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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, 2004


                         Commission File Number 0-15502


                            COMVERSE TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)

                       NEW YORK                       13-3238402
           (State or other jurisdiction of         (I.R.S. Employer
            incorporation or organization)         Identification No.)

                            170 CROSSWAYS PARK DRIVE
                            WOODBURY, NEW YORK 11797
                    (Address of principal executive offices)

        Registrant's telephone number, including area code: 516-677-7200


           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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<PAGE>
         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, 2003, was approximately $2,783,399,000.

         There were 195,518,341 shares of the registrant's common stock
outstanding on April 7, 2004.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on June 15, 2004, are incorporated by reference in Part
III.


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


Comverse, Comverse Technology and Comverse's logos, including Total
Communications and InSight, are trademarks of the Company. Verint(R), Actionable
Intelligence(R), LORONIX(R) are registered trademarks, and Powering Actionable
Intelligence, Intelligent Recording, OpenStorage Portal, RELIANT, STAR-GATE,
ULTRA, SmartSight 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: the successful implementation of Comverse Technology, Inc.'s business
strategy; 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; risks associated
with changes in the competitive or regulatory environment in which the company
operates; 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.


                                     PART I

ITEM 1.    BUSINESS.


THE COMPANY

           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.

           Through its subsidiary Comverse, Inc. ("Comverse"), the Company
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


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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.

           More than 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), Deutsche Telekom (Germany and other
European countries), KDDI (Japan), MCI WorldCom (USA), O2 (Germany and UK), NTT
(Japan), Orange (several countries), SBC Communications (USA), SFR (France),
Sprint (USA), Telecom Italia (Italy), Telmex (Mexico), Telstra (Australia),
Verizon (USA), and Vodafone (multiple countries).

               Through its subsidiary, Verint Systems Inc. ("Verint"), the
Company provides analytic software-based solutions for communications
interception, networked video, and contact centers. 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 communication interception by law enforcement and other
government agencies and networked video security utilized by government agencies
and public and private organizations for use in airports, public buildings,
correctional facilities 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 enterprise business intelligence utilizes digital video
information to allow enterprises and institutions to enhance their operations,
processes and performance. Verint sells its business 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 including ADT, Avaya, British
Telecom, Nortel and Siemens. Verint also has technological alliances with
leading software and hardware companies including Genesys, Indentix, and Siebel,
which enables Verint to offer complementary solutions to their products.
Verint's products are used by over 1000 organizations in over 50 countries
worldwide. Customers for Verint's Communications Interception Solutions include,
among others, the U.S. Department of Justice, the Toronto Police Service, the
Dutch National Police Agency, and other domestic and foreign law enforcement and
intelligence agencies, as well as communication service and equipment providers,
such as Cingular, Ericsson and Nortel. Customers for Verint's Networked Video
Solutions include the U.S. Department of Defense, the U.S. Capitol, Washington
Dulles International Airport, Home Depot, Target and Tiffany & Co. Customers for
Verint's Contact Center Actionable Intelligence Solutions include, among others,
the Internal Revenue Service, HSBC, JCPenney, SBC, CIBC and Sprint. Verint had
an initial public offering of its common stock in May, 2002, and its common
stock is listed on the NASDAQ National Market System under the symbol "VRNT."
CTI held approximately 61.8% of Verint's outstanding common stock as of January
31, 2004.


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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 had an initial public
offering of its common stock in April, 2000, and its common stock is listed on
the NASDAQ National Market System under the symbol "ULCM." CTI held
approximately 70.2% of Ulticom's outstanding common stock as of January 31,
2004.

           The Company markets other telecommunications 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 170 Crossways Park Drive, Woodbury, New
York 11797, where its telephone number is (516) 677-7200.

           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.

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 from our Network Systems Division
("CNS"), along with the Company's real-time billing solutions, comprise the
Company'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


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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, 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, which the Company recently launched, is
a part of Comverse's Total Communication portfolio, providing a single, open,
modular architecture on which a wide variety of multimodal advanced messaging
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
communication interception, digital video security and surveillance, and
enterprise business intelligence. 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.

           The security and business intelligence market consists primarily of
communication interception by law enforcement and other government agencies and
digital video security utilized by government agencies and public and private
organizations for use in airports, public buildings, correctional facilities and
corporate sites.

           Verint's STAR-GATE product line enables communication carriers,
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 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 general packet radio services.

           Verint's RELIANT product line provides intelligent recording and
analysis solutions for communication interception activities to law enforcement
organizations and other government agencies. The RELIANT software equips law
enforcement agencies with an end-to-end solution for live monitoring of
intercepted target communications and evidence collection management, regardless
of the type of communication or network used. Applications can scale from a
small center for a local police force, to a country-wide center for national law
enforcement agencies. RELIANT products are designed to comply with legal
regulations and can be integrated with communication networks in the country
where the system is utilized. RELIANT collects intercepted communications from
multiple channels and stores them for immediate access, further analysis and
later use as evidence.

           Verint's LORONIX digital video security product line provides
intelligent recording and analysis of video for security and surveillance
applications to government agencies and public organizations. The LORONIX
software digitizes, compresses, stores and retrieves video imaging. In addition,
LORONIX products provide live video streaming and camera control over local and
wide area computer networks and the Internet. The LORONIX product line may be
configured to allow customers to perform complete monitoring for security and
management of local and remote sites from a central investigative unit. The use
of digital storage and compression technology makes the LORONIX product line a
more efficient alternative to traditional analog tape storage. The technology
interfaces with access control, motion detection and analysis, facial
recognition, activity and intrusion detection and other technologies for
enhanced security and surveillance.

           The enterprise business intelligence market consists primarily of
solutions targeting enterprises that rely on contact centers for voice, email
and Internet interactions with their customers.


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           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. ULTRA products
capture customer interactions from multiple sources, including telephone, email,
Internet or VoIP. Utilizing ULTRA's OpenStorage Portal and Universal Database,
customers can leverage their existing storage infrastructure to store and access
recorded customer interactions using standard file formats. ULTRA products
integrate with leading customer relationship management ("CRM") applications
allowing the delivery of information directly to the user's desktop within
Siebel, PeopleSoft and other CRM solutions. ULTRA also interfaces with popular
desktop software tools, including Microsoft Outlook, Lotus Notes and web
browsers, to enable the user to easily access the data in a familiar computing
environment.

           Verint's LORONIX video business intelligence products enable
enterprise customers to monitor and improve their operations through the
analysis of live and recorded digital video. Like the LORONIX digital video
security product, the LORONIX video business intelligence product digitizes,
compresses, stores and retrieves video imaging. While leveraging the technology
of the LORONIX digital security product, the LORONIX enterprise product line
also contains unique software focused on maximizing operational effectiveness
through video analysis. By interfacing with customer databases and software
systems, LORONIX facilitates the user's review of video imaging based on
specific criteria such as employee ID, product barcodes, traffic patterns and
point of sale transaction history.

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.

           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.


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<PAGE>
           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, LogicaCMG 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.

            More than 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), Deutsche Telekom (Germany and other
European countries), KDDI (Japan), MCI WorldCom (USA), O2 (Germany and UK), NTT
(Japan), Orange (several countries), SBC Communications (USA), SFR (France),
Sprint (USA), Telecom Italia (Italy), Telmex (Mexico), Telstra (Australia),
Verizon (USA), and Vodafone (multiple countries).

           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 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 currently has such relationships with ADT, Avaya, British Telecom,
Nortel and Siemens, among others. In addition, Verint established technological
alliances with leading software and hardware companies including Genesys,
Identix and Siebel, which enables Verint to offer complementary solutions to
their products.

           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.


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           Customers for digital security and surveillance products include the
Mall of America, the U.S. Capitol, the U.S. Department of Defense, the U.S.
Department of Justice, Vancouver International Airport, Washington Dulles
International Airport, the Toronto Police Service, the Dutch National Police
Agency, and other domestic and foreign law enforcement and intelligence
agencies, as well as communication service and equipment providers, such as
Cingular, Ericsson and Nortel. Customers for enterprise business intelligence
products include, among others, Con Edison, FedEx, HSBC, JCPenney, Sprint,
Target and Tiffany & Co.

           Ulticom's products are used by approximately 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,
LogicaCMG, 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 1,900 scientists, engineers and technicians in its research
and development efforts, located predominantly in the United States and Israel
with additional offices in France, Germany 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
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, or to transfer outside of Israel related technology rights, and
in order to obtain such permission the Company may be required to increase the
royalties to the applicable funding agencies and/or repay certain amounts
received as reimbursement of research and development costs. 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.


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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.

           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.

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,
2002, 2003 and 2004, and see "Certain Trends and Uncertainties" in Item 7 for a
description of risks attendant to the Company's foreign operations.


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BACKLOG

           At January 31, 2004, the backlog of the Company amounted to
approximately $400 million compared to approximately $294 million as of January
31, 2003. 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, 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.

           Indirect competition is provided by 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
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.


                                       10
<PAGE>
           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, ETI, General Electric, JSI Telecom, NICE Systems, Pelco,
Raytheon, Sensormatic, 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 network infrastructure equipment, 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.


                                       11
<PAGE>
           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, and the
continued state of hostility, varying in degree and intensity, has led to
security and economic problems for Israel. Since October 2000, there has been a
significant increase in violence, primarily in the West Bank and Gaza Strip, and
Israel has experienced terrorist incidents within its borders. During this
period, peace negotiations between Israel and representatives of the Palestinian
Authority have been sporadic and currently are suspended. 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 are required to perform annual compulsory military reserve
duty 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.


                                       12
<PAGE>
           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.

           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, the Company has agreed that products resulting from these
projects may not be manufactured, nor may the technology developed in the
projects be transferred, outside of Israel without government consent.

           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, 2004, the Company employed approximately 4,663
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.


                                       13
<PAGE>
           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
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, 2004, the Company leased an aggregate of
approximately 2,175,000 square feet of office space and manufacturing and
related facilities for its operations worldwide, including approximately
1,298,000 square feet in Tel Aviv, Israel, approximately 367,000 square feet in
Wakefield, Massachusetts, approximately 44,000 square feet in Long Island, New
York, approximately 85,000 square feet in Mt. Laurel, New Jersey, an aggregate
of approximately 139,000 square feet at various other locations in the United
States and an aggregate of approximately 242,000 square feet at various
locations in Europe, Asia-Pacific, South America, Africa and Canada.
Approximately 139,000 square feet of this space is sub-leased to others. The
aggregate base monthly rent for the facilities under lease as of January 31,
2004, net of sub-lease income, was approximately $2,720,000, 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.

           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, and, on March 17, 2004,
BellSouth 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 alleges that Patent
Nos. 5,857,013 and 5,764,747 cover certain aspects of some of the Company's
systems, and it seeks, among other relief, monetary damages and injunctive
relief. The Company believes all claims are without merit and will vigorously
defend against these claims.


                                       14
<PAGE>
           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 other 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.

           At the Company's annual meeting of shareholders held on December 16,
2003, for which proxies were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, the following matters were voted
upon by shareholders:

           1. The election of seven directors to serve as the Board of Directors
of the Company until the next annual meeting of shareholders and the election of
their qualified successors.

           2. A proposal to amend the Company's 2002 Employee Stock Purchase
Plan to increase from 1,500,000 to 2,500,000 the total number of shares of the
Company's common stock, par value $.10 per share available for purchase by
participating employees.

           3. A proposal to adopt and approve the Company's 2004 Management
Incentive Plan.

           4. A proposal to ratify the engagement of Deloitte & Touche LLP as
independent auditors of the Company for the year ending January 31, 2004.

