Nice Ltd. — Interim / Quarterly Report 2005

Nov 9, 2005

NICE Systems Limited > T 972 9 775 3777 F 972 9 743 4282 8 Hapnina Street POB 690 E info@nice.com Ra’anana 43107 Israel

Insight from Interactions™

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NICE Posts Another Record Quarter With 2005 Third Quarter Earnings Results

Highlights:

• ! Q3 record revenue at excess of $82.7 million

• ! Q3 pro-forma gross margin improved to 56.6%

• ! Q3 pro-forma operating margins improved to 11.5%

• ! Pro forma EPS was $0.43, up 48% from Q3 2004

• ! Integration of Dictaphones CRS business successfully completed

Ra'anana, Israel, November 09, 2005 - NICE Systems (NASDAQ: NICE) , the global provider of advanced solutions that enable organizations to extract Insight from Interactions™, today announced record results for the third quarter ending September 30, 2005.

Third quarter 2005 revenue was at a company record high of $82.7 million and represents a 30% increase over $63.5 million in the same quarter of 2004.

Third quarter pro-forma gross margin, which excludes amortization of acquired intangible assets, was 56.6%, an improvement from the 55.0% reported in the third quarter of 2004.

The company reported a third quarter pro forma operating profit of $9.5 million and operating margin of 11.5%, compared with $5.4 million and 8.4% in the third quarter of 2004.

Pro-forma net income was $9.0 million or $0.43 per fully diluted share in the third quarter of 2005, up from $5.4 million or $0.29 per fully diluted share in the same quarter of 2004.

On a GAAP basis: third quarter gross margin was 55.9%, compared with 54.7% in the third quarter of 2004; operating profit was $8.4 million and operating margin was 10.2%, compared with $5.1 million and 8.1%, respectively, in the third quarter of 2004; and third quarter net income was $7.9 million, or $0.38 per fully diluted share, compared with net income of $5.2 million, or $0.28 per share, on a fully diluted basis, in the third quarter of 2004.

Total cash and equivalents at September 30, 2005 were at $184.9 million. DSO (days sales outstanding) for the second quarter stood at 70 days.

Commenting on the quarter, Haim Shani, Chief Executive Officer of NICE, said, "Once again, our company showed an outstanding financial performance. After announcing record results last quarter, we are pleased to conclude Q3 with another exceptional achievement. These results and the other successes of the third quarter validate once again our vision for Insight from Interactions, our ability to deliver on that vision to the enterprise and public and security sectors, and also that the effective integration of the Dictaphone CRS business is delivering on its promise.”

“Due to the increasing demand for Insight from Interactions across the board and the strong momentum we have been seeing in both the enterprise and public and security sectors we are providing Q4 guidance for revenues of $87 – $90 million, and Q4 pro-forma EPS in the range of 53 – 57 cents. This implies that we are raising the guidance for year 2005 to revenues at $308 - $311 million, a 22 – 23% increase over 2004; and pro-forma EPS of $1.62 – 1.66, representing a 36-39% increase over 2004.”

“Looking forward to 2006 we expect to continue to enjoy the leverage of our business model, while improving margins and driving stronger bottom line growth. We introduce first time 2006 revenue guidance at $355 - $363 million; and first time pro-forma EPS guidance of $2.05 - $2.15, which represents a 24 - 33% increase.”

Conference Call

NICE will host a conference call to discuss the results and its business outlook today at 8:30 a.m. EST (15:30 Israel). The call will be broadcast live on the internet via NICE's website at www.nice.com. A telephone replay will be available for up to 72 hours after the call. The replay information: US Toll-free: 1-866-276-1485; International: +972-3-925-5930; Israel: 03-925-5930.

Pro forma basis results exclude the amortization of acquired intangible assets of $1.1 million in Q3 2005 and $0.2 million in Q3 2004. A reconciliation between results on a GAAP and pro forma basis is provided in a table immediately following the Consolidated Statement of Operations (Pro Forma Basis).

About NICE

NICE Systems (NASDAQ: NICE) is the leading provider of Insight from Interactions, based on advanced content analytics of telephony, web, radio and video communications. NICE's solutions improve business and operational performance, as well as security. NICE has over 23,000 customers in 100 countries, including the world's top 10 banks and over 75% of the Fortune 100 companies. More information is available at www.nice.com.

