||||||
Dilutive effect of dividends on preferred stock | — | — | — | — | ||||||||||||
Net income (loss) attributable to Verint Systems Inc. for diluted net income (loss) per share | $ | 7,921 | $ | (1,808 | ) | $ | (11,690 | ) | $ | 14,564 | ||||||
Weighted-average shares outstanding | ||||||||||||||||
Basic | 33,272 | 32,465 | 32,972 | 32,462 | ||||||||||||
Dilutive effect of employee equity award plans | 1,734 | — | — | 144 | ||||||||||||
Dilutive effect of assumed conversion of preferred stock | — | — | — | — | ||||||||||||
Diluted | 35,006 | 32,465 | 32,972 | 32,606 | ||||||||||||
Net income (loss) per share attributable to Verint Systems Inc. | ||||||||||||||||
Basic | $ | 0.24 | $ | (0.06 | ) | $ | (0.35 | ) | $ | 0.45 | ||||||
Diluted | $ | 0.23 | $ | (0.06 | ) | $ | (0.35 | ) | $ | 0.45 | ||||||
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Shares excluded from calculation: | ||||||||||||||||
Stock options and restricted stock-based awards | 3,484 | 8,530 | 6,842 | 5,763 | ||||||||||||
Convertible preferred stock | 10,171 | 9,787 | 10,123 | 9,740 | ||||||||||||
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July 31, | January 31, | |||||||
(in thousands) | 2010 | 2010 | ||||||
Raw materials | $ | 8,370 | $ | 5,987 | ||||
Work-in-process | 5,374 | 4,649 | ||||||
Finished goods | 2,527 | 3,737 | ||||||
Total inventories | $ | 16,271 | $ | 14,373 | ||||
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Estimated | ||||||||
(in thousands) | Amount | Useful Lives | ||||||
Components of Purchase Price: | ||||||||
Cash | $ | 17,861 | ||||||
Fair value of contingent consideration | 3,224 | |||||||
Prepaid product licenses and support services | 1,493 | |||||||
Trade accounts payable | (712 | ) | ||||||
Total purchase price | $ | 21,866 | ||||||
Allocation of Purchase Price: | ||||||||
Net tangible assets: | ||||||||
Cash | $ | 2,569 | ||||||
Other current assets | 286 | |||||||
Other assets | 89 | |||||||
Current liabilities | (211 | ) | ||||||
Deferred income taxes — current and long-term | (993 | ) | ||||||
Net tangible assets | 1,740 | |||||||
Identifiable intangible assets: | ||||||||
Developed technology | 6,949 | 6 years | ||||||
Non-competition agreements | 278 | 3 years | ||||||
Total identifiable intangible assets (1) | 7,227 | |||||||
Goodwill | 12,899 | |||||||
Total purchase price | $ | 21,866 | ||||||
(1) | The weighted-average amortization period of all finite-lived identifiable intangible assets is 5.9 years. |
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July 31, 2010 | ||||||||||||
Accumulated | ||||||||||||
(in thousands) | Cost | Amortization | Net | |||||||||
Customer relationships | $ | 197,206 | $ | (64,314 | ) | $ | 132,892 | |||||
Acquired technology | 60,963 | (32,795 | ) | 28,168 | ||||||||
Trade names | 9,506 | (8,542 | ) | 964 | ||||||||
Non-competition agreements | 3,689 | (2,451 | ) | 1,238 | ||||||||
Distribution network | 2,440 | (986 | ) | 1,454 | ||||||||
Total | $ | 273,804 | $ | (109,088 | ) | $ | 164,716 | |||||
January 31, 2010 | ||||||||||||
Accumulated | ||||||||||||
(in thousands) | Cost | Amortization | Net | |||||||||
Customer relationships | $ | 198,084 | $ | (54,825 | ) | $ | 143,259 | |||||
Acquired technology | 54,629 | (28,419 | ) | 26,210 | ||||||||
Trade names | 9,551 | (7,989 | ) | 1,562 | ||||||||
Non-competition agreements | 3,429 | (2,203 | ) | 1,226 | ||||||||
Distribution network | 2,440 | (864 | ) | 1,576 | ||||||||
Total | $ | 268,133 | $ | (94,300 | ) | $ | 173,833 | |||||
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(in thousands) | ||||
Years Ended January 31, | Amount | |||
2011 (Remainder of year) | $ | 15,188 | ||
2012 | 29,454 | |||
2013 | 28,673 | |||
2014 | 23,658 | |||
2015 | 21,075 | |||
2016 and thereafter | 46,668 | |||
Total | $ | 164,716 | ||
Reportable Segment | ||||||||||||||||
Workforce | Video | Communications | ||||||||||||||
(in thousands) | Total | Optimization | Intelligence | Intelligence | ||||||||||||