           The nominees for directors were elected based upon the following
votes:

Nominee                    Votes For          Votes Withheld
-------                    ---------          --------------

Kobi Alexander            153,676,447            7,586,634

Raz Alon                  158,382,279            2,880,802

Itsik Danziger            158,367,932            2,895,149

John H. Friedman          148,818,475           12,444,606

Ron Hiram                 148,817,975           12,445,106

Sam Oolie                 148,817,675           12,445,406

William F. Sorin          158,367,932            2,895,149


                                       15
<PAGE>
           The amendment of the Company's 2002 Employee Stock Purchase Plan was
approved as follows:

                     127,748,311       Votes for Approval

                       5,214,258       Votes Against

                         994,008       Abstentions

           The Company's 2004 Management Incentive Plan was approved as follows:

                     155,313,516       Votes for Approval

                       4,934,413       Votes Against

                       1,015,152       Abstentions

           The ratification of the engagement of Deloitte & Touche LLP as
independent auditors of the Company for the year ending January 31, 2004 was
approved as follows:

                     157,803,791       Votes for Approval

                       2,534,177       Votes Against

                         925,113       Abstentions



                                       16
<PAGE>
                                     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

               2002       2/1/02    -     4/30/02        $11.68     $20.74
                          5/1/02    -     7/31/02        $ 7.60     $12.93
                          8/1/02    -    10/31/02        $ 6.82     $ 9.26
                         11/1/02    -     1/31/03        $ 7.87     $12.33

               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


           There were 1,738 holders of record of Common Stock at April 7, 2004.
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 37,500.

           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."


                                       17
<PAGE>
ITEM 6.    SELECTED FINANCIAL DATA.

The following tables present selected consolidated financial data for the
Company for the years ended January 31, 2000, 2001, 2002, 2003 and 2004. 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 financial information presented herein
has been retroactively adjusted for the July 2000 acquisition of Loronix
Information Systems, Inc. ("Loronix") to account for the transaction as a
pooling of interests. All per share data has been restated to reflect a
three-for-two stock split effected as a 50% stock dividend to shareholders of
record on March 31, 1999, distributed on April 15, 1999, and 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.


<TABLE>
<CAPTION>
                                                                                   YEAR ENDED JANUARY 31,
                                                      ------------------------------------------------------------------------------
                                                          2000(1)            2001              2002          2003            2004
                                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>             <C>             <C>               <C>             <C>
Statement of Operations Data:

Sales                                                    $909,667       $1,225,058         $1,270,218        $735,889      $765,892

Acquisition expenses                                        2,016           15,971                  -               -             -

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

Income (loss) from operations                             172,250          234,624             64,844        (182,741)      (30,378)

Net income (loss)                                         173,147          249,136             54,619        (129,478)       (5,386)

Earnings (loss) per share - diluted                          1.08             1.39               0.29           (0.69)        (0.03)


                                                                                           JANUARY 31,
                                                      ------------------------------------------------------------------------------
                                                          2000(2)            2001              2002          2003            2004
                                                                                         (IN THOUSANDS)
Balance Sheet Data:

Working capital                                          $858,304       $1,860,379         $2,030,250      $1,766,507    $2,141,277

Total assets                                            1,372,847        2,625,264          2,704,163       2,403,659     2,728,042

Long-term debt, including current portion                 308,082          906,723            648,611         439,628       555,941

Stockholders' equity                                      724,839        1,236,165          1,616,408       1,549,692     1,672,546

</TABLE>

(1) Includes the results of Loronix for its fiscal year ended December 31.

(2) Includes amounts for Loronix as of its fiscal year ended December 31.



                                       18
<PAGE>
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, (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, salary and
related benefits 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 salary and related benefits as well as 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 salary and related benefits,
travel, depreciation and amortization, marketing and promotional materials,
recruiting expenses, professional fees, insurance costs, facility costs, as well
as other costs associated with sales, marketing, finance and administrative
departments.


                                       19
<PAGE>
         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, 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 or bankruptcy. Reserve requirements are based on the best facts
available and are re-evaluated and adjusted as additional information is
received.

           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.



                                       20
<PAGE>
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, 2004 were as
follows:

<TABLE>
<CAPTION>
                                                  January 31,                  January 31,                   January 31,
                                                     2002            %            2003               %          2004           %
                                                     ----           ---           ----              ---         ----          ---
                                                                            (In thousands)
<S>                                            <C>               <C>         <C>              <C>          <C>           <C>
Sales:
   Product revenues                                 $1,113,168      87.6%          $547,141       74.4%        $534,585       69.8%
   Service revenues                                    157,050      12.4%           188,748       25.6%         231,307       30.2%
                                                ---------------              ---------------             ---------------
                                                     1,270,218     100.0%           735,889      100.0%         765,892      100.0%

Cost of sales:
   Product costs                                       384,796      34.6%           184,413       33.7%         181,059       33.9%
   Service costs                                       140,684      89.6%           153,708       81.4%         146,501       63.3%
                                                ---------------              ---------------             ---------------
                                                       525,480      41.4%           338,121       45.9%         327,560       42.8%

Gross margin                                           744,738      58.6%           397,768       54.1%         438,332       57.2%

Operating expenses:
Research and development, net                          293,296      23.1%           232,593       31.6%         216,457       28.3%
Selling, general and administrative                    323,036      25.4%           281,202       38.2%         254,376       33.2%
Workforce reduction, restructuring
   and impairment charges (credits)                     63,562       5.0%            66,714        9.1%          (2,123)      -0.3%
                                                ---------------              ---------------             ---------------

Income (loss) from operations                           64,844       5.1%          (182,741)     -24.8%         (30,378)      -4.0%

Interest and other income (expense), net                (6,501)     -0.5%            58,902        8.0%          38,958        5.1%
                                                ---------------              ---------------             ---------------

Income (loss) before income tax provision,
minority interest and equity in the earnings
(losses) of affiliates                                  58,343       4.6%          (123,839)     -16.8%           8,580        1.1%

Income tax provision                                     4,436       0.3%             3,294        0.4%           8,206        1.1%

Minority interest and equity in the
   earnings (losses) of affiliates                         712       0.1%            (2,345)      -0.3%          (5,760)       -0.8%
                                                ---------------              ---------------             ---------------

Net income (loss)                                      $54,619       4.3%         $(129,478)     -17.6%         $(5,386)       -0.7%
                                                ===============              ===============             ===============
</TABLE>

           A detailed description of the Company's business segments as well as
additional financial data, can be found in Note 20 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 of the
three years in the period ended January 31, 2004:

<TABLE>
<CAPTION>
                                                  January 31,                  January 31,                  January 31,
                                                     2002            %            2003               %         2004             %
                                                     ----           ---           ----              ---        ----            ---
                                                                             (In thousands)
<S>                                             <C>               <C>         <C>               <C>        <C>              <C>
Sales
-----

   CNS                                              $1,080,694      85.1%          $542,984       73.8%        $529,597        69.1%
   Ulticom                                              58,156       4.6%            29,231        4.0%          38,378         5.0%
   Verint                                              131,235      10.3%           157,775       21.4%         192,744        25.2%
   All other                                             9,966       0.8%             9,602        1.3%           9,983         1.3%
   Reconciling items                                    (9,833)     -0.8%            (3,703)      -0.5%          (4,810)       -0.6%
                                                 --------------               --------------              --------------

Consolidated total                                  $1,270,218     100.0%          $735,889      100.0%        $765,892       100.0%
                                                 ==============               ==============              ==============

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

   CNS                                                 $66,105       6.1%         $(179,492)      -33.1%       $(40,913)       -7.7%
   Ulticom                                               8,523      14.7%            (8,362)      -28.6%          2,824         7.4%
   Verint                                               (2,533)     -1.9%            10,051         6.4%         17,189         8.9%
   All other                                              (984)     -9.9%              (615)       -6.4%         (1,152)      -11.5%
   Reconciling items                                    (6,267)     63.7%            (4,323)      116.7%         (8,326)      173.1%
                                                 --------------               --------------              --------------

Consolidated total                                     $64,844       5.1%         $(182,741)      -24.8%       $(30,378)       -4.0%
                                                 ==============               ==============              ==============
</TABLE>

                                       21
<PAGE>
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 some evidence of recent improvement. The
Company's CNS business unit experienced a slight decline in revenue of 2.5% year
over year, although it achieved sequential revenue growth in each quarter
throughout the year, and Ulticom experienced an increase in revenue of 31.3%
year over year. Verint, which services the security and business intelligence
markets, achieved record revenue and net income based, in part, on increased
sales due to heightened awareness surrounding homeland defense and security
related initiatives in the United States and abroad. Verint experienced an
increase in revenue of 22.2% year over year. Overall, for the year ended January
31, 2004, the Company experienced year over year revenue growth of 4.1%, with a
substantial majority of sales for the year generated from activities serving the
telecommunications industry. The Company incurred an operating and net loss for
the year.

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

           Sales. Sales for the fiscal year ended January 31, 2004 ("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.

           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.


                                       22
<PAGE>
           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


                                       23
<PAGE>
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.

YEAR ENDED JANUARY 31, 2003 COMPARED TO YEAR ENDED JANUARY 31, 2002

           Sales. Sales for fiscal 2002 decreased by approximately $534.3
million, or 42%, compared to the fiscal year ended January 31, 2002 ("fiscal
2001"). The decrease in sales is primarily attributable to a decrease in CNS
sales of approximately $537.7 million. Such decrease in CNS sales is
attributable to all geographic regions, with sales by region as a percentage of
total sales remaining fairly consistent between periods. In addition, security
and business intelligence recording sales increased by approximately $26.5
million and service enabling signaling software sales decreased by approximately
$28.9 million, respectively. On a consolidated basis, service revenues
represented approximately 26% and 12% of sales for fiscal 2002 and fiscal 2001,
respectively, and sales to international customers represented approximately 65%
and 70% of sales for fiscal 2002 and fiscal 2001, respectively.

           Cost of Sales. Cost of sales for fiscal 2002 decreased by
approximately $187.4 million, or 36%, compared to fiscal 2001. The decrease in
cost of sales is primarily attributable to decreased materials and overhead
costs of approximately $146.6 million, due primarily to the decrease in sales,
decreased royalty expense of approximately $20.5 million, decreased
personnel-related costs of approximately $8.0 million and decreased travel costs
of approximately $7.0 million, partially offset by a charge of approximately
$5.9 million pertaining to the write-down of the value of certain inventory and
the write-off of certain prepaid licenses for which there is no estimable future
use. Gross margins decreased from approximately 58.6% in fiscal 2001 to
approximately 54.1% in fiscal 2002.

           Research and Development, Net. Net research and development expenses
for fiscal 2002 decreased by approximately $60.7 million, or 21%, compared to
fiscal 2001, primarily due to workforce reduction and other cost reduction
efforts and a reduction of research and development projects.


                                       24
<PAGE>
           Selling, General and Administrative. Selling, general and
administrative expenses for fiscal 2002 decreased by approximately $41.8
million, or 13%, compared to fiscal 2001, and as a percentage of sales increased
from approximately 25.4% in fiscal 2001 to approximately 38.2% in fiscal 2002.
The decrease in the dollar amount of the expense was primarily due to workforce
reduction and other cost reduction efforts.

           Workforce Reduction, Restructuring and Impairment Charges. During
fiscal 2001 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 2001 and fiscal 2002, the Company incurred
charges to operations of approximately $63.6 million and $66.7 million,
respectively. The fiscal 2001 charge of approximately $63.6 million is comprised
of approximately $27.7 million for severance and other related costs,
approximately $24.4 million for the elimination of excess facilities and related
leasehold improvements, approximately $4.6 million for the write-off of certain
property and equipment and approximately $4.0 million and $2.9 million for the
write-off of certain inventory and capitalized software, respectively, that
became impaired as a result of the change in the Company's product offerings.
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.

           Income (Loss) from Operations. Income (loss) from operations for
fiscal 2002 decreased by approximately $247.6 million compared to fiscal 2001,
and as a percentage of sales was approximately (24.8)% in fiscal 2002 compared
to approximately 5.1% in fiscal 2001. These changes resulted primarily from the
factors described above.

           On a business segment basis, income (loss) from operations for CNS
for fiscal 2002 decreased by approximately $245.6 million compared to fiscal
2001, and as a percentage of sales was approximately (33.1)% in fiscal 2002
compared to approximately 6.1% in fiscal 2001, as a result of decreased sales of
approximately $537.7 million, partially offset by the decrease in other costs
and expenses of approximately $292.1 million, primarily the result of workforce
reduction and other cost reduction efforts and decreased sales. Income (loss)
from operations for Verint for fiscal 2002 increased by approximately $12.6
million compared to fiscal 2001, and as a percentage of sales increased to
approximately 6.4% in fiscal 2002 from approximately (1.9)% in fiscal 2001.
Income (loss) from operations for Ulticom for fiscal 2002 decreased by
approximately $16.9 million compared to fiscal 2001, and as a percentage of
sales was approximately (28.6)% in fiscal 2002 compared to approximately 14.7%
in fiscal 2001.