Trademark Note: 360° View, Agent@home, Big Picture Technology, Executive Connect, Executive Insight*, Experience Your Customer, Investigator, Lasting Loyalty, Listen Learn Lead, MEGACORDER, Mirra, My Universe, NICE, NiceAdvantage, NICE Analyzer, NiceCall, NiceCLS, NiceCMS, NICE Feedback, NiceFix, NiceGuard, NICE Learning, NICE Link, NiceLog, NICE Perform, ScreenSense, NiceScreen, NiceSoft, NICE Storage Center, NiceTrack, NiceUniverse, NiceUniverse LIVE, NiceVision, NiceVision Harmony, NiceVision Mobile, NiceVision Pro, NiceVision Virtual, NiceWatch, Renaissance, Secure Your Vision, Tienna, Wordnet and other product names and services mentioned herein are trademarks and registered trademarks of NICE Systems Ltd. All other registered and unregistered trademarks are the property of their respective owners.

*Only in Australia

Media Galit Belkind Investors Sigal Elly

NICE Systems +1 877 245 7448 galit.belkind@nice.com NICE Systems +1 877 245 7449 ir@nice.com

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on the current expectations of the management of NICE Systems Ltd. (the Company) only, and are subject to a number of risk factors and uncertainties, including but not limited to changes in technology and market requirements, decline in demand for the Company's products, inability to timely develop and introduce new technologies, products and applications, difficulties or delays in absorbing and integrating acquired operations, products, technologies and personnel, loss of market share, pressure on pricing resulting from competition, and inability to maintain certain marketing and distribution arrangements, which could cause the actual results or performance of the Company to differ materially from those described therein. We undertake no obligation to update these forward-looking statements. For a more detailed description of the risk factors and uncertainties affecting the company, refer to the Company's reports filed from time to time with the Securities and Exchange Commission.

NICE SYSTEMS LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

U.S. dollars in thousands (except per share amounts)

RevenueProductServicesTotal revenueCost of revenueProductServicesTotal cost of revenueGross ProfitOperating Expenses:Research and development, netSelling and marketingGeneral and administrativeAmortization of acquired intangible assetsTotal operating expensesOperating incomeFinancial income, netIncome before taxes on incomeTaxes on incomeNet income from continuing operationsNet income from discontinued operationNet incomeBasic income per share from continuing operationsBasic income per share from discontinued operationBasic income per shareDiluted income per share from continuing operationsDiluted income per share from discontinued operationDiluted income per shareWeighted average number of sharesoutstanding used to compute:Basic income per shareDiluted income per share	Three months ended September 30,20042005UnauditedUnaudited$ 45,667$ 54,07817,84528,63963,51282,71716,11218,07712,64218,41428,754 36,49134,75846,2266,0847,77115,69919,2477,76910,2458754529,639 37,8085,1198,4186931,2575,8129,6756301,8065,1827,869-- $ 5,182 $7,869 $ 0.29 $ 0.41-- $ 0.29 $ 0.41 $ 0.28 $ 0.38-- $ 0.28 $ 0.3817,59519,12418,54920,753	Nine months ended September 30,	Nine months ended September 30,
	2004Unaudited$ 45,66717,84563,51216,11212,64228,75434,7586,08415,6997,7698729,6395,1196935,8126305,182- $ 5,182 $ 0.29- $ 0.29 $ 0.28- $ 0.2817,59518,549	2004Unaudited$131,221 51,903183,12446,728 37,006 83,73499,39018,51746,10223,453263 88,33511,0552,77113,8261,52512,301 3,236 $15,537 $ 0.71 $ 0.19 $ 0.89 $ 0.66 $ 0.17 $ 0.8417,36518,557	2005Unaudited
			$149,02872,041
			221,06948,98048,648
			97,628
			123,44121,52753,22627,486789
			103,028
			20,4133,554
			23,9673,521
			20,446-
			$20,446
			$1.09
			-
			$1.09
			$1.01
			-
			$1.01
			18,76820,306

NICE SYSTEMS LTD. AND SUBSIDIARIES

FOR COMPARATIVE PURPOSES

NET INCOME AND INCOME PER SHARE EXCLUDING DISCONTINUED OPERATION AND

AMORTIZATION OF ACQUIRED INTANGIBLE ASSETS

U.S. dollars in thousands (except per share amounts)

GAAP net incomeAdjustments:GAAP net income from discontinued operationAmortization of acquired intangible assetsIncluded in gross profitIncluded in operating expensesNon-GAAP net income from continuing operationsNon-GAAP basic income per share from continuing operationsNon-GAAP diluted income per share from continuingoperations	Three months endedSeptember 30,20042005UnauditedUnaudited$ 5,182$ 7,869--14956887545 $ 5,418 $ 8,982 $ 0.31 $ 0.47 $ 0.29 $ 0.43	Nine months endedSeptember 30,	Nine months endedSeptember 30,
	2004Unaudited$ 5,182-14987 $ 5,418 $ 0.31 $ 0.29	2004Unaudited$ 15,537(3,236)448263 $13,012 $ 0.75 $ 0.70	2005Unaudited
			$ 20,446-1,008789
			$22,243
			$1.19
			$1.10

