Organization, Business and Summary of Significant Accounting Policies | 9 Months Ended |
Oct. 31, 2013 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
Organization, Business and Summary of Significant Accounting Policies | ' |
ANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Company Background |
Prior to October 31, 2012, the date of the Share Distribution (as defined below), Comverse, Inc. (the “Company”) was a wholly-owned subsidiary of Comverse Technology, Inc. (“CTI”). The Company was organized as a Delaware corporation in November 1997. |
The Company is a leading provider of telecom business enablement solutions for communication service providers (“CSPs”) through a portfolio of product-based solutions and associated services in the following domains: |
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• | Business Support Systems. The Company provides converged, prepaid and postpaid billing and active customer management systems (“BSS”) for wireless, wireline and cable CSPs, delivering a value proposition designed to enable an effective service monetization, a consistent customer experience, reduced complexity and cost, and real-time choice and control. |
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• | Digital and Value Added Services. The Company enables both network-based Value Added Services (“VAS”) comprised of Voice and Messaging that include voicemail, visual voicemail, call completion, short messaging service ("SMS"), multimedia picture and video messaging ("MMS"), and digital Internet Protocol ("IP") based rich communication services. |
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• | Data Management and Monetization Solutions. The Company provides CSPs with the ability to better manage their data networks and better monetize their data network investment through its solutions' Policy Management and Policy Enforcement capabilities for wireless and wireline data networks. |
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• | Professional and Managed Services. The Company offers a portfolio of services related to its solutions following the completion of the delivery of the project to the customer ("post-go-live"), such as system care, expert services and managed services. |
The Share Distribution |
On October 31, 2012, CTI completed its spin-off of the Company as an independent, publicly-traded company, accomplished by means of a pro rata distribution of 100% of the Company's outstanding common shares to CTI's shareholders (the “Share Distribution”). Following the Share Distribution, CTI no longer holds any of the Company's outstanding capital stock, and the Company is an independent publicly-traded company. |
Immediately prior to the Share Distribution, CTI contributed to the Company Exalink Ltd. (“Exalink”), CTI's wholly-owned subsidiary. Other than holding certain intellectual property rights, Exalink has no operations. Following the Share Distribution, the Company and CTI operate independently, and neither had any ownership interest in the other. In order to govern certain ongoing relationships between CTI and the Company after the Share Distribution and to provide mechanisms for an orderly transition, CTI and the Company entered into agreements pursuant to which certain services and rights are provided for following the Share Distribution, and CTI and the Company have agreed to indemnify each other against certain liabilities arising from their respective businesses and the services that are provided under such agreements. Following the completion of CTI's merger with Verint Systems Inc. ("Verint") discussed below, these obligations continue to apply between the Company and Verint (see Note 3, Expense Allocations and Share Distribution Agreements). |
Upon completion of the Share Distribution, the Company's shares were listed, and began trading, on NASDAQ under the symbol “CNSI.” In connection with the Share Distribution, the Company (1) recapitalized its Net Investment of CTI with its common stock, whereby each holder of CTI common shares outstanding as of the record date for the Share Distribution received one share of the Company's common stock for every ten CTI common shares held thereby, which resulted in the issuance of approximately 21.9 million shares of the Company's common stock, (2) received contributions from CTI of $38.5 million in cash and $1.4 million of property and equipment based on CTI's book value, (3) recorded transfers of lease deposits of $0.8 million and deferred lease cost of $1.0 million from CTI, (4) assumed $0.7 million of employee related liabilities transferred to the Company from CTI, and (5) settled borrowings under a revolving loan agreement of $9.0 million and note payable by the Company to CTI of $9.4 million through a capital contribution to the Company's equity by CTI. In addition on November 1, 2012 in connection with the Share Distribution, CTI's equity-based compensation awards held by the Company's employees were replaced with the Company's equity-based compensation awards (see Note 13, Stock-Based Compensation). |
Merger of CTI and Verint |
On August 12, 2012, CTI entered into an agreement and plan of merger (the “Verint Merger Agreement”) with Verint, its then majority-owned publicly-traded subsidiary, providing for the merger of CTI with and into a subsidiary of Verint to become a wholly-owned subsidiary of Verint (the “Verint Merger”). The Verint Merger was completed on February 4, 2013. The Company agreed to indemnify CTI and its affiliates (including Verint after the Verint Merger) against certain losses that may arise as a result of the Verint Merger and the Share Distribution (see Note 3, Expense Allocations and Share Distribution Agreements). On February 4, 2013, in connection with the closing of the Verint Merger Agreement, CTI placed $25.0 million in escrow to support indemnification claims to the extent made against the Company by Verint and any cash balance remaining in such escrow fund 18 months after the closing of the Verint Merger, less any claims made on or prior to such date, will be released to the Company. The Company recognized the estimated fair value of the potential indemnification liability of $4.0 million with the remaining $21.0 million as an additional contribution from CTI. As of October 31, 2013, the estimated fair value of the potential indemnification liability is $4.0 million. |
Contribution and Sale of Starhome |