Goodwill, gross, at January 31, 2010 | $ | 791,535 | $ | 694,465 | $ | 66,998 | $ | 30,072 | ||||||||
Accumulated impairment losses through January 31, 2010 | (66,865 | ) | (30,791 | ) | (36,074 | ) | — | |||||||||
Goodwill, net, at January 31, 2010 | 724,670 | 663,674 | 30,924 | 30,072 | ||||||||||||
Acquisition of Iontas Limited | 12,899 | 12,899 | — | — | ||||||||||||
Foreign currency translation and other | (4,523 | ) | (3,563 | ) | (960 | ) | — | |||||||||
Goodwill, net, at July 31, 2010 | $ | 733,046 | $ | 673,010 | $ | 29,964 | $ | 30,072 | ||||||||
Balance at July 31, 2010 | ||||||||||||||||
Goodwill, gross, at July 31, 2010 | $ | 799,911 | $ | 703,801 | $ | 66,038 | $ | 30,072 | ||||||||
Accumulated impairment losses at July 31, 2010 | (66,865 | ) | (30,791 | ) | (36,074 | ) | — | |||||||||
Goodwill, net, at July 31, 2010 | $ | 733,046 | $ | 673,010 | $ | 29,964 | $ | 30,072 | ||||||||
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July 31, | January 31, | |||||||
(in thousands) | 2010 | 2010 | ||||||
Term loan facility | $ | 583,234 | $ | 605,912 | ||||
Revolving line of credit | 15,000 | 15,000 | ||||||
598,234 | 620,912 | |||||||
Less: current portion | — | 22,678 | ||||||
Long-term debt | $ | 598,234 | $ | 598,234 | ||||
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July 31, | January 31, | |||||||
(in thousands) | 2010 | 2010 | ||||||
Foreign currency translation losses, net | $ | (46,538 | ) | $ | (43,245 | ) | ||
Unrealized gains on derivative financial instruments | 101 | 106 | ||||||
Unrealized gains on available-for-sale marketable securities | 5 | 5 | ||||||
Total accumulated other comprehensive loss | $ | (46,432 | ) | $ | (43,134 | ) | ||
(in thousands) | Total | |||
Accrued restructuring costs — January 31, 2010 | $ | 116 | ||
Payments and settlements | (116 | ) | ||
Accrued restructuring costs — July 31, 2010 | $ | — | ||
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11.Fair Value Measurements and Derivative Financial Instruments |
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July 31, 2010 | ||||||||||||
Fair Value Hierarchy Category | ||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market funds (included in cash and cash equivalents) | $ | 38,598 | $ | — | $ | — | ||||||
Foreign currency forward contracts | — | 177 | — | |||||||||
Total assets | $ | 38,598 | $ | 177 | $ | — | ||||||
Liabilities: | ||||||||||||
Foreign currency forward contracts | $ | — | $ | 151 | $ | — | ||||||
Contingent consideration — business combination | — | — | 3,306 | |||||||||
Total liabilities | $ | — | $ | 151 | $ | 3,306 | ||||||
January 31, 2010 | ||||||||||||
Fair Value Hierarchy Category | ||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market funds (included in cash and cash equivalents) | $ | 82,593 | $ | — | $ | — | ||||||
Foreign currency forward contracts | — | 140 | — | |||||||||
Total assets | $ | 82,593 | $ | 140 | $ | — | ||||||
Liabilities: | ||||||||||||
Foreign currency forward contracts | $ | — | $ | 636 | $ | — | ||||||
Interest rate swap agreement | — | 29,812 | — | |||||||||
Total liabilities | $ | — | $ | 30,448 | $ | — | ||||||
(in thousands) | Amount | |||
Fair value measurement at January 31, 2010 | $ | — | ||
Contingent consideration liability recorded for business combination | 3,224 | |||
Change in fair value recorded in operating expenses | 82 | |||
Fair value measurement at July 31, 2010 | $ | 3,306 | ||
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July 31, | January 31, | |||||||
(in thousands) | 2010 | 2010 | ||||||
Foreign currency forward contracts | $ | 57,471 | $ | 50,437 | ||||
Interest rate swap agreement | — | 450,000 | ||||||
$ | 57,471 | $ | 500,437 | |||||
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July 31, 2010 | ||||||||||||
Assets | Liabilities | |||||||||||
Balance Sheet | Balance Sheet | |||||||||||
(in thousands) | Classification | Fair Value | Classification | Fair Value | ||||||||