           Interest and Other Income (Expense), Net. Interest and other income
(expense), net for fiscal 2002 increased by approximately $65.4 million compared
to fiscal 2001. The principal reasons for the increase are (i) decreased
interest expense of approximately $6.8 million due to the redemption of the
Company's $300.0 million 4.5% convertible debentures in June 2001, as well as


                                       25
<PAGE>
the Company's repurchases of its Debentures during fiscal 2002; (ii) a gain of
approximately $39.4 million recorded as a result of the Company's repurchases of
its Debentures during fiscal 2002; (iii) change in foreign currency gains/losses
of approximately $48.5 million due primarily to the strengthening of the Euro
during fiscal 2002; and (iv) other changes of approximately $1.3 million, net.
Such items were offset by (i) decreased interest and dividend income of
approximately $26.0 million due primarily to the decline in interest rates
during fiscal 2002; and (ii) an increase in net losses from the sale and
write-down of investments of approximately $4.6 million.

           Income Tax Provision. Provision for income taxes decreased from
fiscal 2001 to fiscal 2002 by approximately $1.1 million, or 26%, due primarily
to the overall decrease in pre-tax income coupled with shifts in the underlying
mix 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 decreased by
approximately $3.1 million as a result of increased minority interest expense of
approximately $0.9 million, primarily attributable to overall increased earnings
at majority-owned subsidiaries, and a change in equity in the earnings (losses)
of affiliates of approximately $2.2 million.

           Net Income (Loss). Net income (loss) decreased by approximately
$184.1 million in fiscal 2002 compared to fiscal 2001, while as a percentage of
sales was approximately 4.3% in fiscal 2001 compared to approximately (17.6)% in
fiscal 2002. The decrease resulted primarily from the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

           The Company's working capital at January 31, 2004 and 2003 was
approximately $2,141.3 million and $1,766.5 million, respectively. At January
31, 2004 and 2003, the Company had total cash and cash equivalents, bank time
deposits and short-term investments of approximately $2,198.5 million and
$1,808.9 million, respectively.

           Operations for fiscal 2003, fiscal 2002 and fiscal 2001, after
adjustment for non-cash items, provided (used) cash of approximately $80.3
million, $(34.1) million and $130.6 million, respectively. During such years,
other changes in operating assets and liabilities provided cash of approximately
$48.3 million, $130.9 million and $11.6 million, respectively. This resulted in
net cash provided by operating activities of approximately $128.6 million, $96.8
million and $142.2 million during fiscal 2003, fiscal 2002 and fiscal 2001,
respectively.

           Investing activities for fiscal 2003, fiscal 2002 and fiscal 2001
provided (used) cash of approximately $(310.6) million, $35.9 million and
$(122.4) million, respectively. These amounts include (i) net maturities and
sales (purchases) of bank time deposits and investments of approximately
$(261.6) million, $114.5 million and $(44.8) million, respectively; (ii)
purchases of property and equipment of approximately $(35.3) million, $(34.1)
million and $(54.6) million, respectively; (iii) capitalization of software
development costs of approximately $(7.8) million, $(13.4) million and $(23.0)
million, respectively; and (iv) net assets acquired as a result of acquisitions
of approximately $(5.9) million and $(31.1) million in fiscal 2003 and fiscal
2002, respectively.


                                       26
<PAGE>
           Financing activities for fiscal 2003, fiscal 2002 and fiscal 2001
provided (used) cash of approximately $310.2 million, $(91.8) million and $67.0
million, respectively. These amounts include (i) net proceeds from the issuance
of the Company's Zero Yield Puttable Securities due 2023 ("ZYPS") of
approximately $412.8 million during fiscal 2003; (ii) the partial repurchase of
the Company's Debentures of approximately $(253.3) million and $(169.8) million
during fiscal 2003 and fiscal 2002, respectively; (iii) proceeds from the
issuance of common stock in connection with the exercise of stock options and
employee stock purchase plan of approximately $61.3 million, $12.4 million and
$28.8 million, respectively; (iv) net proceeds from the issuance of common stock
of subsidiaries in connection with public offerings and the exercise of stock
options and employee stock purchase plans of approximately $129.0 million and
$68.7 million in fiscal 2003 and fiscal 2002, respectively; (v) net proceeds
from and (repayment of) bank loan of $(42.0) million and $42.0 million in fiscal
2003 and fiscal 2001, respectively; and (vi) other, net of approximately $2.4
million, $(3.1) million and $(3.8) million in fiscal 2003, fiscal 2002 and
fiscal 2001, respectively.

           In May 2003, the Company issued $420.0 million aggregate principal
amount of its ZYPS, for net proceeds of approximately $412.8 million. The ZYPS
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 ZYPS are convertible, contingent upon the occurrence of
certain events, into shares of the Company's common stock at a conversion price
of $17.97 per share. The ability of the holders to convert the ZYPS into common
stock is subject to certain conditions including, among others, the closing
price of the common stock exceeding 120% of the conversion price over certain
periods and other specified events. The ZYPS mature on May 15, 2023. The Company
has the right to redeem the 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 all or a portion of the ZYPS on
each of May 15 of 2008, 2013, and 2018 and upon the occurrence of certain
events. The ZYPS holders may require the Company to repurchase the 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. 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 fiscal 2002 and 2003, the Company acquired, in open market
purchases, approximately $209.2 million and $266.1 million of face amount of the
Debentures, respectively, for approximately $169.8 million and $253.3 million in
cash, respectively, resulting in pre-tax gains, net of debt issuance costs, of
approximately $39.4 million and $10.2 million, respectively, included in
`Interest and other income (expense), net' in the Consolidated Statements of
Operations.

           As of January 31, 2004, the Company had outstanding Debentures of
approximately $124.7 million. During February 2004, the Company acquired, in
open market purchases, approximately $30.5 million of face amount of the
Debentures, for approximately $30.0 million in cash, resulting in a pre-tax
gain, net of debt issuance costs, of approximately $0.2 million.


                                       27
<PAGE>
           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,
2004, the Company's ownership interest in Verint was approximately 61.8%.

           On March 31, 2004, Verint acquired certain assets and assumed certain
liabilities relating to ECtel Ltd.'s ("ECtel") communication interception
business for approximately $35,000,000 in cash. The acquisition is expected to
provide Verint with additional communication interception capabilities for the
mass collection and analysis of voice and data communications. These
technologies will be integrated into Verint's existing product offerings. In
addition, some of ECtel's existing customers are new customers in new countries
for Verint in the Asia Pacific and Latin America regions.

           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 the Company's Israeli subsidiaries to pay dividends is
governed by Israeli law, which provides that cash dividends may be paid by an
Israeli corporation only out of retained earnings as determined for statutory
purposes in Israeli currency. 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


                                       28
<PAGE>
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 liquidity and capital resources have not been, and are
not anticipated to be, materially affected by restrictions pertaining to the
ability of its foreign subsidiaries to pay dividends or by withholding taxes
associated with any such dividend payments.

           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 is experiencing a challenging capital
spending environment. While there is some evidence that the capital spending
environment has improved, the spending by the Company's customers remains
uncertain. The Company's operating results and financial condition have been
adversely affected by declines in technology purchases and capital expenditures
by telecommunications service providers ("TSP"), and the Company's operating
results and financial condition will be adversely affected in the event
deterioration in capital expenditures by TSPs resumes. 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.


                                       29
<PAGE>
           In addition, certain TSPs have delayed the planned introduction of
new services, such as broadband mobile telephone services, that would be
supported by certain of the Company's products. Certain of the Company's
customers also have implemented changes in procurement practices and procedures,
including limitations on purchases in anticipation of estimated future capacity
requirements, and in the management and use of their networks, that have reduced
the Company's sales, 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.

           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, additional reductions in its workforce.

           The Company intends to continue to make significant investments in
its business, and to examine opportunities for growth through acquisitions and
strategic investments. These activities may involve significant expenditures and
obligations that cannot readily be curtailed or reduced if anticipated demand
for the associated products does not materialize or is delayed. The impact of
these decisions on future financial results cannot be 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 also may not be able to identify future suitable merger
or acquisition candidates, and even if the Company does identify suitable
candidates, it may not be able to make these transactions on commercially
acceptable terms, or at all. If the Company does make acquisitions, it may not
be able to successfully incorporate the personnel, operations and customers of
these companies into the Company's business. In addition, the Company may fail
to achieve the anticipated synergies from the combined businesses, including
marketing, product integration, distribution, product development and other
synergies. The integration process may further strain the Company's existing
financial and managerial controls and reporting systems and procedures. This may
result in the diversion of management and financial resources from the Company's
core business objectives. In addition, an acquisition or merger may require the
Company to utilize cash reserves, incur debt or issue equity securities, which
may result in a dilution of existing stockholders, and the Company may be
negatively impacted by the assumption of liabilities of the merged or acquired
company. Due to rapidly changing market conditions, the Company may find the
value of its acquired technologies and related intangible assets, such as
goodwill as recorded in the Company's financial statements, to be impaired,
resulting in charges to operations. The Company may also fail to retain the
acquired or merged companies' key employees and customers.


           In May 2003, the Company issued $420,000,000 aggregate principal
amount of zero yield puttable securities ("ZYPS"). The ZYPS are convertible into
shares of the Company's common stock at a conversion price of $17.97 per share,
which would result in the issuance of an aggregate of approximately 23.4 million
shares, subject to adjustment upon the occurrence of specified events. The
ability of the holders to convert the ZYPS into common stock is subject to
certain conditions including, among others, the closing price of the common


                                       30
<PAGE>
stock exceeding 120% of the conversion price over certain periods and other
specified events. The ZYPS mature on May 15, 2023. The Company has the right to
redeem the 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 all or a portion of the ZYPS on each
of May 15 of 2008, 2013, and 2018 and upon the occurrence of certain events. The
ZYPS holders may require the Company to repurchase the 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 may not have enough cash or
have the ability to access enough cash to pay the ZYPS. If the threshold for
conversion of the ZYPS is achieved it will result in dilution of the Company's
earnings per share. If the ZYPS are converted into the Company's shares it will
result in a dilution of existing stockholders.

           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.

           The Company's products involve sophisticated hardware and software
technology that performs critical functions to highly demanding standards. There
can be no assurance that the Company's current or future products will not
develop operational problems, which could have a material adverse effect on the
Company. The Company 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. In addition, defects or errors in
the Company's products 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.


                                       31
<PAGE>
           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.

           The Company relies on a limited number of suppliers and manufacturers
for specific components and may not be able to find alternate manufacturers that
meet its requirements and existing or alternative sources may not be available
on favorable terms and conditions. Thus, if there is a shortage of supply for
these components, the Company may experience an interruption in its product
supply. In addition, loss of third party software licensing 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. Unforeseen changes in the
regulatory environment also may have an impact on the Company's revenues and/or
costs in any given part of the world. The worldwide ESS system industry is
already highly competitive and the Company expects competition to intensify. The
Company believes that existing competitors will continue to present substantial
competition, and that other companies, many with considerably greater financial,
marketing and sales resources than the Company, may enter the ESS system
markets. Moreover, as the Company enters into new markets as a result of its own
research and development efforts or acquisitions, it is likely to encounter new
competitors.

           The market for the Company's 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. The Company's
business generated from government contracts may be adversely affected if: (i)
the Company's reputation or relationship with government agencies is impaired,
(ii) the Company 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 the Company does not provide products and services, (iv) the Company
is prevented from entering into new government contracts or extending existing
government contracts based on violations or suspected violations of laws or


                                       32
<PAGE>
regulations, including those related to procurement, (v) the Company is not
granted security clearances required to sell products to domestic or foreign
governments or such security clearances are revoked, or (vi) there is a change
in government procurement procedures. Competitive conditions in this sector also
have been affected by the increasing use by certain potential customers of their
own internal development resources rather than outside vendors to provide
certain technical solutions. In addition, a number of established government
contractors, particularly developers and integrators of technology products,
have taken steps to redirect their marketing strategies and product plans in
reaction to cut-backs in their traditional areas of focus, resulting in an
increase in the number of competitors and the range of products offered in
response to particular requests for proposals.

