10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number  0-27512
CSG SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware		47-0783182
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
7887 East Belleview, Suite 1000 Englewood, Colorado  80111
(Address of principal executive offices, including zip code)
(303) 796-2850
(Registrant’s telephone number, including area code)

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.

YES   x  NO   o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES   x  NO   o

Shares of common stock outstanding at May 12, 2003:52,281,305.

CSG SYSTEMS INTERNATIONAL, INC.

FORM 10-Q For the Quarter Ended March 31, 2003

INDEX

		Page No.
Part I      -	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 (Unaudited)	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
Part II      -	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 6.	Exhibits and Reports on Form 8-K	37
	Signatures	38
	Certifications	39
	Index to Exhibits	41

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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

	March 31, 2003			December 31, 2002
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	113,332		$	94,424
Short-term investments		1,019			1,013
Total cash, cash equivalents and short-term investments		114,351			95,437
Trade accounts receivable-
Billed, net of allowance of $12,609 and $12,079		169,964			160,417
Unbilled and other		25,555			28,856
Purchased Kenan Business accounts receivable		—			603
Deferred income taxes		9,334			8,355
Other current assets		10,647			10,568
Total current assets		329,851			304,236
Property and equipment, net of depreciation of $77,601 and $74,023		44,054			46,442
Software, net of amortization of $51,984 and $48,582		47,266			50,478
Goodwill		214,799			220,065
Client contracts, net of amortization of $45,549 and $42,954		61,707			63,805
Deferred income taxes		36,217			37,163
Other assets		8,632			9,128
Total assets	$	742,526		$	731,317
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt	$	20,393		$	16,370
Client deposits		16,836			16,350
Trade accounts payable		22,384			24,810
Accrued employee compensation		14,637			26,707
Deferred revenue		59,892			45,411
Accrued income taxes		32,049			30,469
Other current liabilities		26,531			24,337
Total current liabilities		192,722			184,454
Non-current liabilities:
Long-term debt, net of current maturities		248,532			253,630
Deferred revenue		2,044			2,090
Other non-current liabilities		8,702			9,038
Total non-current liabilities		259,278			264,758
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized;
zero shares issued and outstanding		—			—
Common stock, par value $.01 per share; 100,000,000 shares authorized;
52,262,017 shares and 51,726,528 shares outstanding		578			577
Additional paid-in capital		255,926			255,452
Deferred employee compensation		(9,276	)		(3,904	)
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on short-term investments, net of tax		1			(6	)
Cumulative translation adjustments		(984	)		1,060
Treasury stock, at cost, 5,499,796 shares and 5,979,796 shares		(171,111	)		(186,045	)
Accumulated earnings		215,392			214,971
Total stockholders' equity		290,526			282,105
Total liabilities and stockholders' equity	$	742,526		$	731,317

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

	Three months ended
	March 31, 2003			March 31, 2002
	(unaudited)
Revenues:
Processing and related services	$	91,176		$	90,934
Software		10,164			22,500
Maintenance		22,403			12,219
Professional services		18,189			4,722
Total revenues		141,932			130,375
Cost of Revenues:
Cost of processing and related services		34,115			35,060
Cost of software and maintenance		18,309			5,308
Cost of professional services		18,552			11,049
Total cost of revenues		70,976			51,417
Gross margin (exclusive of depreciation)		70,956			78,958
Operating expenses:
Research and development		15,495			17,086
Selling, general and administrative		29,732			21,193
Depreciation		4,599			4,188
Restructuring charges		3,159			—
Kenan Business acquisition-related expenses		—			23,792
Total operating expenses		52,985			66,259
Operating income		17,971			12,699
Other income (expense):
Interest expense		(3,874	)		(1,911	)
Interest and investment income, net		288			842
Other		386			87
Total other		(3,200	)		(982	)
Income before income taxes		14,771			11,717
Income tax provision		(5,968	)		(9,254	)
Net income	$	8,803		$	2,463
Basic net income per common share:
Net income available to common stockholders	$	0.17		$	0.05
Weighted average common shares		51,306			52,679
Diluted net income per common share:
Net income available to common stockholders	$	0.17		$	0.05
Weighted average common shares		51,494			53,450