Derivative financial instruments designated as hedging instruments: | ||||||||||||
Foreign currency forward contracts | Prepaid expenses and other current assets | $ | 116 | — | $ | — | ||||||
Total derivative financial instruments designated as hedging instruments | $ | 116 | $ | — | ||||||||
Derivative financial instruments not designated as hedging instruments: | ||||||||||||
Foreign currency forward contracts | Prepaid expenses and other current assets | 61 | Accrued expenses and other liabilities | 151 | ||||||||
Total derivative financial instruments not designated as hedging instruments | $ | 61 | $ | 151 | ||||||||
January 31, 2010 | ||||||||||||
Assets | Liabilities | |||||||||||
Balance Sheet | Balance Sheet | |||||||||||
(in thousands) | Classification | Fair Value | Classification | Fair Value | ||||||||
Derivative financial instruments designated as hedging instruments: | ||||||||||||
Foreign currency forward contracts | Prepaid expenses and other current assets | $ | 140 | Accrued expenses and other liabilities | $ | 38 | ||||||
Total derivative financial instruments designated as hedging instruments | $ | 140 | $ | 38 | ||||||||
Derivative financial instruments not designated as hedging instruments: | ||||||||||||
Foreign currency forward contracts | — | $ | — | Accrued expenses and other liabilities | $ | 598 | ||||||
Interest rate swap — current portion | — | — | Accrued expenses and other liabilities | 20,988 | ||||||||
Interest rate swap — long-term portion | — | — | Other liabilities | 8,824 | ||||||||
Total derivative financial instruments not designated as hedging instruments | $ | — | $ | 30,410 | ||||||||
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Classification of Gains | ||||||||||||||||||||||||||||
(Losses) Reclassified | ||||||||||||||||||||||||||||
Gains Recognized in | from Other | |||||||||||||||||||||||||||
Accumulated Other | Comprehensive Loss | Gains (Losses) Reclassified from Other Comprehensive | ||||||||||||||||||||||||||
Comprehensive Loss | into the Condensed | Loss into the Condensed Statements of Operations | ||||||||||||||||||||||||||
July 31, | January 31, | Statements of | Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||||||||
(in thousands) | 2010 | 2010 | Operations | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||
Foreign currency forward contracts | $ | 101 | $ | 106 | Operating Expenses | $ | (203 | ) | $ | 1,113 | $ | (52 | ) | $ | 1,173 | |||||||||||||
Classification in | ||||||||||||||||||||
Condensed Statements | Three Months Ended July 31, | Six Months Ended July 31, | ||||||||||||||||||
(in thousands) | of Operations | 2010 | 2009 | 2010 | 2009 | |||||||||||||||
Interest rate swap agreement | Other income (expense), net | $ | (1,501 | ) | $ | (2,886 | ) | $ | (3,102 | ) | $ | (6,571 | ) | |||||||
Foreign currency forward contracts | Other income (expense), net | (143 | ) | (610 | ) | (245 | ) | (464 | ) | |||||||||||
Total | $ | (1,644 | ) | $ | (3,496 | ) | $ | (3,347 | ) | $ | (7,035 | ) | ||||||||
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12.Stock-Based Compensation |
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Cost of revenue — product | $ | 235 | $ | 329 | $ | 866 | $ | 447 | ||||||||
Cost of revenue — service and support | 1,000 | 1,228 | 2,778 | 2,027 | ||||||||||||
Research and development, net | 817 | 2,129 | 4,302 | 3,204 | ||||||||||||
Selling, general, and administrative | 5,983 | 9,454 | 18,059 | 14,020 | ||||||||||||
Total stock-based compensation expense | $ | 8,035 | $ | 13,140 | $ | 26,005 | $ | 19,698 | ||||||||
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Equity-classified awards | $ | 8,090 | $ | 9,275 | $ | 15,636 | $ | 15,532 | ||||||||
Liability-classified awards | (55 | ) | 3,865 | 10,369 | 4,166 | |||||||||||
Total stock-based compensation expense | $ | 8,035 | $ | 13,140 | $ | 26,005 | $ | 19,698 | ||||||||
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Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenue: | ||||||||||||||||