           A subsidiary of the Company, Verint Technology Inc. ("Verint
Technology"), which 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.

           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 channels of distribution or in the mix of products sold.


                                       33
<PAGE>
           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 severe acute respiratory syndrome
("SARS") curtailed travel to and from certain countries (primarily in the
Asia-Pacific region). Restrictions on travel to and from these and other regions
on account of additional incidents of SARS could have a material adverse effect
on the Company's business, results of 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 with
Iraq, could have a material adverse effect on the Company's business, results of
operations, and financial condition.

           Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors, and the
continued state of hostility, varying in degree and intensity, has led to
security and economic problems for Israel. Since October 2000, there has been a
significant increase in violence, primarily in the West Bank and Gaza Strip, and
more recently Israel has experienced terrorist incidents within its borders.
During this period, peace negotiations between Israel and representatives of the
Palestinian Authority have been sporadic and currently are suspended. 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, which for
certain periods had a negative impact, and from difficulties in attracting and
retaining qualified scientific, engineering and technical personnel in Israel,
where the availability of such personnel has at times been severely limited.
Changes in these cost factors have from time to time been significant and
difficult to predict, and could in the future have a material adverse effect on
the Company's results of operations.

           The Company's historical operating results reflect substantial
benefits received from programs sponsored by the Israeli government for the
support of research and development, as well as tax moratoriums and favorable
tax rates associated with investments in approved projects ("Approved
Enterprises") in Israel. Some of these programs and tax benefits have ceased and
others may not be continued in the future and the availability of such benefits
to the Company may be affected by a number of factors, including budgetary
constraints resulting from adverse economic conditions, government policies and
the Company's ability to satisfy eligibility criteria.


                                       34
<PAGE>
           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 (not
including Comverse) 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 for repayment 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, 2004, such subsidiaries of the
Company received approximately $53.8 million in cumulative grants from the OCS
and recorded approximately $21.7 million in cumulative royalties to the OCS.
During the year ended January 31, 2003, Comverse finalized an arrangement with
the OCS whereby Comverse agreed to pay a lump sum royalty amount for all past
amounts received from the OCS. In addition, Comverse 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, or to transfer outside
of Israel related technology rights. In order to obtain such permission, the
Company may be required to increase the royalties to the applicable funding
agencies and/or repay certain amounts received as reimbursement of research and
development costs. The continued reduction in the benefits received by the
Company under the program, or the termination of its eligibility to receive
these benefits at all in the future, could adversely affect the Company's
operating results.

           The Company's overall effective tax rate benefits from the tax
moratorium provided by the Government of Israel for Approved Enterprises
undertaken in that country. The Company's effective tax rate may increase in the
future due to, among other factors, the increased proportion of its taxable
income associated with activities in higher tax jurisdictions, and by the
relative ages of the Company's eligible investments in Israel. The tax
moratorium on income from the Company's Approved Enterprise investments made
prior to 1997 is four years, whereas subsequent Approved Enterprise projects are
eligible for a moratorium of only two years. Reduced tax rates apply in each
case for certain periods thereafter. To be eligible for these tax benefits, the
Company must continue to meet conditions, including making specified investments
in fixed assets and financing a percentage of investments with share capital. If
the Company fails to meet such conditions in the future, the tax benefits would
be canceled and the Company could be required to refund the tax benefits already
received. Israeli authorities have indicated that additional limitations on the
tax benefits associated with Approved Enterprise projects may be imposed for
certain categories of taxpayers, which would include the Company. If further
changes in the law or government policies regarding those programs were to
result in their termination or adverse modification, or if the Company were to
become unable to participate in, or take advantage of, those programs, the cost
of the Company's operations in Israel would increase and there could be a
material adverse effect on the Company's results of operations and financial
condition.


                                       35
<PAGE>
           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
despite the current economic conditions. The Company's ability to attract and
retain employees also may be affected by recent cost control actions, including
reductions in the Company's workforce and the associated reorganization of
operations.

           Certain of the Company's products are often used by customers to
compile and analyze highly sensitive or confidential information and data. The
Company may come into contact with such information or data when it performs
support or maintenance functions for its customers. While it has internal
policies, procedures and training for employees in connection with performing
these functions, even the perception that any of its 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.

           The occurrence or perception of security breaches within the Company
could harm the Company's business, financial condition and operating results.
While the Company implements sophisticated security measures, third parties may
attempt to breach the Company's security through computer viruses, electronic
break-ins and other disruptions. If successful, confidential information,
including passwords, financial information, or other personal information may be
improperly obtained and the Company may be subject to lawsuits and other
liability. Even if the Company is not held liable, a security breach could harm
the Company's reputation, and even the perception of security risks, whether or
not valid, could inhibit market acceptance of the Company's products.

           The Company currently derives a significant portion of its total
sales from customers outside of the United States. International transactions
involve particular risks, including political decisions affecting tariffs and
trade conditions, rapid and unforeseen changes in economic conditions in
individual countries, turbulence in foreign currency and credit markets, and
increased costs resulting from lack of proximity to the customer. The Company is
required to obtain export licenses and other authorizations from applicable
governmental authorities for certain countries within which it conducts
business. The failure to receive any required license or authorization would
hinder the Company's ability to sell its products and could adversely affect the
Company's business, results of operations and financial condition. In addition,
legal uncertainties regarding liability, compliance with local laws and
regulations, labor laws, employee benefits, currency restrictions, difficulty in
accounts receivable collection, longer collection periods and other requirements
may have a negative impact on the Company's operating results.

           Volatility in international currency exchange rates may have a
significant impact on the Company's operating results. The Company has, and
anticipates that it will continue to receive, contracts denominated in foreign
currencies, particularly the euro. As a result of the unpredictable timing of
purchase orders and payments under such contracts and other factors, it is often
not practicable for the Company to effectively hedge the risk of significant

                                       36
<PAGE>
changes in currency rates during the contract period. The Company may experience
risk associated with the failure to hedge the exchange rate risks associated
with contracts denominated in foreign currencies and its operating results have
been negatively impacted for certain periods and may continue to be affected to
a material extent by the impact of currency fluctuations. Operating results may
also be affected by the cost of such hedging activities that the Company does
undertake.

           While the Company generally requires employees, independent
contractors and consultants to execute non-competition and confidentiality
agreements, the Company's intellectual property or proprietary rights could be
infringed or misappropriated, which could result in expensive and protracted
litigation. The Company relies on a combination of patent, copyright, trade
secret and trademark law to protect its technology. Despite the Company's
efforts to protect its intellectual property and proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use its
products or technology. Effectively policing the unauthorized use of the
Company's products is time-consuming and costly, and there can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technology, particularly in foreign countries where in many instances the local
laws or legal systems do not offer the same level of protection as in the United
States.

           If others claim that the Company's products infringe their
intellectual property rights, the Company may be forced to seek expensive
licenses, reengineer its products, engage in expensive and time-consuming
litigation or stop marketing its products. The Company attempts to avoid
infringing known proprietary rights of third parties in its product development
efforts. The Company does not regularly conduct comprehensive patent searches to
determine whether the technology used in its products infringes patents held by
third parties, however. There are many issued patents as well as patent
applications in the fields in which the Company is engaged. Because patent
applications in the United States are not publicly disclosed until the patent is
issued, applications may have been filed which relate to the Company's software
and products. If the Company were to discover that its products violated or
potentially violated third-party proprietary rights, it might not be able to
obtain licenses to continue offering those products without substantial
reengineering. Any reengineering effort may not be successful, nor can the
Company be certain that any licenses would be available on commercially
reasonable terms.

           Substantial litigation regarding intellectual property rights exists
in 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


                                       37
<PAGE>
generally, and to the performance of other businesses over which it has no
direct control. Given the relatively high proportion of the Company's liquid
assets relative to its overall size, the results of its operations are
materially affected by the results of the Company's capital management and
investment activities and the risks associated with those activities. Declines
in the public equity markets have caused, and may be expected to continue to
cause, the Company to experience realized and unrealized investment losses. In
addition, reduction in prevailing interest rates due to economic conditions or
government policies has had and may continue to have an adverse impact on the
Company's results of operations.

           The severe decline in the public trading prices of equity securities,
particularly in the technology and telecommunications sectors, and corresponding
decline in values of privately-held companies and venture capital funds in which
the Company has invested, have, and may continue to have, an adverse impact on
the Company's financial results. The Company has in the past benefited from the
long-term rise in the public trading price of its shares in various ways,
including its ability to use equity incentive arrangements as a means of
attracting and retaining the highly qualified employees necessary for the growth
of its business and its ability to raise capital on relatively attractive
conditions. The decline in the price of the Company's shares, and the overall
decline in equity prices generally, and in the shares of technology companies in
particular, can be expected to make it more difficult for the Company to
significantly rely on equity incentive arrangements as a means to recruit and
retain talented employees.

           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's board of directors' ability to designate and issue up
to 2,500,000 shares of preferred stock and to issue additional shares of common
stock could adversely affect the voting power of the holders of common stock,
and 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.


                                       38
<PAGE>
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, 2004, 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 $39.6 million at January 31, 2004, are generally to be released by
the Company's performance of specified contract milestones, which are scheduled
to be completed primarily during 2004.

           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, the Company had approximately $31.7 million of notional amount of foreign
exchange forward contracts to sell Euros with an original maturity of three
months. The fair value of these contracts as of January 31, 2004 of
approximately $(0.2) million is included in `Interest and other income
(expense), net' in the Consolidated Statements of Operations.

           The impact that our aggregate contractual obligations as of January
31, 2004 are expected to have on our liquidity and cash flow in future periods
is as follows:

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

<S>                                        <C>              <C>             <C>             <C>             <C>
Long-term debt obligations (1)                    $555,492           $   -        $134,097           $ 470        $420,925
Operating lease obligations                        103,946          31,391          39,404          17,344          15,807
Purchase obligations (2)                            28,897          28,897               -               -               -
Other long-term liabilities                          4,726               -           4,726               -               -
                                            --------------- --------------- --------------- --------------- ---------------

Total                                             $693,061         $60,288        $178,227         $17,814        $436,732
                                            --------------- --------------- --------------- --------------- ---------------
</TABLE>

(1) Includes (as > 5 Years) $420.0 million aggregate principal amount of the
Company's ZYPS, which mature on May 15, 2023. The ZYPS are convertible,
contingent upon the occurrence of certain events, into shares of the Company's
common stock at a conversion price of $17.97 per share. The ability of the
holders to convert the ZYPS into common stock is subject to certain conditions
including, among others, the closing price of the common stock exceeding 120% of
the conversion price over certain periods and other specified events. The
Company has the right to redeem the 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 all or a portion of
the ZYPS on each of May 15 of 2008, 2013, and 2018 and upon the occurrence of
certain events. The ZYPS holders may require the Company to repurchase the 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. 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.


                                       39
<PAGE>
(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, 2004, the Company had invested approximately $26.4 million
related to these ventures. In addition, the Company has committed approximately
$17.4 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 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 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, 2004, such subsidiaries had received approximately $53.8 million in
cumulative grants from the OCS, and have recorded approximately $21.7 million in
cumulative royalties to the OCS.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

           In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations." SFAS No. 143 establishes accounting standards
for recognition and measurement of a liability for an asset retirement
obligation and the associated asset retirement cost. SFAS No. 143 applies to
legal obligations associated with the retirement of a tangible long-lived asset
that result from the acquisition, construction, development and/or normal
operation of a long-lived asset. This Statement is effective for fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a
material effect on the Company's consolidated financial statements.

           In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative


                                       40
<PAGE>
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 did not have a material effect on the Company's
consolidated financial statements.