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Three months ended
	March 31, 2003			March 31, 2002
	(unaudited)
Cash flows from operating activities:
Net income	$	8,803		$	2,463
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation		4,599			4,188
Amortization		6,591			3,179
Charge for in-process purchased research and development		—			19,300
Restructuring charge for abandonment of facilities		683			—
Gain on short-term investments		—			(49	)
Deferred income taxes		(45	)		(2,304	)
Tax benefit of stock options exercised		2			—
Stock-based employee compensation		1,180			—
Impairment of intangible assets		—			1,906
Changes in operating assets and liabilities:
Trade accounts and other receivables, net		(6,125	)		(18,423	)
Other current and noncurrent assets		(97	)		410
Accounts payable, accrued liabilities, and deferred revenues		6,631			15,483
Net cash provided by operating activities		22,222			26,153
Cash flows from investing activities:
Purchases of property and equipment		(2,262	)		(3,071	)
Purchases of short-term investments		(6	)		—
Proceeds from sale of short-term investments		—			53,381
Acquisition of businesses and assets, net of cash acquired		(835	)		(266,681	)
Acquisition of and investments in client contracts		(290	)		(1,612	)
Net cash used in investing activities		(3,393	)		(217,983	)
Cash flows from financing activities:
Proceeds from issuance of common stock		473			1,321
Repurchase of common stock		—			(1,633	)
Proceeds from long-term debt		—			300,000
Payments on long-term debt		(1,075	)		(61,500	)
Payments of deferred financing costs		(87	)		(8,365	)
Net cash provided by (used in) financing activities		(689	)		229,823
Effect of exchange rate fluctuations on cash		768			77
Net increase in cash and cash equivalents		18,908			38,070
Cash and cash equivalents, beginning of period		94,424			30,165
Cash and cash equivalents, end of period	$	113,332		$	68,235
Supplemental disclosures of cash flow information:
Cash paid during the period for-
Interest	$	3,100		$	1,439
Income taxes	$	3,633		$	2,794

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CSG SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     GENERAL

The accompanying unaudited condensed consolidated financial statements at March 31, 2003 and December 31, 2002, and for the three months ended March 31, 2003 and 2002, have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, and pursuant to the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission (the “SEC”).  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the financial position and operating results have been included.  The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, filed with the SEC (the “Company’s 2002 10-K”).  The results of operations for the three months ended March 31, 2003, are not necessarily indicative of the expected results for the entire year ending December 31, 2003.

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Postage.  The Company passes through to its clients the cost of postage that is incurred on behalf of those clients, and typically requires an advance payment on expected postage costs. These advance payments are included in “client deposits” in the accompanying Condensed Consolidated Balance Sheets and are classified as current liabilities regardless of the contract period.  The Company nets the cost of postage against the postage reimbursements, and includes the net amount in processing and related services revenues.  The Company has concluded that net treatment of these revenues is appropriate as the Company: (i) generally has little or no credit risk with regard to postage, as the Company requires postage deposits from its clients based on contractual arrangements prior to the mailing of customer statements; (ii) has no discretion over the supplier of postal delivery services; and (iii) is not the primary obligor in the postal delivery service. The total cost of postage incurred on behalf of clients that has been netted against processing and related services revenues for the three months ended March 31, 2003 and 2002 was $37.9 million and $32.7 million, respectively.

Stock-Based Compensation.  The Company accounts for its stock-based compensation plans using the intrinsic value method in accordance with Accounting Principles Board (“APB’’) Opinion No. 25, ‘‘Accounting for Stock Issued to Employees’’, and related interpretations, and follows the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, ‘‘Accounting for Stock-Based Compensation’’ (‘‘SFAS 123’’) and SFAS No. 148, ‘‘Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”).  At March 31, 2003, the Company had five stock-based compensation plans.  For the three months ended March 31, 2003, and 2002, the Company recorded compensation expense of $1.2 million, and zero, respectively, under the intrinsic value method.

