STOCK-BASED COMPENSATION

Stock-based compensation expense associated with awards made by CTI and its subsidiaries are included in the Company’s condensed consolidated statements of operations as follows:



	Three Months Ended April 30,
	2012		2011
	(In thousands)
Stock options:
Product costs	$	23	$	97
Service costs	76		166
Research and development	91		240
Selling, general and administrative	509		1,390
	699		1,893
Restricted/Deferred stock awards:
Product costs	113		172
Service costs	765		645
Research and development	551		775
Selling, general and administrative	6,018		7,592
	7,447		9,184
Total	$	8,146	$	11,077

CTI

CTI’s Restricted Period

As a result of the delinquency in the filing of periodic reports under the Exchange Act since April 2006, CTI had been ineligible to use its registration statements on Form S-8 for the offer and sale of equity securities, including equity securities issuable upon exercise of stock options by employees. Consequently, to ensure that it did not violate the federal securities laws, CTI prohibited the exercise of vested stock options from April 2006 until such time as it was determined that CTI has filed all periodic reports required in a 12-month period and had an effective registration statement on Form S-8 on file with the SEC. This period is referred to as the “restricted period.” In October 2011, CTI resumed option exercises.

Restricted Awards and Stock Options

CTI granted restricted stock unit awards ("RSU") awards, deferred stock unit (“DSU”) awards (collectively “Restricted Awards”) and stock options under its various stock incentive plans.

During the three months ended April 30, 2012 and 2011, CTI granted RSU awards covering an aggregate of 3,337,270 shares and DSU awards covering 984,719 shares, respectively, of CTI’s common stock to certain executive officers and key employees.

During the three months ended April 30, 2012, 3,377 shares of CTI common stock were issued upon exercise of stock options under CTI’s stock incentive plans. Total proceeds for these shares were negligible.

As of April 30, 2012, stock options to purchase 2,695,883 shares of CTI’s common stock and Restricted Awards with respect to 4,649,297 shares of CTI’s common stock were outstanding and 18,572,600 shares of CTI’s common stock were available for future grant under CTI’s Stock Incentive Compensation Plans.

The total fair value of Restricted Awards vested during the three months ended April 30, 2012 and 2011 was $4.5 million and $8.3 million, respectively. As of April 30, 2012, the unrecognized compensation expense related to unvested Restricted Awards was $28.2 million, which is expected to be recognized over a weighted-average period of 2.6 years.

Outstanding stock options as of April 30, 2012 include unvested stock options to purchase 133,134 shares of CTI’s common stock with a weighted-average grant date fair value of $2.34, an expected term of 4 years and a total fair value of $0.3 million. The unrecognized compensation cost related to the remaining unvested stock options to purchase CTI’s common stock was not significant.

The fair value of stock options to purchase CTI’s common stock vested during the three months ended April 30, 2012 and 2011 was zero.

Verint

Stock Options

Verint Systems has generally not granted stock options subsequent to January 31, 2006. However, in connection with Verint’s acquisition of Vovici on August 4, 2011, stock options to purchase shares of Vovici common stock were converted into stock options to purchase approximately 42,000 shares of Verint Systems’ common stock. In addition, in connection with Verint’s acquisition of Witness on May 25, 2007, stock options to purchase shares of Witness common stock were converted into stock options to purchase approximately 3.1 million shares of Verint Systems’ common stock.

Stock option exercises had been suspended during Verint’s previous extended filing delay period. Following the filing of certain delayed periodic reports in June 2010 with the SEC, Verint’s stock option holders were permitted to resume exercising vested stock options. During the three months ended April 30, 2012 and 2011, approximately 37,000 and 258,000 common shares of Verint Systems’ common stock were issued pursuant to stock option exercises, respectively, for total proceeds of $0.7 million and $5.2 million, respectively. As of April 30, 2012, Verint Systems had approximately 1.0 million stock options outstanding, of which all but 27,000 were exercisable as of such date.