Workforce Optimization | $ | 94,795 | $ | 88,289 | $ | 191,675 | $ | 173,603 | ||||||||
Video Intelligence | 37,060 | 40,885 | 68,605 | 82,563 | ||||||||||||
Communications Intelligence | 48,821 | 40,095 | 93,009 | 88,251 | ||||||||||||
Total revenue | $ | 180,676 | $ | 169,269 | $ | 353,289 | $ | 344,417 | ||||||||
Segment contribution: | ||||||||||||||||
Workforce Optimization | $ | 41,770 | $ | 41,702 | $ | 87,744 | $ | 81,966 | ||||||||
Video Intelligence | 13,114 | 18,323 | 22,380 | 38,157 | ||||||||||||
Communications Intelligence | 19,304 | 10,444 | 34,546 | 31,233 | ||||||||||||
Total segment contribution | 74,188 | 70,469 | 144,670 | 151,356 | ||||||||||||
Unallocated expenses, net: | ||||||||||||||||
Amortization of other acquired intangible assets | 7,558 | 7,563 | 15,130 | 15,592 | ||||||||||||
Stock-based compensation | 8,035 | 13,140 | 26,005 | 19,698 | ||||||||||||
Restructuring | — | 11 | — | 24 | ||||||||||||
Other unallocated expenses | 34,796 | 36,046 | 83,718 | 66,324 | ||||||||||||
50,389 | 56,760 | 124,853 | 101,638 | |||||||||||||
Operating income | 23,799 | 13,709 | 19,817 | 49,718 | ||||||||||||
Other expense, net | (8,267 | ) | (9,377 | ) | (17,830 | ) | (20,546 | ) | ||||||||
Income before provision for income taxes | $ | 15,532 | $ | 4,332 | $ | 1,987 | $ | 29,172 | ||||||||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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• | revenue recognition; |
• | accounting for business combinations; |
• | impairment of goodwill and other intangible assets; |
• | accounting for income taxes; |
• | contingencies; | ||
• | accounting for stock-based compensation; and |
• | allowance for doubtful accounts. |
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Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands, except per share data) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Revenue | $ | 180,676 | $ | 169,269 | $ | 353,289 | $ | 344,417 | ||||||||
Operating income | $ | 23,799 | $ | 13,709 | $ | 19,817 | $ | 49,718 | ||||||||
Net income (loss) attributable to Verint Systems Inc. common shares | $ | 7,921 | $ | (1,808 | ) | $ | (11,690 | ) | $ | 14,564 | ||||||
Net income (loss) per share attributable to Verint Systems Inc.: | ||||||||||||||||
Basic | $ | 0.24 | $ | (0.06 | ) | $ | (0.35 | ) | $ | 0.45 | ||||||
Diluted | $ | 0.23 | $ | (0.06 | ) | $ | (0.35 | ) | $ | 0.45 | ||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Workforce Optimization | $ | 94,795 | $ | 88,289 | 7 | % | $ | 191,675 | $ | 173,603 | 10 | % | ||||||||||||
Video Intelligence | 37,060 | 40,885 | (9 | %) | 68,605 | 82,563 | (17 | %) | ||||||||||||||||
Communications Intelligence | 48,821 | 40,095 | 22 | % | 93,009 | 88,251 | 5 | % | ||||||||||||||||
Total revenue | $ | 180,676 | $ | 169,269 | 7 | % | $ | 353,289 | $ | 344,417 | 3 | % | ||||||||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Product revenue | $ | 93,103 | $ | 88,107 | 6 | % | $ | 185,173 | $ | 185,178 | (0 | %) | ||||||||||||
Service and support revenue | 87,573 | 81,162 | 8 | % | 168,116 | 159,239 | 6 | % | ||||||||||||||||
Total revenue | $ | 180,676 | $ | 169,269 | 7 | % | $ | 353,289 | $ | 344,417 | 3 | % | ||||||||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Product cost of revenue | $ | 31,909 | $ | 30,900 | 3 | % | $ | 60,255 | $ | 62,957 | (4 | %) | ||||||||||||
Service and support cost of revenue | 26,217 | 26,190 | 0 | % | 53,445 | 49,103 | 9 | % | ||||||||||||||||
Amortization of acquired technology and backlog | 2,220 | 1,977 | 12 | % | 4,453 | 4,076 | 9 | % | ||||||||||||||||