           In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS No. 150 did not have a material effect on the
Company's consolidated financial statements.

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 undertakes no obligation to correct or update a forward-looking
statement should the Company later become aware that it is not likely to be
achieved. If the Company were in any particular instance to update or correct a
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.

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.


                                       41
<PAGE>
           The Company operates internationally and is therefore exposed to
potentially adverse movements in foreign currency rate changes. 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, 2004, the Company had approximately $31.7 million of notional
amount of foreign exchange forward contracts to sell Euros with a fair value of
approximately $(0.2) million with an original maturity of three 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.

           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, 2004. 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, 2004.

           (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, 2004, that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.



                                       42
<PAGE>
                                    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 15, 2004 (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".

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.



                                       43
<PAGE>
                                     PART IV

ITEM 15.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                     AND REPORTS ON FORM 8-K.



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


      (1)       Financial Statements.

                Index to Consolidated Financial Statements                  F-1

                   Independent Auditors' Report                             F-2

                Consolidated Balance Sheets as of
                          January 31, 2003 and 2004                         F-3

                Consolidated Statements of Operations
                          for the Years Ended
                          January 31, 2002, 2003 and 2004                   F-4

                Consolidated Statements of Stockholders' Equity
                          for the Years Ended
                          January 31, 2002, 2003 and 2004                   F-5

                Consolidated Statements of Cash Flows
                          for the Years Ended
                          January 31, 2002, 2003 and 2004                   F-6

                          Notes to Consolidated Financial Statements        F-7

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

                          None.

      (3) Exhibits.
          --------
                          The Index of Exhibits commences on the following
                          page. Exhibits numbered 10.1 through 10.4 and
                          10.6 through 10.11 comprise material compensatory
                          plans and arrangements of the registrant.

(b) Reports on Form 8-K
    -------------------

           During the fourth quarter of 2003, the Company filed two reports on
           Form 8-K:

           (1) Report on Form 8-K dated December 3, 2003

           Item 12. Results of Operations and Financial Condition:
           This report attached the Company's press release dated
           December 3, 2003, announcing the financial results for the
           fiscal quarter ended October 31, 2003.


                                       44
<PAGE>
          (2) Report on Form 8-K dated January 16, 2004

          Item 5. Other Events:

          This report announced the time and date of the Company's 2004 Annual
          Meeting of Shareholders and informed shareholders of revised deadlines
          pursuant to Rule 14a-5 f of the Securities Exchange Act of 1934, as
          amended.

(c)       Index of Exhibits

          Exhibits
No.       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.)

          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.)



                                       45
<PAGE>
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.)

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.

          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.)


                                       46
<PAGE>
          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.)

          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.)

          21.1**    Subsidiaries of Registrant.

          23.1**    Consent of Deloitte & Touche LLP.

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


                                       47
<PAGE>
          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.




                                       48
<PAGE>
                               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 14, 2004                      By:  /s/ Kobi Alexander
                                        ----------------------------------------
                                        Kobi Alexander, Chief Executive Officer

                                        Kobi Alexander
                                        Chairman and CEO
                                        Principal Executive 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 14, 2004
----------------------------------
Kobi Alexander,
Chairman and CEO, Director

/s/ David Kreinberg                         April 14, 2004
----------------------------------
David Kreinberg,
Executive Vice President and CFO

/s/ Raz Alon                                April 14, 2004
----------------------------------
Raz Alon, Director

/s/ Itsik Danziger                          April 14, 2004
----------------------------------
Itsik Danziger, Director

/s/ John H. Friedman                        April 14, 2004
----------------------------------
John H. Friedman, Director

/s/ Ron Hiram                               April 14, 2004
----------------------------------
Ron Hiram, Director

/s/ Sam Oolie                               April 14, 2004
----------------------------------
Sam Oolie, Director

/s/ William F. Sorin                        April 14, 2004
----------------------------------
William F. Sorin, Director



                                       49
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                                                                          PAGE

Independent Auditors' Report                                              F-2

Consolidated Balance Sheets as of January 31, 2003 and 2004               F-3

Consolidated Statements of Operations for the
   Years Ended January 31, 2002, 2003 and 2004                            F-4

Consolidated Statements of Stockholders' Equity for the
   Years Ended January 31, 2002, 2003 and 2004                            F-5

Consolidated Statements of Cash Flows for the
   Years Ended January 31, 2002, 2003 and 2004                            F-6

Notes to Consolidated Financial Statements                                F-7




                                      F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying consolidated balance sheets of Comverse
Technology, Inc. and subsidiaries (the "Company") as of January 31, 2003 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, 2004. 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 auditing standards generally accepted
in the United States of America. 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, 2003 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2004, in conformity with accounting principles generally accepted in
the United States of America.


/S/ Deloitte & Touche LLP

New York, New York
March 31, 2004



                                      F-2
<PAGE>
<TABLE>
<CAPTION>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2003 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                             2003                        2004
                                                                                             ----                        ----
<S>                                                                                  <C>                       <C>
ASSETS
------

CURRENT ASSETS:
   Cash and cash equivalents                                                            $   1,402,783                $   1,530,995
   Bank time deposits                                                                          20,000                          888
   Short-term investments                                                                     386,089                      666,616
   Accounts receivable, net                                                                   212,953                      158,236
   Inventories                                                                                 40,015                       54,751
   Prepaid expenses and other current assets                                                   65,018                       50,798
                                                                                        --------------               --------------
TOTAL CURRENT ASSETS                                                                        2,126,858                    2,462,284
PROPERTY AND EQUIPMENT, net                                                                   146,380                      125,023
OTHER ASSETS                                                                                  130,421                      140,735
                                                                                        --------------               --------------
TOTAL ASSETS                                                                            $   2,403,659                $   2,728,042
                                                                                        ==============               ==============

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

LIABILITIES AND STOCKHOLDERS' EQUITY                                                            2003                      2004
------------------------------------                                                            ----                      ----

CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                                $     260,810                $     229,296
   Bank loans and other debt                                                                   46,045                        2,649
   Advance payments from customers                                                             53,496                       89,062
                                                                                        --------------               --------------
TOTAL CURRENT LIABILITIES                                                                     360,351                      321,007
CONVERTIBLE DEBT                                                                              390,838                      544,723
LIABILITY FOR SEVERANCE PAY                                                                     9,778                       12,324
OTHER LIABILITIES                                                                               9,452                       15,964
                                                                                        --------------               --------------
TOTAL LIABILITIES                                                                             770,419                      894,018
                                                                                        --------------               --------------

MINORITY INTEREST                                                                              83,548                      161,478
                                                                                        --------------               --------------

COMMITMENTS AND CONTINGENCIES (Note 21)

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, 187,754,407 and 194,549,886 shares                                18,775                       19,454
   Additional paid-in capital                                                               1,078,720                    1,210,547
   Unearned stock compensation                                                                      -                       (6,707)
   Retained earnings                                                                          445,285                      439,899
   Accumulated other comprehensive income                                                       6,912                        9,353
                                                                                        --------------               --------------
TOTAL STOCKHOLDERS' EQUITY                                                                  1,549,692                    1,672,546
                                                                                        --------------               --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $   2,403,659                $   2,728,042
                                                                                        ==============               ==============

</TABLE>
                 See notes to consolidated financial statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------------------------------------------------------------

                                                                        JANUARY 31,            JANUARY 31,           JANUARY 31,
                                                                           2002                   2003                  2004
                                                                           ----                   ----                  ----
<S>                                                                  <C>                   <C>                    <C>
Sales:
   Product revenues                                                     $1,113,168            $  547,141             $  534,585
   Service revenues                                                        157,050               188,748                231,307
                                                                        -----------           -----------            -----------
                                                                         1,270,218               735,889                765,892
                                                                        -----------           -----------            -----------

Cost of sales:
   Product costs                                                           384,796               184,413                181,059
   Service costs                                                           140,684               153,708                146,501
                                                                        -----------           -----------            -----------
                                                                           525,480               338,121                327,560
                                                                        -----------           -----------            -----------


Gross margin                                                               744,738               397,768                438,332

Operating expenses:
   Research and development, net                                           293,296               232,593                216,457
   Selling, general and administrative                                     323,036               281,202                254,376
   Workforce reduction, restructuring
        and impairment charges (credits)                                    63,562                66,714                 (2,123)
                                                                        -----------           -----------            -----------

   Income (loss) from operations                                            64,844              (182,741)               (30,378)

   Interest and other income (expense), net                                 (6,501)               58,902                 38,958
                                                                        -----------           -----------            -----------

Income (loss) before income tax provision, minority
  interest and equity in the earnings (losses) of affiliates                58,343              (123,839)                 8,580

Income tax provision                                                         4,436                 3,294                  8,206

Minority interest and equity in the earnings (losses)
   of affiliates                                                               712                (2,345)                (5,760)
                                                                        -----------           -----------            -----------

Net income (loss)                                                       $   54,619            $ (129,478)            $   (5,386)
                                                                        ===========           ===========            ===========

Earnings (loss) per share:
     Basic                                                              $     0.30            $    (0.69)            $    (0.03)
                                                                        ===========           ===========            ===========
     Diluted                                                            $     0.29            $    (0.69)            $    (0.03)
                                                                        ===========           ===========            ===========
</TABLE>
                 See notes to consolidated financial statements.


                                      F-4
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
(IN THOUSANDS, EXCEPT SHARE DATA)
---------------------------------

<TABLE>
<CAPTION>
                                                                                                    Accumulated Other
                                                                                                  Comprehensive Income
                                          Common Stock                                            --------------------     Total
                                          ------------       Additional    Unearned              Unrealized  Cumulative    Stock-
                                       Number of    Par       Paid-in       Stock      Retained    Gains     Translation  holders'
                                        Shares     Value      Capital    Compensation  Earnings   (Losses)   Adjustment    Equity
                                        ------     -----      -------    ------------  --------   --------   ----------    ------
<S>                                  <C>            <C>         <C>          <C>       <C>           <C>        <C>       <C>
BALANCE, FEBRUARY 1, 2001            168,643,623  $ 16,864  $   692,014   $      -    $ 520,144   $ 7,526      $ (383)  $ 1,236,165

Comprehensive income:
Net income                                                                               54,619
Unrealized loss on available-for-sale
     securities                                                                                    (3,227)
Translation adjustment                                                                                             872
Total comprehensive income                                                                                                   52,264
Warrant exercises                      1,792,932       179         (179)                                                          -
Common stock issued for employee
     stock purchase plan                 394,866        39       12,401                                                      12,440
Exercise of stock options              1,463,467       148       16,196                                                      16,344
Conversion of debentures              13,953,462     1,395      294,801                                                     296,196
Tax benefit of dispositions of stock
     options                                                      2,999                                                       2,999
------------------------------------------------------------------------------------------------------------------------------------


BALANCE, JANUARY 31, 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
                                     ===========  ========  ===========   =========   =========   =======     =======   ===========
</TABLE>

                 See notes to consolidated financial statements.