Had compensation expense for the Company’s five stock-based compensation plans been based on the fair value at the grant dates for awards under those plans, consistent with the methodology of SFAS 123, the Company’s net income and net income per share available to common stockholders for the three months ended March 31, 2003 and 2002, would approximate the pro forma amounts as follows (in thousands, except per share amounts):

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	Three Months Ended March 31,
	2003			2002
Net income, as reported	$	8,803		$	2,463
Deduct stock-based employee compensation expense determined under the fair value based method, net of related tax effects:
Compensation expense for stock options		(3,448	)		(4,188	)
Compensation expense for the employee stock purchase plan		(42	)		(46	)
Pro forma net income (loss)	$	5,313		$	(1,771	)
Earnings (loss) per share:
Basic – as reported	$	0.17		$	0.05
Basic – pro forma		0.10			(0.03	)
Diluted – as reported		0.17			0.05
Diluted – pro forma		0.10			(0.03	)

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions for options granted in the three months ended March 31, 2003 and 2002, respectively: risk-free interest rates of 2.7% and 3.7%; dividend yield of zero percent in both periods; expected lives of 5.2 years and 6.0 years; and volatility of 60.0% in both periods.

3.     STOCKHOLDERS’ EQUITY

Restricted Stock.  In January 2003, the Company granted 480,000 shares of restricted stock to a key member of management, with 270,833 shares related to the stock options cancelled in August 2002 (see Note 11 to the Company’s Consolidated Financial Statements in the 2002 Form 10-K for additional details).   The remaining 209,167 shares were granted at no cost to the employee.  The 270,833 shares vest in equal installments on January 2, 2005, 2006, and 2007.  The 209,167 shares vest 25% annually over the four years from the date of the grant. The entire 480,000 shares become fully vested upon a change in control of the Company, and have other acceleration of vesting provisions related to the death, retirement or termination of the employee. The restricted stock grants were issued under the 1996 Plan.

The Company accounted for the restricted stock grant as a fixed award, and recorded deferred employee compensation (a component of stockholders’ equity) of approximately $5.9 million as of the grant date.  The amount of deferred employee compensation is net of $0.6 million of compensation expense, which was recognized in 2002 when the 270,833 shares were accounted for as a variable stock award.  The $5.9 million of deferred employee compensation will be amortized to compensation expense on a straight-line basis over the vesting period of the restricted stock.

The Company issued 480,000 shares of treasury stock to fulfill the restricted stock grants, as opposed to issuing new shares. The difference between the carrying value of the shares of treasury stock issued of approximately $14.9 million (weighted-average price per share of $31.11) and the amount of deferred and accrued employee compensation recorded of approximately $6.5 million (weighted-average price of $13.65 per share), or approximately $8.4 million, was recorded as a reduction to accumulated earnings (a component of stockholders’ equity).

Stock Option Grants.  During the three months ended March 31, 2003, the Company granted 415,000, 25,250 and 24,000 options under the 1996 Plan, the 2001 Plan and Director Plan, respectively, at prices that range from $9.11 to $15.11 per share.  The 1996 Plan and 2001 Plan options vest over four years and the Director Plan options vest over three years.  The 1996 Plan options were granted to key members of management.