Total cost of revenue | $ | 60,346 | $ | 59,067 | 2 | % | $ | 118,153 | $ | 116,136 | 2 | % | ||||||||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Research and development, net | $ | 22,049 | $ | 20,638 | 7 | % | $ | 48,481 | $ | 39,539 | 23 | % | ||||||||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Selling, general and administrative | $ | 69,144 | $ | 70,258 | (2 | %) | $ | 156,161 | $ | 127,484 | 22 | % | ||||||||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Amortization of other acquired intangible assets | $ | 5,338 | $ | 5,586 | (4 | %) | $ | 10,677 | $ | 11,516 | (7 | %) | ||||||||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Interest income | $ | 117 | $ | 98 | 19 | % | $ | 200 | $ | 245 | (18 | %) | ||||||||||||
Interest expense | (5,936 | ) | (6,369 | ) | (7 | %) | (11,884 | ) | (12,722 | ) | (7 | %) | ||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Foreign currency gains (losses), net | (935 | ) | 599 | (256 | %) | (2,669 | ) | (339 | ) | 687 | % | |||||||||||||
Gains (losses) on derivatives, net | (1,643 | ) | (3,496 | ) | (53 | %) | (3,346 | ) | (7,035 | ) | (52 | %) | ||||||||||||
Other, net | 130 | (209 | ) | (162 | %) | (131 | ) | (695 | ) | (81 | %) | |||||||||||||
Total other income (expense) | (2,448 | ) | (3,106 | ) | (21 | %) | (6,146 | ) | (8,069 | ) | (24 | %) | ||||||||||||
Total other expense, net | $ | (8,267 | ) | $ | (9,377 | ) | (12 | %) | $ | (17,830 | ) | $ | (20,546 | ) | (13 | %) | ||||||||
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Three Months Ended July 31, | % Change | Six Months Ended July 31, | % Change | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | 2010 - 2009 | 2010 | 2009 | 2010 - 2009 | ||||||||||||||||||
Provision for income taxes | $ | 3,141 | $ | 2,850 | 10 | % | $ | 5,212 | $ | 7,118 | (27 | %) | ||||||||||||
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Six Months Ended July 31, | ||||||||
(in thousands) | 2010 | 2009 | ||||||
Net cash provided by operating activities | $ | 5,512 | $ | 52,180 | ||||
Net cash used in investing activities | (41,417 | ) | (11,411 | ) | ||||
Net cash used in financing activities | (18,863 | ) | (8,332 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (1,368 | ) | 5,349 | |||||
Net increase (decrease) in cash and cash equivalents | $ | (56,136 | ) | $ | 37,786 | |||
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. | Controls and Procedures |
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• | hired additional resources at our subsidiary locations with primary responsibility for revenue recognition; | ||
• | implemented additional levels of review over various aspects of the revenue recognition process to ensure proper accounting treatment; and | ||
• | conducted detailed training on the complexities of current GAAP related to software revenue recognition. |
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Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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• | make changes to our finance organization; |
• | enhance our accounting and reporting processes and procedures; |
• | enhance our revenue recognition and other existing accounting policies and procedures; |
• | introduce new or enhanced accounting systems and processes; and |
• | improve our internal controls over financial reporting. |
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• | limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions, or other general corporate purposes; |
• | require us to dedicate a substantial portion of our cash flow from operations to debt service, reducing the availability of our cash flow for other purposes; |
• | require us to repatriate cash for debt service from our foreign subsidiaries resulting in dividend tax costs or require us to adopt other disadvantageous tax structures to accommodate debt service payments; or | ||
• | increase our vulnerability to economic downturns, limit our ability to capitalize on significant business opportunities, and restrict our flexibility to react to changes in market or industry conditions. |
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Sales or potential sales of our common stock by us or our significant stockholders may cause the market price of our common stock to decline.
