Nice Ltd. — Interim / Quarterly Report 2005

Aug 3, 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 Reports Record 2005 Second Quarter Earnings

Highlights:

• ! Q2 record revenue at excess of $72.2 million

• ! Q2 pro-forma gross margin improved to 56.7%

• ! Pro forma EPS was $0.36, up 38% from Q2 2004

• ! Integration of Dictaphones CRS business on track

Ra'anana, Israel, August 3, 2005 - NICE Systems (NASDAQ: NICE) , the global provider of advanced solutions that enable organizations to extract insight from interactions to drive performance, today announced record results for the second quarter ending June 30, 2005.

Second quarter 2005 revenue was at a company record high of $72.2 million. Second quarter revenue represents an 18% increase over $61.3 million in the same quarter of 2004.

Second quarter pro-forma gross margin, which excludes amortization of intangible assets, was 56.7%, an improvement from the 54.5% reported in the second quarter of 2004.

The company reported a second quarter pro forma operating profit of $7.1 million and operating margins of 9.8%, compared with $4.1 million and 6.8% in the second quarter of 2004.

Pro-forma net income, was $7.3 million or $0.36 per fully diluted share in the second quarter of 2005, up from $4.7 million or $0.26 per fully diluted share in the same quarter of 2004. On GAAP basis Second quarter net income was $6.8 million, or $0.33 per fully diluted share, compared with net income of $4.5 million, or $0.24 per share, on a fully diluted basis, in the second quarter of 2004.

Total cash and equivalents at June 30, 2005 were at $169.3 million, even after the $38.5 million cash acquisition of Dictaphone CRS assets. DSO’s for the second quarter stood at 73 days.

Commenting on the quarter, Haim Shani, Chief Executive Officer of NICE, said, "This was another outstanding quarter for NICE, with record results. We are extremely pleased by the strong momentum we are seeing in both the enterprise and public and security sectors, each driven by increasing demand for our products across the board. The increase in demand is particularly gratifying as it reflects successful execution of our near and long-term strategy for strengthening our position as the global leader in providing Insight from Interactions solutions.”

“On June 1[st] we announced the completion of the Dictaphone CRS acquisition. We are on track with the integration and are pleased by the pace at which we are progressing.“

“We are encouraged by the strong momentum of both the enterprise and public and security sectors, and further to this success and the fast and smooth integration of Dictaphone CRS, we are raising our annual guidance to revenues at $304 - $309 million from the previous guidance of $295-$300 million and pro-forma EPS to $1.55 – 1.63 from $1.50-1.60. We are also introducing first-time guidance for Q3 with a 28% - 32% growth in revenues to $81 - $84 million from the $63.5 million reported in the third quarter of last year. In terms of earnings, we expect pro-forma EPS to be between $0.38 and $0.42 per share, a 36% - 50% increase over the third quarter 2004 EPS of $0.28.”

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 $0.49 million in Q2 2005 and $0.23 million in Q2 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 NICE Systems +1 877 245 7448 galit.belkind@nice.com Investors Amit Scheinmann 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 endedJune 30,20042005UnauditedUnaudited$44,157$47,67317,11224,55761,26972,23015,76115,34612,24116,24328,00231,58933,26740,6416,2186,99915,23117,9497,8198,9018720629,35534,0553,9126,5861,1771,2455,0897,8315851,0304,5046,801--$4,504$6,801$0.26$0.36--$0.26$0.36$0.24$0.33--$0.24$0.3317,39518,76818,55320,305	Six months endedJune 30,	Six months endedJune 30,
	2004Unaudited$44,15717,11261,26915,76112,24128,00233,2676,21815,2317,8198729,3553,9121,1775,0895854,504-$4,504$0.26-$0.26$0.24-$0.2417,39518,553	2004Unaudited$85,55434,058119,61230,61624,36454,98064,63212,43330,40415,68417558,6965,9362,0788,0148957,1193,236$10,355$0.41$0.19$0.60$0.38$0.17$0.5617,25118,561	2005Unaudited
			$94,95043,402
			138,35230,90330,234
			61,137
			77,21513,75633,97917,241244
			65,220
			11,9952,297
			14,2921,715
			12,577-
			$12,577
			$0.68
			-
			$0.68
			$0.63
			-
			$0.63
			18,59020,083