                                       F-5
<PAGE>
<TABLE>
<CAPTION>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
(IN THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                  JANUARY 31,       JANUARY 31,        JANUARY 31,
                                                                                     2002              2003               2004
                                                                                     ----              ----               ----
<S>                                                                          <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                          $      54,619     $     (129,478)    $      (5,386)
   Adjustments to reconcile net income (loss) to net cash provided
        by operating activities:
     Depreciation and amortization                                                   63,824             67,355            71,771
     Minority interest                                                                  667              1,570             7,246
     Operating asset write-downs and impairments                                     11,530             26,445             6,684
     Changes in operating assets and liabilities:
        Accounts receivable, net                                                    (12,611)           161,737            56,395
        Inventories                                                                  55,775             13,446           (14,071)
        Prepaid expenses and other current assets                                    (2,172)            19,728            11,123
        Accounts payable and accrued expenses                                        33,481            (74,856)          (33,302)
        Advance payments from customers                                             (82,599)            13,822            35,565
        Liability for severance pay                                                   1,848               (426)            2,407
        Other, net                                                                   17,823             (2,497)           (9,812)
                                                                              --------------     --------------    --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                           142,185             96,846           128,620
                                                                              --------------     --------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Maturities and sales (purchases) of bank time deposits
     and investments, net                                                           (44,762)           114,471          (261,582)
   Purchase of property and equipment                                               (54,634)           (34,092)          (35,352)
   Capitalization of software development costs                                     (23,027)           (13,391)           (7,759)
   Net assets acquired                                                                    -            (31,130)           (5,910)
                                                                              --------------     --------------    --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                (122,423)            35,858          (310,603)
                                                                              --------------     --------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from issuance of convertible debt                                         -                  -           412,766
   Repurchase of convertible debt                                                         -           (169,788)         (253,254)
   Proceeds from issuance of common stock in connection
     with exercise of stock options and
     employee stock purchase plan                                                    28,784             12,368            61,270
   Net proceeds from issuance of common stock of subsidiaries                             -             68,695           129,032
   Proceeds from bank loan                                                           42,000                  -                 -
   Repayment of bank loan                                                                 -                  -           (42,000)
   Other, net                                                                        (3,789)            (3,058)            2,381
                                                                              --------------     --------------    --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                  66,995            (91,783)          310,195
                                                                              --------------     --------------    --------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                            86,757             40,921           128,212
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      1,275,105          1,361,862         1,402,783
                                                                              --------------     --------------    --------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                        $   1,361,862      $   1,402,783      $  1,530,995
                                                                              ==============     ==============    ==============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for interest                                     $      16,240      $      10,458      $      4,512
                                                                              ==============     ==============    ==============
   Cash paid during the year for income taxes                                 $       8,379      $      11,682      $     10,503
                                                                              ==============     ==============    ==============

</TABLE>
                 See notes to consolidated financial statements.


                                      F-6
<PAGE>
COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2002, 2003 AND 2004
--------------------------------------------------------------------------------

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.

         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.

         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, (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.


                                      F-7
<PAGE>
         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. Amortization begins in the period in which the
         related product is available for general release to customers.
         Amortization expense amounted to approximately $9,129,000, $12,594,000
         and $15,149,000 for the years ended January 31, 2002, 2003 and 2004,
         respectively.

         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, the Company had approximately $31,668,000 of
         notional amount of foreign exchange forward contracts to sell Euros
         with an original maturity of three months. The fair value of these
         contracts as of January 31, 2004 of approximately $(183,000) is
         included in `Interest and other income (expense), net' in the
         Consolidated Statements of Operations. As of January 31, 2003, the
         Company had no outstanding foreign exchange contracts.

         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 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,
         2003 and 2004. Other intangible assets with finite lives are amortized
         using the straight-line method over their estimated useful lives,
         generally not exceeding six years.


                                      F-8
<PAGE>
         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, 2002, 2003 and
         2004, 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.

         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, corporate and municipal short-term notes, corporate
         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. Accounts receivable are generally
         diversified due to the number of commercial and government entities
         comprising the Company's customer base and their dispersion across many
         geographical regions. As of January 31, 2003 and 2004, 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 cash investments and
         accounts receivable.

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

<TABLE>
<CAPTION>
                                                         YEARS ENDED JANUARY 31,
                                                   --------------------------------------
                                                    2002            2003           2004
                                                   --------       --------       --------
                                                                 (IN THOUSANDS)

<S>                                            <C>             <C>           <C>
          Balance at beginning of period           $23,755        $41,955        $56,759
          Charges to costs and expenses             21,126         45,300         12,014
          Recoveries                                     -              -        (12,200)
          Deductions                                (3,076)       (30,559)        (9,072)
          Other                                        150             63          2,457
                                                   --------       --------       --------
          Balance at end of period                 $41,955        $56,759        $49,958
                                                   ========       ========       ========

</TABLE>

         BANK LOANS - In January 2002, a majority-owned subsidiary of CTI,
         Verint Systems Inc. ("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.


                                      F-9
<PAGE>
         STOCK-BASED COMPENSATION - At January 31, 2004, the Company had in
         place the Comverse Stock Incentive Plans, as fully described in Note
         14. The Company accounts for its option grants under the recognition
         and measurement principles of Accounting Principles Board Opinion No.
         25, "Accounting for Stock Issued to Employees," 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 under the plan had an exercise price at least equal
         to the market value of the underlying common stock on the date of
         grant. During the year ended January 31, 2004, the Company and one of
         its subsidiaries granted shares of restricted stock to certain key
         employees. For the years ended January 31, 2002, 2003 and 2004,
         respectively, stock-based employee compensation expense of
         approximately $0, $0 and $214,000 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.

         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:

<TABLE>
<CAPTION>
                                                                                       YEAR ENDED JANUARY 31,
                                                                                       ----------------------
                                                                                2002            2003             2004
                                                                                ----            ----             ----
                                                                                           (IN THOUSANDS)

<S>                                                                        <C>             <C>            <C>
Net income (loss), as reported                                                $  54,619      $(129,478)       $  (5,386)

  Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects                                                            (181,837)      (149,782)        (122,537)
                                                                              ----------     ----------       ----------

Pro forma net loss                                                            $(127,218)     $(279,260)       $(127,923)
                                                                              ==========     ==========       ==========

Earnings (loss) per share:

Basic - as reported                                                              $ 0.30         $(0.69)          $(0.03)
Basic - pro forma                                                                $(0.71)        $(1.49)          $(0.67)

Diluted - as reported                                                            $ 0.29         $(0.69)          $(0.03)
Diluted - pro forma                                                              $(0.71)        $(1.49)          $(0.67)

</TABLE>



                                      F-10
<PAGE>
         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.

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 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
         funding agreements, products resulting from projects funded by the OCS
         may not be manufactured outside of Israel without government approval.
         The amounts reimbursed by the OCS for the years ended January 31, 2002,
         2003 and 2004 were approximately $9,980,000, $10,540,000 and
         $10,013,000, respectively.

4.       SHORT-TERM INVESTMENTS

         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, 2004:

<TABLE>
<CAPTION>
                                                                       GROSS             GROSS          ESTIMATED
                                                                     UNREALIZED        UNREALIZED         FAIR
                                                    COST               GAINS            LOSSES           VALUE
                                               ------------------------------------------------------------------
                                                                             (IN THOUSANDS)

<S>                                         <C>                     <C>            <C>              <C>
         Corporate debt securities                   $35,573             $1,054       $       -           $36,627
         U.S. Government corporation
           and agency bonds                          309,531                  -           1,649           307,882
                                                ------------          ---------       ---------       -----------
         Total debt securities                       345,104              1,054           1,649           344,509
                                                ------------          ---------       ---------       -----------

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

                                                    $661,717             $6,548          $1,649          $666,616
                                               =============         ==========       =========       ===========
</TABLE>

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


                                      F-11
<PAGE>
         The following is a summary of available-for-sale securities as of
January 31, 2003:

<TABLE>
<CAPTION>
                                                                        GROSS             GROSS        ESTIMATED
                                                                     UNREALIZED         UNREALIZED        FAIR
                                                     COST              GAINS             LOSSES           VALUE
                                                  ---------------------------------------------------------------
                                                                             (IN THOUSANDS)

<S>                                            <C>                  <C>              <C>               <C>
         Corporate debt securities                $   35,508         $    1,942        $        -       $  37,450
         Mortgage and asset-backed
            securities                                12,797                  -               315          12,482
         U.S. Government corporation
           and agency bonds                          210,308                155                 -         210,463
                                                  ----------         ----------        ----------      ----------
         Total debt securities                       258,613              2,097               315         260,395
                                                  ----------         ----------        ----------      ----------

         Common stock and
           closed-end funds                           14,032              3,925                 -          17,957
         Mutual funds (1)                            104,751                173               883         104,041
         Preferred stock                               3,567                191                62           3,696
                                                  ----------         ----------        ----------      ----------
         Total equity securities                     122,350              4,289               945         125,694
                                                  ----------         ----------        ----------      ----------

                                                  $  380,963         $    6,386        $    1,260      $  386,089
                                                  ==========         ==========        ==========      ==========

</TABLE>

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

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. During the year
ended January 31, 2002, the gross realized gains on sales of securities totaled
approximately $25,252,000, and the gross realized losses totaled approximately
$18,855,000. The basis on which cost is generally determined in computing
realized gain or loss is by the first-in, first-out method.

The cost and estimated fair value of debt securities at January 31, 2004, by
contractual maturity, are as follows:

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

 Due in one year or less                     $      29,829     $      30,150
 Due after one year through three years            312,932           311,476
 Due after three years                               2,343             2,883
                                              ------------      ------------

                                             $     345,104     $     344,509
                                             =============     =============


                                      F-12
<PAGE>
5.       INVENTORIES

         Inventories consist of:

<TABLE>
<CAPTION>
                                                                              JANUARY 31,
                                                                              -----------
                                                                        2003               2004
                                                                        ----               ----
                                                                             (IN THOUSANDS)
<S>                      <C>                                      <C>                 <C>
                          Raw materials                            $      17,111       $      23,157
                          Work in process                                 12,430              12,802
                          Finished goods                                  10,474              18,792
                                                                   -------------       -------------

                                                                   $      40,015       $      54,751
                                                                   =============       =============
</TABLE>

6.       PROPERTY AND EQUIPMENT, NET

         Property and equipment consist of:
<TABLE>
<CAPTION>
                                                                              JANUARY 31,
                                                                              -----------
                                                                        2003               2004
                                                                        ----               ----
                                                                             (IN THOUSANDS)
<S>                      <C>                                      <C>                 <C>
                          Fixtures and equipment                   $     289,140       $     300,946
                          Land and buildings                              22,105              22,765
                          Software                                        32,042              33,670
                          Transportation vehicles                          1,300               1,293
                          Leasehold improvements                          13,313              14,604
                                                                   --------------      --------------
                                                                         357,900             373,278
                          Less accumulated depreciation
                                 and amortization                       (211,520)           (248,255)
                                                                   --------------      --------------

                                                                   $     146,380       $     125,023
                                                                   ==============      ==============
</TABLE>

7.       OTHER ASSETS

         Other assets consist of:
<TABLE>
<CAPTION>
                                                                              JANUARY 31,
                                                                              -----------
                                                                        2003               2004
                                                                        ----               ----
                                                                             (IN THOUSANDS)
<S>                      <C>                                      <C>                <C>
             Software development costs, net of
                accumulated amortization
                of $37,843 and $52,731                             $      40,110      $      32,824

             Investments                                                  34,741             35,262

             Other assets                                                 55,570             72,649
                                                                   -------------      -------------

                                                                   $     130,421      $     140,735
                                                                   =============      =============
</TABLE>
                                      F-13
<PAGE>
8.      BUSINESS COMBINATIONS

        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.

        These acquisitions were accounted for under 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 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 the 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 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, 2002, 2003 and 2004, the Company
        incurred net charges (credits) to operations of approximately
        $63,562,000, $66,714,000 and $(2,123,000) 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.


                                      F-14
<PAGE>
        An analysis of the total charges of approximately $63,562,000 incurred
        during the year ended January 31, 2002 as well as a rollforward of the
        workforce reduction and restructuring accrual for that period is as
        follows:

<TABLE>
<CAPTION>
                                           WORKFORCE
                                           REDUCTION,                                     ACCRUAL
                                         RESTRUCTURING                                   BALANCE AT
                                         & IMPAIRMENT        CASH          NON-CASH      JANUARY 31,
                                            CHARGES        PAYMENTS         CHARGES         2002
                                            -------        --------         -------         ----
                                                                   (IN THOUSANDS)
<S>                                   <C>               <C>              <C>           <C>
        Severance and related               $ 27,685         $ 15,823       $      -     $ 11,862
        Facilities and related                24,347                -              -       24,347
        Inventory                              4,000                -          4,000            -
        Property and equipment                 4,620                -          4,620            -
        Capitalized software                   2,910                -          2,910            -
                                            --------         --------       --------     --------
        Total                               $ 63,562         $ 15,823       $ 11,530     $ 36,209
                                            ========         ========       ========     ========
</TABLE>

        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:

<TABLE>
<CAPTION>
                                                           WORKFORCE
                                         ACCRUAL          REDUCTION,                                                 ACCRUAL
                                       BALANCE AT        RESTRUCTURING                                              BALANCE AT
                                       FEBRUARY 1,       & IMPAIRMENT            CASH              NON-CASH         JANUARY 31,
                                          2002              CHARGES            PAYMENTS             CHARGES            2003
                                          ----              -------            --------             -------            ----
                                                                             (IN THOUSANDS)
<S>                                   <C>                <C>                  <C>                <C>               <C>
        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
                                        ========             ========            ========          ========         ========
</TABLE>

        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:

<TABLE>
<CAPTION>
                                                       WORKFORCE
                                    ACCRUAL           REDUCTION,                                         ACCRUAL
                                   BALANCE AT        RESTRUCTURING                                      BALANCE AT
                                   FEBRUARY 1,       & IMPAIRMENT            CASH         NON-CASH      JANUARY 31,
                                      2003         CHARGES (CREDITS)       PAYMENTS        CHARGES         2004
                                      ----         -----------------       --------        -------         ----
                                                                         (IN THOUSANDS)
<S>                               <C>              <C>                   <C>            <C>             <C>
        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
                                     ========          =========           ========       ========        ========
</TABLE>

                                      F-15
<PAGE>
        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
        during the year ended January 31, 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 year ended January 31, 2004, the
        Company reversed approximately $8,051,000 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.

