DISCONTINUED OPERATIONS

Comverse

On October 31, 2012, CTI completed its Share Distribution. Following the Share Distribution, CTI no longer holds any of Comverse's outstanding capital stock, and Comverse is an independent publicly-traded company.

In order to govern certain ongoing relationships between CTI and Comverse after the Share Distribution and to provide mechanisms for an orderly transition, CTI and Comverse entered into agreements relating to the provision of certain services and setting forth certain rights and obligations between them following the Share Distribution. CTI and Comverse have agreed, among other things, to indemnify each other against certain liabilities arising from their respective businesses and the services that will be provided under such agreements.

Agreements Related to the Share Distribution

CTI entered into a distribution agreement (the “Distribution Agreement”), transition services agreement, tax disaffiliation agreement and employee matters agreement (collectively, the “Share Distribution Agreements”) with Comverse in connection with the Share Distribution. In particular, the Distribution Agreement, among other things, provides for the allocation between Comverse and CTI of various assets, liabilities and obligations attributable to periods prior to the Share Distribution. Under the Distribution Agreement, Comverse has agreed to indemnify CTI and its affiliates (including Verint following the Verint Merger) against certain losses that may arise as a result of the Verint Merger and the Share Distribution. Certain of Comverse's indemnification obligations are capped at $25.0 million and certain are uncapped. Specifically, the capped indemnification obligations include indemnifying CTI and its affiliates (including Verint after the Verint Merger) against losses stemming from breaches by CTI of representations, warranties and covenants in the Verint Merger Agreement and for any liabilities of CTI that are known by CTI but not included on the net worth statement to be delivered by CTI at the closing of the Verint Merger. Comverse's uncapped indemnification obligations include indemnifying CTI and its affiliates (including Verint after the Verint Merger) against liabilities relating to Comverse's business; claims by any shareholder or creditor of CTI related to the shared distribution, the Verint Merger or related transactions or disclosure documents; certain claims made by employees or former employees of CTI and any claims made by employees and former employees of Comverse (including but not limited to the Israeli optionholder suits discussed in Note 19, Commitment and Contingencies); any failure by Comverse to perform under any of the agreements entered into in connection with the Share Distribution; claims related to CTI's ownership or operation of Comverse; claims related to the Starhome Disposition; certain retained liabilities of CTI that are not reflected on or reserved against on the net worth statement to be delivered by CTI at the closing of the Verint Merger; and claims arising out of the exercise of appraisal rights by a CTI shareholder in connection with the Share Distribution. CTI has agreed to place $25.0 million in cash in escrow to support indemnification claims to the extent made against Comverse by CTI and its affiliates (including Verint after the Verint Merger), and any cash balance remaining in such escrow fund 18 months after the closing of the Verint Merger will be released to Comverse. The escrow funds cannot be used for claims related to the Israeli optionholder suit. Comverse will also assume all pre−Share Distribution tax obligations of each of Comverse and CTI. As of October 31, 2012, CTI has recorded a receivable from Comverse of $13.9 million related to those tax obligations. The Company has classified the $25.0 million of cash it has agreed to place in escrow in "Restricted cash and bank time deposits" in the condensed consolidated balance sheet as of October 31, 2012.

Under the transition services agreement, each of Comverse and CTI will provide the other with certain services on an interim basis. Amounts payable for services provided under the transition services agreement will generally equal the costs and expenses incurred by the party providing the services, and a significant portion of the services that Comverse provides have fixed fees. Further, Comverse and CTI entered into a tax disaffiliation agreement that governs their respective rights, responsibilities and obligations after the Share Distribution with respect to tax liabilities and benefits, tax attributes, tax contests and other tax matters regarding income taxes, other taxes and related tax returns. Comverse and CTI also entered into an employee matters agreement, which allocates liabilities and responsibilities relating to employee compensation and benefit plans and programs.

Starhome

On August 1, 2012, CTI, certain other Starhome shareholders and Starhome entered into a Share Purchase Agreement (the “Starhome Share Purchase Agreement”) with Fortissimo Capital Fund II (Israel), L.P., Fortissimo Capital Fund III (Israel), L.P. and Fortissimo Capital Fund III (Cayman), L.P. (collectively, “Fortissimo”) pursuant to which Fortissimo agreed to purchase all of the outstanding share capital of Starhome (the “Starhome Disposition”). On September 19, 2012, CTI, in order to ensure it could meet the conditions to the Verint Merger, contributed to Comverse its interest in Starhome, including its rights and obligations under the Starhome Share Purchase Agreement. The Starhome Disposition was completed on October 19, 2012.

Under the terms of the Starhome Share Purchase Agreement, Starhome's shareholders received aggregate cash proceeds of approximately $81.3 million, subject to adjustment for fees, transaction expenses and certain taxes. Of this amount, $10.5 million is held in escrow to cover potential post-closing indemnification claims, with $5.5 million released after 18 months (less any claims made on or prior to such date) and the remainder released after 24 months, in each case, less any claims made on or prior to such dates. Comverse received aggregate net cash consideration (including amounts deposited in escrow at closing) of approximately $37.2 million, after payments that CTI agreed to make to certain other Starhome shareholders of $4.5 million.

CTI and the other Starhome shareholders have made customary representations and warranties and covenants in the Starhome Share Purchase Agreement, including an agreement not to solicit Starhome employees or interfere with Starhome's clients, customers, suppliers, licensors or other business relationships for a period of four years following the closing. CTI has also agreed for a period of four years following the closing (October 19, 2012) that it will not, and will cause its affiliates (other than Verint) not to, create, design, develop or offer for sale any product or service which directly competes with any products or services offered by Starhome, subject to certain limited exceptions.

Comverse's and Starhome's results of operations included in discontinued operations were as follows:



	Three Months Ended October 31,					Nine Months Ended October 31,
	2012			2011		2012			2011
	(In thousands)
Total revenue	$	196,426		$	253,714	$	529,309		$	618,287

(Loss) income before income tax provision	(7,406		)	30,062		(23,315		)	11,234
Gain on sale of discontinued operations, net of tax	22,601			—		22,601			—
Income tax (provision) benefit	(395		)	17,330		(14,109		)	(16,479		)
Total income (loss) from discontinued operations, net of tax	$	14,800		$	47,392	$	(14,823	)	$	(5,245	)

Income (loss) from discontinued operations, net of tax
Attributable to Comverse Technology, Inc.	$	14,644		$	46,773	$	(15,989	)	$	(7,270	)
Attributable to noncontrolling interest	$	156		$	619	$	1,166		$	2,025

Comverse's and Starhome's assets and liabilities included in discontinued operations in the condensed consolidated balance sheets as of January 31, 2012 were as follows:



		January 31,
		2012
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	193,192
Restricted cash		28,893
Accounts receivable, net of allowance of $9,273		135,835
Inventories		29,991
Deferred cost of revenue		35,252
Deferred income taxes		10,108
Prepaid expenses and other current assets		56,157
Total current assets		489,428
Property and equipment, net		45,860
Goodwill		163,076
Intangible assets		22,034
Deferred cost of revenue		108,107
Deferred income taxes		10,153
Other assets		65,592
Total assets		$	904,250
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses		$	196,879
Deferred revenue		365,803
Deferred income taxes		8,742
Income taxes payable		2,302
Other current liabilities		853
Total current liabilities		574,579
Deferred revenue		204,681
Deferred income taxes		45,205
Note payable to CTI		8,536
Other long-term liabilities		154,025
Total liabilities		$	987,026