4.     NET INCOME PER COMMON SHARE

Basic net income per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted net income per common share is consistent with the calculation of basic net income per common share while giving effect to dilutive potential common shares outstanding during the period.  Basic and diluted earnings per share (“EPS”) are presented on the face of the Company’s Condensed Consolidated Statements of Income.  No reconciliation of the EPS numerators is

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necessary for the three months ended March 31, 2003 and 2002 as net income is used as the numerator for each period.  The reconciliation of the EPS denominators is as follows (in thousands):

	Three Months Ended March 31,
	2003		2002
Basic common shares outstanding		51,306		52,679
Dilutive effect of common stock options		188		771
Diluted common shares outstanding		51,494		53,450

Common stock options of 6,675,531 shares and 4,247,087 shares for the three months ended March 31, 2003 and 2002, respectively, have been excluded from the computation of diluted EPS because the exercise prices of these options were greater than the average market price of the common shares for the respective periods and the effect of their inclusion would be anti-dilutive. The dilutive effect of the unvested restricted stock grants is included with the dilutive effect of common stock options in the above table.

5.     COMPREHENSIVE INCOME

The Company’s components of comprehensive income were as follows (in thousands):

	Three Months Ended March 31,
	2003			2002
Net income	$	8,803		$	2,463
Other comprehensive income (loss), net of tax, if any:
Foreign currency translation adjustments		(2,044	)		118
Reclassification adjustment for gain included in net income		—			(49	)
Unrealized gain (loss) on short-term investments		7			(53	)
Comprehensive income	$	6,766		$	2,479

6.     ACQUISITION OF BUSINESS

On February 28, 2002, the Company closed on its agreement to acquire the Kenan Business.  During 2002 and through February 28, 2003, the Company worked to gather the information it needed to identify and measure the fair value of the assets acquired and the liabilities assumed, including valuations of the acquired intangible assets and an assessment of the fair value of the purchased Kenan Business accounts receivable.  During the second quarter of 2002, the valuation reports were finalized and the assessment of the fair value of the Kenan Business accounts receivable was completed.  As of December 31, 2002, the Company believed it had obtained the necessary information to substantially complete its purchase accounting for the Kenan Business acquisition.  As of February 28, 2003, the Company considered the purchase accounting for the Kenan Business to be complete.

The following table summarizes the final estimated fair values of the assets acquired and liabilities assumed at the closing of the acquisition on February 28, 2002 (in thousands). 

Current assets	$	63,000
Fixed assets		9,000
In-process purchased research and development		19,300
Acquired client contracts		6,000
Acquired software		46,600

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Goodwill		193,000
Total assets acquired		336,900
Current liabilities		(72,900	)
Non-current liabilities		(8,000	)
Total liabilities assumed		(80,900	)
Net assets acquired	$	256,000

Included in the Kenan Business assumed liabilities was a liability related to costs (on a present value basis) of abandoning certain assumed facility leases.  The $9.1 million balance of the facility abandonment liability as of December 31, 2002, with the finalization of the Kenan Business purchase accounting, has been included in the abandonment of facilities component of the Company’s business restructuring reserves (see Note 11).

7.     SEGMENT INFORMATION

The Company serves its clients through its two operating segments:  the Broadband Services Division (the “Broadband Division”) and the Global Software Services Division (the “GSS Division”).  The Company’s operating segment information and corporate overhead costs are presented below (in thousands).

	Three Months Ended March 31, 2003
	Broadband Division			GSS Division			Corporate			Total
Processing revenues	$	90,449		$	727		$	—		$	91,176
Software revenues		1,669			8,495			—			10,164
Maintenance revenues		5,029			17,374			—			22,403
Professional services revenues		370			17,819			—			18,189
Total revenues		97,517			44,415			—			141,932
Segment operating expenses (1)		51,598			51,391			17,813			120,802
Contribution margin (loss) (1)	$	45,919		$	(6,976	)	$	(17,813	)	$	21,130
Contribution margin (loss) percentage		47.1	%		(15.7	)%		N/A			14.9	%

	Three Months Ended March 31, 2002
	Broadband Division			GSS Division			Corporate			Total
Processing revenues	$	90,812		$	122		$	—		$	90,934
Software revenues		7,078			15,422			—			22,500
Maintenance revenues		4,762			7,457			—			12,219
Professional services revenues		1,097			3,625			—			4,722
Total revenues		103,749			26,626			—			130,375
Segment operating expenses (1)		50,019			33,942			9,923			93,884
Contribution margin (loss) (1)	$	53,730		$	(7,316	)	$	(9,923	)	$	36,491
Contribution margin (loss) percentage		51.8	%		(27.5	)%		N/A			28.0	%

(1) Segment operating expenses and contribution margin (loss) exclude:  (i) the restructuring charges of $3.2 million for the three months ended March 31, 2003; and (ii) the Kenan Business acquisition-related expenses of $23.8 million for the three months ended March 31, 2002.