        In connection with the restructuring, the Company changed its
        organizational structure and product offerings. As a result, certain
        inventory and capitalized software became impaired and were written-off
        during the year ended January 31, 2002.

10.      ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses consist of:

                                                         JANUARY 31,
                                                    2003            2004
                                                    ----            ----
                                                        (IN THOUSANDS)

             Accounts payable                  $      88,649    $      67,110
             Accrued compensation                     37,054           37,088
             Accrued vacation                         20,761           21,704
             Accrued royalties                         6,596            7,704
             Accrued workforce reduction
                and restructuring                     49,821           29,495
             Accrued warranty                         12,269            8,333
             Other accrued expenses                   45,660           57,862
                                               -------------    -------------

                                               $     260,810    $     229,296
                                               =============    =============

11.        CONVERTIBLE DEBT

        In May 2003, the Company issued $420,000,000 aggregate principal amount
        of its Zero Yield Puttable Securities due 2023 ("ZYPS"), for net
        proceeds of approximately $412.8 million. The ZYPS 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 ZYPS are convertible, contingent upon the
        occurrence of certain events, into shares of the Company's common stock
        at a conversion price of $17.97 per share. The ability of the holders to
        convert the ZYPS into common stock is subject to certain conditions
        including, among others, the closing price of the common stock exceeding
        120% of the conversion price over certain periods and other specified
        events. The ZYPS mature on May 15, 2023. The Company has the right to
        redeem the 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


                                      F-16
<PAGE>
        which they may require the Company to repurchase all or a portion of the
        ZYPS on each of May 15 of 2008, 2013, and 2018 and upon the occurrence
        of certain events. The ZYPS holders may require the Company to
        repurchase the 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. 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.

        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 and 2004, the Company acquired,
        in open market purchases, $209,162,000 and $266,115,000 of face amount
        of the Debentures, respectively, resulting in pre-tax gains, net of debt
        issuance costs, of approximately $39,374,000 and $10,224,000,
        respectively, included in `Interest and other income (expense), net' in
        the Consolidated Statements of Operations. As of January 31, 2004, the
        Company had outstanding Debentures of $124,723,000. Refer to Note 24,
        "Subsequent Events."

        In June 1998, the Company issued $300,000,000 of convertible
        subordinated debentures bearing interest at 4.50% per annum, payable
        semi-annually. In June 2001, the Company called these debentures for
        redemption. The debentures were converted into 13,953,462 shares of
        common stock.

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.

         The Company is obligated under an agreement with its chief executive
         officer to provide a severance payment upon the termination of his
         employment with the Company. Approximately $3,013,000 and $3,480,000
         has been accrued as of January 31, 2003 and 2004, respectively,
         relating to this liability.


                                      F-17
<PAGE>
13.    ISSUANCE OF SUBSIDIARY STOCK

       In April and October 2000, a majority-owned subsidiary of the Company,
       Ulticom, Inc. ("Ulticom"), issued shares of its common stock in public
       offerings. As of January 31, 2004, the Company's ownership interest in
       Ulticom was approximately 70.2%.

       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, 2004, the Company's ownership interest in Verint was
       approximately 61.8%.

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 Financial Accounting
       Standards Board ("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
       $10.52 per share, the closing fair market value of the Company's stock on
       that date.

       STOCK OPTIONS - At January 31, 2004, 23,287,332 shares of common stock
       were reserved for issuance upon the exercise of stock options then
       outstanding and 4,928,221 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 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.


                                      F-18
<PAGE>
        The changes in the number of options were as follows:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED JANUARY 31,
                                                       -----------------------------------------------

                                                       2002              2003              2004
                                                       ----              ----              ----
<S>                                             <C>                  <C>                <C>
        Outstanding at beginning of period            26,163,560         33,089,823         25,079,827
        Granted during the period                      9,945,007         15,851,028          5,297,836
        Exercised during the period                   (1,463,467)          (530,661)        (5,770,041)
        Canceled, terminated and expired              (1,555,277)       (23,330,363)        (1,320,290)
                                                     ------------       ------------       ------------

        Outstanding at end of period                  33,089,823         25,079,827         23,287,332
                                                     ============       ============       ============
</TABLE>

        At January 31, 2004, options to purchase an aggregate of 13,377,757
        shares were vested and currently exercisable under the plans and options
        to purchase an additional 9,909,575 shares vest at various dates
        extending through the year 2007.

        Weighted average option exercise price information was as follows:

<TABLE>
<CAPTION>
                                                                            YEAR ENDED JANUARY 31,
                                                                      ----------------------------------

                                                                        2002         2003          2004
                                                                        ----         ----          ----
<S>                                                                  <C>         <C>          <C>
        Outstanding at beginning of period                            $  45.66    $  38.24     $  12.73
        Granted during the period                                        18.03       10.30        16.56
        Exercised during the period                                      11.43        7.87         9.56
        Canceled, terminated and expired                                 56.73       47.42        18.08
        Outstanding at end of period                                     38.24       12.73        14.09
        Exercisable at end of period                                     31.23       15.24        13.84

</TABLE>

        Significant option groups outstanding at January 31, 2004 and related
        weighted average price and life information were as follows:

<TABLE>
<CAPTION>
                                                   Weighted Average            Weighted                                 Weighted
        Range of                  Number               Remaining               Average               Number             Average
        Exercise Price         Outstanding          Contractual Life        Exercise Price        Exercisable       Exercise Price
        --------------         -----------          ----------------        --------------        -----------       --------------
<S>                           <C>                  <C>                      <C>                   <C>               <C>
        $ 0.01 - 10.42           4,528,107                   4.89                 $ 9.39            3,894,716             $ 9.80
        $10.52                  10,571,310                   6.82                  10.52            7,233,469              10.52
        $10.95 - 16.05           2,380,754                   6.48                  14.74            1,537,979              14.30
        $16.70                   4,927,755                   9.88                  16.70                    -                  -
        $17.28 - 119.69            879,406                   5.37                  64.75              711,593              68.73
                                ----------             ----------             ----------           ----------         ----------
                                23,287,332                   7.00                 $14.09           13,377,757             $13.84
                                ==========
</TABLE>

        The weighted average fair value of the options granted for the years
        ended January 31, 2002, 2003 and 2004, respectively, is estimated at
        $10.85, $4.66 and $9.88 on the date of grant (using the Black-Scholes
        option pricing model) with the following weighted average assumptions
        for the years ended January 31, 2002, 2003 and 2004, respectively:
        volatility of 76%, 75% and 73%; risk-free interest rate of 4.0%, 1.8%
        and 3.2%; and an expected life of 4.3, 2.6 and 4.6 years.


                                      F-19
<PAGE>
        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, the Company granted 314,300 shares
        of restricted stock to certain key employees of the Company. Unearned
        stock compensation of approximately $5,249,000 was recorded based on the
        fair market value of the Company's common stock at the date of grant, or
        $16.70 per share. 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 year ended January
        31, 2004 was approximately $157,000 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, 2004, a total of 314,300 shares of
        restricted stock had been granted and all were subject to restriction.

        In December 2003, Verint granted shares of its common stock as
        restricted stock to certain of its key employees. Unearned stock
        compensation of approximately $1,672,000 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
        year ended January 31, 2004 was approximately $57,000 and was included
        in `Selling, general and administrative' expenses in the Consolidated
        Statements of Operations.

15.     WARRANTS

        In November 1995, the Company entered into an agreement to supply its
        products to a customer. Pursuant to this agreement, the Company issued
        warrants to purchase shares of its common stock at an exercise price of
        $7.18 per share. As of January 31, 2002, all such warrants were
        exercised.

16.     EMPLOYEE STOCK PURCHASE PLANS

        Under Comverse's Employee Stock Purchase 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 2,900,000 had been
        issued as of January 31, 2004.


                                      F-20
<PAGE>
17.      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, 2002, 2003 and 2004 was as follows:

<TABLE>
<CAPTION>
                                         JANUARY 31, 2002                  JANUARY 31, 2003                  JANUARY 31, 2004
                                -------------------------------    ---------------------------------   -----------------------------
                                                    Per Share                             Per Share                       Per Share
                                 Income    Shares     Amount        Loss       Shares       Amount      Loss    Shares      Amount
                                 ------    ------     ------        ----       ------       ------      ----    ------      ------
                                                                (In thousands, except per share data)
<S>                          <C>         <C>        <C>         <C>          <C>          <C>        <C>        <C>       <C>
         BASIC EPS
         ---------
         Net Income (loss)      $ 54,619   179,311     $0.30     $(129,478)    187,212      $(0.69)   $(5,386)   190,351    $(0.03)
                                                       =====                                =======                         =======

         EFFECT OF DILUTIVE
            SECURITIES
            ----------
         Options                             7,123
                                --------   -------     -----     ----------    -------      -------   --------   -------    -------

         DILUTED EPS            $ 54,619   186,434     $0.29     $(129,478)    187,212      $(0.69)   $(5,386)   190,351    $(0.03)
                                ========   =======     =====     ==========    =======      =======   ========   =======    =======
</TABLE>

         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 the 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. In addition, the shares issuable
         upon the conversion of the ZYPS were not included in the computation of
         diluted earnings (loss) per share for all periods. The ZYPS are
         convertible into shares of the Company's common stock contingent upon
         the occurrence of certain events that have not yet occurred. As such,
         the contingent conversion feature has not been satisfied and the ZYPS
         are not currently considered to be dilutive in accordance with the
         provisions of SFAS No. 128, "Earnings per Share." A full conversion of
         the ZYPS would result in the issuance of approximately 23,367,000
         additional shares of common stock.