Starhome was a CTI Subsidiary (66.5% owned as of January 31, 2012). On August 1, 2012, CTI, certain other Starhome shareholders and Starhome entered into a Share Purchase Agreement (the “Starhome Share Purchase Agreement”) with Fortissimo Capital Fund II (Israel), L.P., Fortissimo Capital Fund III (Israel), L.P. and Fortissimo Capital Fund III (Cayman), L.P. (collectively, “Fortissimo”) pursuant to which Fortissimo agreed to purchase all of the outstanding share capital of Starhome (the “Starhome Disposition”). On September 19, 2012, CTI, in order to ensure it could meet the conditions of the Verint Merger, contributed to the Company its interest in Starhome, including its rights and obligations under the Starhome Share Purchase Agreement. The Starhome Disposition was completed on October 19, 2012. |
As a result of the Starhome Disposition, the results of operations of Starhome are included in discontinued operations, less applicable income taxes, as a separate component of net income (loss) in the Company’s condensed combined statements of operations for the three and nine months ended October 31, 2012 (see Note 14, Discontinued Operations). |
Basis of Presentation |
The condensed consolidated and combined financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and on the same basis as the audited consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2013 (the “2012 Form 10-K”). |
The condensed consolidated and combined statements of operations, comprehensive income (loss) and cash flows for the periods ended October 31, 2013 and 2012, and the condensed consolidated balance sheet as of October 31, 2013 are not audited but in the opinion of management reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair presentation of the results of the periods presented. Certain information and disclosures normally included in audited financial statements have been omitted in these condensed consolidated and combined financial statements pursuant to the rules and regulations of the SEC. Because the condensed consolidated and combined financial statements do not include all of the information and disclosures required by U.S. GAAP for annual financial statements, they should be read in conjunction with the audited consolidated and combined financial statements and notes included in the 2012 Form 10-K. The results for the three and nine months ended October 31, 2013 are not necessarily indicative of a full fiscal year’s results. |
The Company’s combined financial statements for the periods prior to the Share Distribution have been derived from the condensed consolidated financial statements and accounting records of CTI, using the historical results of operations, and historical basis of assets and liabilities of the Company’s businesses, which operated under common control of CTI. The Company’s condensed combined financial statements combine, on the basis of common control, the results of operations and financial position of the Company and its subsidiaries with Starhome (66.5% owned by CTI as of January 31, 2012) and Exalink prior to CTI contributing Starhome and Exalink to the Company on September 19, 2012 and October 31, 2012, respectively. Management believes the assumptions and methodologies underlying the allocation of general corporate expenses from CTI are reasonable (see Note 3, Expense Allocations and Share Distribution Agreements). However, such expenses may not be indicative of the actual level of expense that would have been incurred by the Company if it had operated as an independent, publicly-traded company or of the costs expected to be incurred in the future. As such, the condensed combined financial statements for the periods prior to the Share Distribution included herein may not necessarily reflect the Company’s results of operations, comprehensive income (loss), financial position or cash flows in the future or what its results of operations, comprehensive income (loss), financial position or cash flows would have been had the Company been an independent company during the prior periods presented. Subsequent to the Share Distribution, the financial statements are consolidated. |
Prior to the Share Distribution, transactions between the Company and CTI and CTI’s other subsidiaries were identified in the condensed combined financial statements as transactions between related parties (see Note 3, Expense Allocations and Share Distribution Agreements). |
For the purposes of the condensed combined statements of cash flows, prior to the Share Distribution, the Company reflected changes in unpaid balances with CTI as a financing activity. |
Intercompany accounts and transactions within the Company have been eliminated. |
On April 30, 2013, the Company received a VAT refund approximating $10.9 million, which was recognized as a reduction of service costs in the condensed consolidated statement of operations for the nine months ended October 31, 2013 (see Note 20, Commitments and Contingencies). |
Use of Estimates |
The preparation of the condensed consolidated and combined financial statements and the accompanying notes in conformity with U.S. GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. |
The most significant estimates include: |
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• | Estimates relating to the recognition of revenue, including the determination of vendor specific objective evidence (“VSOE”) of fair value and the determination of best estimate of selling price for multiple element arrangements; |
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• | Allocation of expenses by CTI to the Company; |
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• | Fair value of stock-based compensation; |
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• | Fair value of reporting units for the purpose of goodwill impairment testing; |
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• | Valuation of other intangible assets; |
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• | Allowance for doubtful accounts; |
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• | Realization of deferred tax assets; |
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• | The identification and measurement of uncertain tax positions; |
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• | Contingencies and litigation; |
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• | Total estimates to complete on percentage-of-completion ("POC") projects; |
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• | Valuation of inventory; |
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• | Valuation of investments and financial instruments; and |
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• | Probability assessment of performance based stock units vesting. |
The Company’s actual results may differ from its estimates. |