NICE SYSTEMS LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

ASSETSCURRENT ASSETS:Cash and cash equivalentsShort-term bank depositsMarketable securitiesTrade receivablesOther receivables and prepaid expensesInventoriesAssets of discontinued operationTotal current assetsLONG-TERM INVESTMENTS:Long-term marketable securitiesOther long-term investmentsTotal long-term investmentsPROPERTY AND EQUIPMENT, NETOTHER ASSETS, NETGOODWILLTOTAL ASSETSLIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:Trade payablesAccrued expenses and other liabilitiesLiabilities of discontinued operationTotal current liabilitiesLONG-TERM LIABILITIESSHAREHOLDERS' EQUITYTOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	December31,**2004 **Audited$ 26,57917524,34846,4077,93712,615652118,713114,805 9,410124,21516,98112,66525,745 $298,319$ 11,97555,302 867,2858,163222,871 $298,319	September 30,2005
		Unaudited$ 25,07211535,70856,8818,14222,304653
		148,875124,029 9,283
		133,31215,37325,452 50,445
		$ 373,457
		$ 17,20990,4107
		107,6268,497257,334
		$ 373,457

NICE SYSTEMS LTD. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS

U.S. dollars in thousands

Cash flows from operating activities:Net incomeLess income for the period from discontinued operationAdjustments required to reconcile net income to net cashprovided by operating activities:Depreciation and amortizationAccrued severance pay, netAmortization of discount (premium) and accrued intereston marketable securitiesDecrease (increase) in trade receivablesDecrease in other receivables and prepaid expensesDecrease (increase) in inventoriesIncrease (decrease) in trade payablesIncrease in accrued expenses and other liabilitiesOtherNet cash provided by operating activities from continuing operationsNet cash provided (used) by operating activities from discontinuedoperationNet cash provided by operating activitiesCash flows from investing activities:Purchase of property and equipmentProceeds from sale of property and equipmentInvestment in short-term bank depositsProceeds from short-term bank depositsProceeds from maturity of short-term marketable securitiesInvestment in short-term marketable securitiesProceeds of call of long-term held-to-maturity marketable securitiesInvestment in long-term held-to-maturity marketable securitiesCapitalization of software development costsPayment for acquisition of certain assets and liabilities ofDictaphone CRS DivisionPayment for acquisition of certain assets and liabilities ofHannamax Hi-Tech Pty. Ltd.Decrease in accrued acquisition costsPayment in respect of terminated contract from TCS acquisitionProceeds from related party in respect of TCS acquisitionNet cash used by investing activities from continuing operationsNet cash provided by investing activities from discontinuedoperationNet cash used by investing activities	Three months endedSeptember 30,20042005UnauditedUnaudited$5,182$7,869--3,3743,558(58)1126513244(1,691)(1,109)(53)49(1,458)500113,2716,8492613411,54415,362(246)-11,29815,362(1,970)(1,673)-3(33)(11)45231,7259,510(1,000)(15,550)9,6321,500(13,195)(21,089)(312)(140)-(781)(1,833)-(1,364)---(6,472)(30,041)--(6,472)(30,041)	Nine months endedSeptember 30,	Nine months endedSeptember 30,
	2004Unaudited$5,182-3,374(58)26544(1,109)495003,2712611,544(246)11,298(1,970)-(33)451,725(1,000)9,632(13,195)(312)-(1,364)-(6,472)-(6,472)	2004Unaudited$ 15,537(3,236)10,282301,01379(1,251)1,291(561)4,149-27,33360427,937(5,159)60(72)11616,710(3,000)29,434(81,058)(987)-(75)(2,847)4,013(42,865)4,136(38,729)	2005Unaudited
			$ 20,446-9,519210578(2,157)(131)(2,811)4,7346,671206
			47,265-
			47,265
			(4,392)48(35)90158,970(148,375)7,630(39,387)(567)(39,720)(1,833)--2,531
			(65,040)-
			(65,040)

Cash flows from financing activities:

Proceeds from issuance of shares and exercise of share options,netNet cash provided by financing activitiesEffect of exchange rate changes on cashIncrease (decrease) in cash and cash equivalentsCash and cash equivalents at beginning of periodCash and cash equivalents at end of period	2,7532,753207,59924,130$31,729	4,7504,75048(9,881)34,953$25,072	12,67112,671(9)1,87029,859$31,729	16,219
				16,219
				49
				(1,507)26,579
				$25,072