18.      INTEREST AND OTHER INCOME (EXPENSE), NET

         Interest and other income (expense), net, consists of the following:

<TABLE>
<CAPTION>
                                                                              YEAR ENDED JANUARY 31,
                                                                   2002                2003              2004
                                                                   ----                ----              ----
                                                                                  (IN THOUSANDS)
<S>                                                        <C>                  <C>                <C>
                     Interest and dividend income               $     71,210      $     45,171     $      32,441
                     Interest expense                                (18,344)          (11,552)           (6,980)
                     Investment losses, net                          (37,079)          (41,666)           (1,240)
                     Foreign currency gains (losses), net            (20,788)           27,752             4,938
                     Gain on repurchase of Debentures                      -            39,374            10,224
                     Other, net                                       (1,500)             (177)             (425)
                                                                -------------     -------------    --------------
                                                                $     (6,501)     $     58,902     $      38,958
                                                                =============     =============    ==============
</TABLE>

                                      F-21
<PAGE>
19.      INCOME TAXES

         The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED JANUARY 31,
                                                                       2002                2003              2004
                                                                       ----                ----              ----
                                                                                      (IN THOUSANDS)
<S>                                                          <C>                  <C>                  <C>
             Current provision:
               Federal                                             $     6,288        $          -        $     1,782
               State                                                       779                 886              1,662
               Foreign                                                   6,631               2,257              3,744
                                                                   ------------        ------------       ------------

                                                                        13,698               3,143              7,188
                                                                   ------------        ------------       ------------

             Deferred provision (benefit):
               Federal                                                  (9,077)               (956)                 -
               State                                                      (162)                (20)                 -
               Foreign                                                     (23)              1,127              1,018
                                                                   ------------        ------------       ------------

                                                                        (9,262)                151              1,018
                                                                   ------------        ------------       ------------

                                                                   $     4,436         $     3,294        $     8,206
                                                                   ============        ============       ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED JANUARY 31,
                                                                                   2002             2003              2004
                                                                                   ----             ----              ----
<S>                                                                             <C>             <C>               <C>
                     U.S. Federal statutory rate                                      35%            35%               35%
                     Consolidated worldwide income
                        (in excess of) less than U.S. income                         (47)           (38)               46
                     Foreign income taxes (benefit)                                   11              2                (7)
                     Permanent differences                                             9             (2)               22
                                                                                ----------      ----------        ----------
                     Company's effective tax rate                                      8%            (3)%              96%
                                                                                ==========      ==========        ==========
</TABLE>

           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, 2003 and 2004 is as follows:


                                      F-22
<PAGE>
<TABLE>
<CAPTION>
                                                                                             JANUARY 31,
                                                                                             -----------
                                                                                      2003                2004
                                                                                      ----                ----
                                                                                            (IN THOUSANDS)
<S>                                                                             <C>                  <C>
             Deferred tax liability:
               Expenses deductible for tax purposes and
                  not for financial reporting purposes                             $     2,666         $      4,169
                                                                                   ============        =============

             Deferred tax asset:
               Reserves not currently deductible                                   $    65,194         $     28,230
               Tax loss carryforwards                                                  278,364              280,247
               Inventory capitalization                                                     51                   57
                                                                                   ------------        -------------
                                                                                       343,609              308,534
             Less: valuation allowance                                                (331,090)            (297,740)
                                                                                   ------------        -------------

                    Total deferred tax asset                                       $    12,519         $     10,794
                                                                                   ============        =============

</TABLE>

         At January 31, 2004, the Company had net operating loss carryforwards
         for Federal income tax purposes of approximately $735.2 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.


                                      F-23
<PAGE>
20.      BUSINESS SEGMENT INFORMATION

         The Company's reporting segments are as follows:

         Comverse Network Systems - 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 and contact centers. The software generates actionable
         intelligence through the collection, retention and analysis of voice,
         fax, video, email, Internet and data transmissions from multiple types
         of communications networks. This segment represents the Company's
         Verint subsidiary.

         All Other - Includes other miscellaneous operations.

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

                                      F-24
<PAGE>
   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, 2002, 2003 and 2004:

<TABLE>
<CAPTION>
                                                     Service         Security and
                                 Comverse            Enabling          Business
                                  Network           Signaling        Intelligence         All        Reconciling      Consolidated
                                  Systems            Software         Recording          Other          Items            Totals
                           ---------------------------------------------------------------------------------------------------------
                                                                      (In thousands)
<S>                        <C>                  <C>               <C>               <C>              <C>            <C>
   YEAR ENDED
   JANUARY 31, 2002
   ----------------

   Sales                      $    1,080,694      $     58,156      $    131,235    $     9,966    $      (9,833)   $    1,270,218

   Income (Loss)
   from Operations            $       66,105      $      8,523      $     (2,533)   $      (984)   $      (6,267)   $       64,844

   Depreciation and
   Amortization               $       48,476      $      4,612      $      7,394    $       558    $       2,784    $       63,824

   Significant Non-Cash
   Items                      $       11,530      $          -      $          -    $         -    $           -    $       11,530

   Total Assets               $    1,168,075      $    240,675      $    116,726    $    56,930    $   1,121,757    $    2,704,163

   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

</TABLE>

                                      F-25
<PAGE>
           Sales by country, based on end-user location, as a percentage of
           total sales, for the years ended January 31, 2002, 2003 and 2004 were
           as follows:

                                                         JANUARY 31,
                                                         -----------
                                                    2002     2003       2004
                                                    ----     ----       ----

                               United States         30%      35%        34%
                               Germany               12        5          6
                               Other foreign         58       60         60
                                                  ------    ------     ------
                               Total                100%     100%       100%
                                                  ======    ======     ======


           No customer accounted for 10% or more of sales for the years ended
           January 31, 2002, 2003 or 2004.

           Long-lived assets by country of domicile consist of:

                                                 JANUARY 31,
                                                 -----------
                                        2003                   2004
                                        ----                   ----
                                               (IN THOUSANDS)

                    United States    $    79,113           $      70,317
                    Israel               134,514                 123,454
                    Other                 12,899                  11,162
                                     -----------           -------------

                                     $   226,526           $     204,933
                                     ===========           =============

           21.        COMMITMENTS AND CONTINGENCIES

           LEASES - The Company leases office, manufacturing, and warehouse
           space under non-cancelable operating leases. Rent expense for all
           leased premises approximated $36,461,000, $36,032,000 and $31,616,000
           in the years ended January 31, 2002, 2003 and 2004, respectively.

           As of January 31, 2004, the minimum annual rent obligations of the
           Company were approximately as follows:

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

                                2005                         $      30,783
                                2006                                27,359
                                2007                                11,519
                                2008                                 9,242
                            2009 and thereafter                     23,858
                                                              -------------

                                                              $    102,761
                                                              =============

           The Company has entered into various sub-lease agreements to rent out
           excess space. As of January 31, 2004, the minimum annual sub-lease
           income obligation to the Company under such agreements was
           approximately $1,392,000, $827,000, $875,000, $910,000 and $876,000
           for the twelve months ending January 31, 2005, 2006, 2007, 2008 and
           2009 and thereafter, respectively, for a total of approximately
           $4,880,000.


                                      F-26
<PAGE>
       EMPLOYMENT AGREEMENTS - The Company is obligated under employment
       contracts with Kobi Alexander, its Chairman and Chief Executive Officer,
       to provide compensation, insurance and fringe benefits through February
       1, 2007. Minimum salary payments under the contracts currently amount to
       $672,000 per year. Following termination of his employment with the
       Company the executive is entitled to receive a severance payment equal to
       $165,077 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, 2004, 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, insurance and fringe benefits through February 1,
       2007. Minimum salary payments under the contract currently amount to
       $325,000 per year. Following termination of his employment with the
       Company the executive is entitled to receive a severance payment equal to
       $22,000 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, 2004, 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
       $12,500,000, 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. 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 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.


                                      F-27
<PAGE>
       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, 2004, such subsidiaries had received approximately $53.8
       million in cumulative grants from the OCS, and have recorded
       approximately $21.7 million in cumulative royalties to the OCS.

       DIVIDEND RESTRICTIONS - The ability of the Company's Israeli subsidiaries
       to pay dividends is governed by Israeli law, which provides that cash
       dividends may be paid by an Israeli corporation only out of retained
       earnings as determined for statutory purposes in Israeli currency. 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 also is 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, 2003 and 2004, the Company had invested approximately $25,259,000 and
       $26,420,000 respectively, related to these ventures, included in `Other
       assets' in the Consolidated Balance Sheets. In addition, the Company has
       committed approximately $17,364,000 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 $39,631,000 at January 31, 2004, are
       generally to be released by the Company's performance of specified
       contract milestones, which are scheduled to be completed primarily during
       2004.


                                      F-28
<PAGE>
       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, and, on
       March 17, 2004, BellSouth 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 alleges that Patent Nos. 5,857,013 and 5,764,747 cover certain
       aspects of some of the Company's systems, and it seeks, among other
       relief, monetary damages and injunctive relief. The Company believes all
       claims are without merit and will vigorously defend against these claims.

       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 other pending legal action that
       could reasonably be expected to have a material adverse effect on its
       business, financial condition and results of operations.

22.    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.

<TABLE>
<CAPTION>
                                                              JANUARY 31,
                                 -----------------------------------------------------------
                                            2003                          2004
                                            ----                          ----
                                  CARRYING        ESTIMATED      CARRYING      ESTIMATED
                                   AMOUNT        FAIR VALUE       AMOUNT      FAIR VALUE
                                   ------        ----------       ------      ----------
                                                          (IN THOUSANDS)
<S>                           <C>             <C>                <C>          <C>
        Liabilities:
           Debentures          $     390,838   $     340,029      $124,723     $    122,229
           ZYPS                            -               -      $420,000     $    489,300

</TABLE>

       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 or similar securities.

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

23.    EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

       In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
       Retirement Obligations." SFAS No. 143 establishes accounting standards
       for recognition and measurement of a liability for an asset retirement
       obligation and the associated asset retirement cost. SFAS No. 143 applies
       to legal obligations associated with the retirement of a tangible
       long-lived asset that result from the acquisition, construction,
       development and/or normal operation of a long-lived asset. This Statement
       is effective for fiscal years beginning after June 15, 2002. The adoption
       of SFAS No. 143 did not have a material effect on the Company's
       consolidated financial statements.


                                      F-29
<PAGE>
       In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
       on Derivative Instruments and Hedging Activities." SFAS No. 149 amends
       and clarifies accounting for derivative instruments, including certain
       derivative instruments embedded in other contracts, and for hedging
       activities under SFAS No. 133, "Accounting for Derivative Instruments and
       Hedging Activities." SFAS No. 149 is generally effective for derivative
       instruments, including derivative instruments embedded in certain
       contracts, entered into or modified after June 30, 2003 and for hedging
       relationships designated after June 30, 2003. The adoption of SFAS No.
       149 did not have a material effect on the Company's consolidated
       financial statements.

       In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
       Financial Instruments with Characteristics of both Liabilities and
       Equity." SFAS No. 150 establishes standards for the classification and
       measurement of certain financial instruments with characteristics of both
       liabilities and equity. SFAS No. 150 is effective for financial
       instruments entered into or modified after May 31, 2003. The adoption of
       SFAS No. 150 did not have a material effect on the Company's consolidated
       financial statements.

24.    SUBSEQUENT EVENTS

       During February 2004, the Company acquired, in open market purchases,
       $30,495,000 of face amount of the Debentures, resulting in a pre-tax
       gain, net of debt issuance costs, of approximately $244,000.

       On March 31, 2004, Verint acquired certain assets and assumed certain
       liabilities relating to ECtel Ltd.'s ("ECtel") communication interception
       business for approximately $35,000,000 in cash. The acquisition is
       expected to provide Verint with additional communication interception
       capabilities for the mass collection and analysis of voice and data
       communications. These technologies will be integrated into Verint's
       existing product offerings. In addition, some of ECtel's existing
       customers are new customers in new countries for Verint in the Asia
       Pacific and Latin America regions.



                                      F-30
<PAGE>
25.        QUARTERLY INFORMATION (UNAUDITED)

         The following table shows selected results of operations for each of
the quarters during the years ended January 31, 2003 and 2004:

<TABLE>
<CAPTION>
                                                                    FISCAL QUARTER ENDED
                            APRIL 30,      JULY 31,   OCT. 31,      JAN. 31,       APRIL 30,     JULY 31,     OCT. 31,     JAN. 31,
                             2002           2002        2002         2003           2003          2003          2003         2004
                             ----           ----        ----         ----           ----          ----          ----         ----
                                                           (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                     <C>            <C>          <C>          <C>            <C>            <C>         <C>          <C>
  Sales                   $  211,194     $ 181,210   $ 167,469     $ 176,016      $ 180,552     $ 188,468   $ 193,843     $ 203,029
  Gross margin               119,417       101,865      82,957        93,529        100,179       107,144     111,174       119,835
  Net income (loss)         (23,576)         3,923     (79,683)      (30,142)        (5,819)       (1,058)     (3,437)        4,928

  Diluted earnings (loss)
      per share           $   (0.13)     $    0.02   $   (0.43)    $   (0.16)     $   (0.03)     $  (0.01)  $  (0.02)     $    0.02
                          ==========     ==========  ==========    ==========     ==========     ========== ==========    ==========

</TABLE>



                                      F-31