We are not restricted from issuing additional shares of common stock, including shares issuable pursuant to securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. As of August 30, 2010, we had 34.7 million shares of common stock outstanding. In addition, as of that date, approximately 6.6 million shares of our common stock were issuable pursuant to outstanding stock options and awards which had not yet vested or which had been previously acquired upon vesting but had not yet been delivered. Additional shares of common stock are also available to be granted under our existing equity plans or may be granted under future equity plans.
In addition, under two registration rights agreements that we entered into with Comverse, Comverse has registration rights with respect to its common stock and preferred stock holdings in Verint. As of August 15, 2010, if it were convertible, the preferred stock could have been converted into approximately 10.2 million shares of our common stock.
Also, for the first time since the beginning of our extended filing delay in March 2006, our directors and certain members of management will now have the ability to sell shares of our common stock in the public markets or in other registered offerings (subject to our securities trading policy and applicable securities law). As a result, we expect that these individuals, including each of our named executive officers, may sell, possibly in the near term, for personal financial planning and asset diversification purposes, shares of our common stock through block trades in negotiated transactions or by any other lawful methods permitted by applicable registration statements. As of September 13, 2010, the first date that these individuals may sell pursuant to our securities trading policy, our named executive officers and directors, who hold a substantial majority of these shares, will beneficially own approximately 1.5 million shares of our common stock.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) | (d) | |||||||||||||||
Total number of | Maximum number (or | |||||||||||||||
(a) | shares (or units) | approximate dollar value) of | ||||||||||||||
Total number of | (b) | purchased as part of | shares (or units) that may yet | |||||||||||||
shares (or units) | Average price paid | publicly announced | be purchased under the plans | |||||||||||||
Period | purchased | per share (or unit) | plans or programs | or programs | ||||||||||||
May 2010 | 8,000 | $ | 26.50 | 8,000 | (1) | N/A | (1) | |||||||||
July 2010 | 26,110 | $ | 23.80 | 26,110 | (1) | N/A | (1) |
(1) | Our board of directors approved a program to repurchase shares of our common stock from our independent directors upon vesting of restricted stock grants during our extended filing delay period, in order to provide funds to the recipient for the payment of associated income taxes. This director repurchase program ended on May 16, 2010. Our board of directors has also approved a repurchase program for our executive officers similar to the one for our directors in respect of vestings of restricted stock units occurring during a blackout period which give rise to a tax event. On June 4, 2010, the officer repurchase program was extended through the date of our next meeting of stockholders at which a new equity incentive plan is approved. |
Item 3. | Defaults upon Senior Securities |
Item 4. | Removed and Reserved |
Item 5. | Other Information |
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Item 6. | Exhibits |
Filed Herewith / Incorporated by | ||||||
Number | Description | Reference from | ||||
10.01 | Letter Agreement, dated July 16, 2010, between Comverse Technology, Inc. and Verint Systems Inc. | Form 8-K filed on July 19, 2010 | ||||
10.02 | Amendment No. 3 to Credit Agreement, dated July 27, 2010, among Verint Systems Inc., the lenders from time to time party thereto, and the administrative agent party thereto, to the Credit Agreement, dated as of May 25, 2007, among Verint Systems Inc., the lenders from time to time party thereto, and the administrative agent party thereto. | Form 8-K filed on August 2, 2010 | ||||
10.03 | Incremental Amendment and Joinder Agreement, dated July 30, 2010, among Verint Systems Inc., the additional lenders party thereto, and the administrative agent. | Form 8-K filed on August 2, 2010 | ||||
31.1 | Certification of Dan Bodner, Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed Herewith | ||||
31.2 | Certification of Douglas E. Robinson, Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Filed Herewith | ||||
32.1 | Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350(1) | Filed Herewith | ||||
32.2 | Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350(1) | Filed Herewith |
(1) | These exhibits are being “furnished” with this periodic report and are not deemed “filed” with the Securities and Exchange Commission and are not incorporated by reference in any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
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VERINT SYSTEMS INC. | ||||
September 8, 2010 | /s/ Dan Bodner | |||
Dan Bodner | ||||
President and Chief Executive Officer | ||||
September 8, 2010 | /s/ Douglas E. Robinson | |||
Douglas E. Robinson | ||||
Chief Financial Officer (Principal Financial Officer and Accounting Officer) |
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