NICE provides pro-forma net income and pro forma earnings per share data as additional information to its operating results. These measures are not in accordance with or an alternative for, GAAP and may be different from pro-forma measures used by other companies. The company believes that this presentation of pro-forma data provides useful information to management and investors regarding certain additional financial and business trends relating to its financial condition and result of operations. In addition, the Company's management uses these measures for reviewing the financial results of the Company and for budget purposes:

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 continuingoperationsNon-GAAP diluted income per share from continuingoperations	Three months endedJune 30,20042005UnauditedUnaudited$4,504$6,801--14928987206$4,740$7,296$0.27$0.39$0.26$0.36	Six months endedJune 30,	Six months endedJune 30,
	2004Unaudited$4,504-14987$4,740$0.27$0.26	2004Unaudited$10,355(3,236)299175$7,593$0.44$0.41	2005Unaudited
			$12,577-440244
			$13,261
			$0.71
			$0.66

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		December 31,**2004 **Audited$ 26,57917524,34846,4077,93712,615652118,713114,8059,410124,21516,98112,66525,745$298,319$11,97555,302867,2858,163222,871$298,319		June 30,2005
				Unaudited$34,95312622,62054,9518,06420,296653141,663111,6219,207120,82815,68326,08749,432$353,693$17,12183,5606100,6878,237244,769$353,693

NICE SYSTEMS LTD. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS

U.S. dollars in thousands

NICE SYSTEMS LTD. AND SUBSIDIARIESCONSOLIDATED CASH FLOW STATEMENTSU.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 (increase) 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 by operating activities from discontinued operationNet 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 of DictaphoneCRS DivisionDecrease 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 discontinued operationNet cash used by investing activitiesCash 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	Three months endedJune 30,20042005UnauditedUnaudited$4,504$6,801--3,3962,95197248445164(1,449)3,133(1,290)712988(1,499)5331,6099375,068(36)358,12519,222646-8,77119,222(1,355)(1,351)6044(32)(3)24337,68595,625(2,000)(67,425)4,0026,130(32,507)(9,225)(231)(210)-(38,939)------(24,354)(15,321)--(24,354)(15,321)1,8965,7661,8965,766 (61) (134)(13,748)9,53337,87825,420$24,130$34,953	Six months endedJune 30,20042005UnauditedUnaudited$10,355$12,577(3,236)-6,9085,96188199748445139(276)(142)(45)1,291(1,295)(1,078)4,7067889,656 (25)7015,83631,998850-16,68631,998(3,189)(2,722)6045(39)(25)716714,985149,460(2,000)(132,825)19,8026,130(67,863)(18,298)(674)(427)-(38,939)(75)-(1,483)-4,0132,531(36,392)(35,003)4,136-(32,256)(35,003)9,91811,4699,91811,469 (77)(90)(5,729)8,37429,85926,579$24,130$34,953
	2004Unaudited$4,504-3,39697445(1,449)(1,290)988533937(36)8,1256468,771(1,355)60(32)247,685(2,000)4,002(32,507)(231)----(24,354)-(24,354)1,8961,896 (61)(13,748)37,878$24,130	2004Unaudited$10,355(3,236)6,90888748139(142)1,291(1,078)788 (25)15,83685016,686(3,189)60(39)7114,985(2,000)19,802(67,863)(674)-(75)(1,483)4,013(36,392)4,136(32,256)9,9189,918 (77)(5,729)29,859$24,130
			11,46911,469(90)
			8,37426,579$34,953