Restricted Stock Units and Restricted Stock Awards

Verint Systems periodically awards restricted stock units, as well as shares of restricted stock, to its directors, officers and other employees. These awards contain various vesting conditions, and are subject to certain restrictions and forfeiture provisions prior to vesting.

During the three months ended April 30, 2012 and 2011, Verint Systems granted 1.1 million and 0.9 million restricted stock units, respectively. Forfeitures of restricted stock units in each period were not significant. As of April 30, 2012 and 2011, Verint Systems had 2.4 million and 1.8 million of restricted stock units outstanding, respectively, with weighted-average grant date fair values of $30.44 and $29.17 per unit, respectively. Verint Systems did not grant any restricted stock awards during the three months ended April 30, 2012 and 2011, and there were no unvested restricted stock awards outstanding as of April 30, 2012.

Restricted stock units granted during the three months ended April 30, 2012 include a provision which allows these awards to be settled with cash payments upon vesting, rather than with delivery of common stock, at the discretion of Verint System's board of directors. As of April 30, 2012, settlement of these awards with cash payments was not considered probable, and therefore these awards have been accounted for as equity-classified awards.

As of April 30, 2012, there was approximately $44.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.1 years.

Phantom Stock Units

Verint’s liability-classified awards include phantom stock awards. The values of phantom stock track the market price of Verint Systems’ common stock and are therefore subject to volatility, and are settled with cash payments equivalent to the market value of Verint Systems’ common stock upon vesting. Awards under Verint Systems’ stock bonus program, which are settled with a variable number of shares of common stock determined using a discounted average price of Verint Systems’ common stock, as defined in the program, are also liability-classified awards. Upon settlement of liability-classified awards with equity, compensation expense associated with those awards is reported within equity.

Verint has periodically issued phantom stock units to certain Verint non-officer employees that settle, or are expected to settle, with cash payments upon vesting. Like equity-settled awards, phantom stock units are awarded with vesting conditions and are subject to certain forfeiture provisions prior to vesting.

During the three months ended April 30, 2012 and 2011, grants and forfeitures of phantom stock units by Verint Systems were not significant. Total cash payments made upon vesting of phantom stock units were negligible for the three months ended April 30, 2012. Total cash payments upon vesting of phantom stock units were $7.0 million for the three months ended April 30, 2011. The total accrued liabilities for phantom stock units were $2.3 million and $1.9 million as of April 30, 2012 and January 31, 2012, respectively.

Stock Bonus Program

In September 2011, Verint Systems’ board of directors approved, and in December 2011 revised, a stock bonus program under which eligible Verint employees may receive a portion of their bonus for the year or for the fourth quarter (depending on the employee’s bonus plan) in the form of fully vested shares of Verint Systems’ common stock. As of April 30, 2012, executive officers of Verint were not eligible to participate in this program. This program is subject to annual funding approval by Verint Systems’ board of directors and an annual cap on the number of shares that can be issued. Subject to these limitations, the number of shares to be issued under the program for a given year is determined using a five-day trailing average price of Verint Systems’ common stock when the awards are calculated, reduced by a discount to be determined by Verint Systems’ board of directors each year. For the fiscal year ended January 31, 2012, Verint Systems’ board of directors has approved up to 150,000 shares of Verint System’s common stock for awards under this program and a discount of 20%. To the extent that this program is not funded in a given year or the number of shares of common stock needed to fully satisfy employee enrollment exceeds the annual cap, the applicable portion of the employee bonuses will generally revert to being paid in cash. Obligations under this program are accounted for as liabilities, because the obligations are based predominantly on fixed monetary amounts that are generally known at inception of the obligation.

Shares of Verint Systems’ common stock earned under this program for the fiscal year ended January 31, 2012 are expected to be issued during the three months ending July 31, 2012. The total accrued liabilities for Verint's stock bonus program were $3.5 million and $3.2 million as of April 30, 2012 and January 31, 2012, respectively. As of April 30, 2012, funding for this program for the year ending January 31, 2013 has not yet been determined.