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Reconciling information between reportable segments contribution margin and the Company’s consolidated totals is as follows (in thousands):

	Three Months Ended March 31,
	2003			2002
Segment contribution margin	$	21,130		$	36,491
Restructuring charges		(3,159	)		—
Kenan Business acquisition-related expenses		—			(23,792	)
Operating income		17,971			12,699
Interest expense		(3,874	)		(1,911	)
Interest income and other		674			929
Income before income taxes	$	14,771		$	11,717

8.     GOODWILL AND OTHER INTANGIBLE ASSETS

The Company follows the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) in accounting for acquired goodwill and other intangible assets.  Under the provisions of SFAS 142, the Company ceased amortizing goodwill as of December 31, 2001, and never amortized goodwill that was acquired in business combinations for which the acquisition date was after June 30, 2001.  Instead, goodwill and other intangible assets with indefinite lives are reviewed annually for impairment.  Separate intangible assets that do not have indefinite lives continue to be amortized over their estimated useful lives.

Intangible assets subject to amortization as of March 31, 2003 and December 31, 2002 were as follows (in thousands):

	March 31, 2003							December 31, 2002
	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
Client contracts	$	107,256	$	(45,549	)	$	61,707	$	106,759	$	(42,954	)	$	63,805
Software		99,250		(51,984	)		47,266		99,060		(48,582	)		50,478
Total	$	206,506	$	(97,533	)	$	108,973	$	205,819	$	(91,536	)	$	114,283

The aggregate amortization related to intangible assets for the three months ended March 31, 2003 and 2002, was $6.1 million and $3.0 million, respectively.  Based on the March 31, 2003 net carrying value of these intangible assets, the estimated aggregate amortization for each of the five succeeding fiscal years ending December 31 are: 2003 – $21.0 million; 2004 – $20.0 million; 2005 –  $18.7 million; 2006 – $15.8 million; and 2007 – $7.9 million.  The Company does not have any intangible assets with indefinite lives other than goodwill.

The changes in the carrying amount of goodwill for the three months ended March 31, 2003 are as follows (in thousands):

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	Broadband Division		GSS Division			Consolidated
Balance as of December 31, 2002	$	623	$	219,442		$	220,065
Adjustment to Kenan Business acquired assets and assumed liabilities		—		(2,493	)		(2,493	)
Impairment losses		—		—			—
Effects of changes in foreign currency exchange rates and other		—		(2,773	)		(2,773	)
Balance as of March 31, 2003	$	623	$	214,176		$	214,799

The Company performed its annual goodwill impairment test as of September 30, 2002, and concluded that no impairment of goodwill had occurred as of that date.  In addition to the requirement to perform an annual goodwill impairment test, goodwill and other long-lived intangible assets are required to be evaluated for possible impairment on a periodic basis (e.g., quarterly) if events occur or circumstances change that would indicate that a possible impairment of these assets may have occurred.  The Company has concluded that no events or changes in circumstances had occurred during the first quarter of 2003 to warrant an impairment assessment.  If the current economic conditions within the global telecommunications industry worsen and/or take longer to recover than anticipated, it is reasonably possible that a review for impairment of the goodwill (and/or other related long-lived intangible assets) in the future may indicate that these assets are impaired, and the amount of impairment could be substantial.

9.     RECENT ACCOUNTING PRONOUNCEMENT

EITF Issue No. 00-21.  In October 2002, the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) published its consensus decision on EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”).  EITF 00-21 provides guidance as to what constitutes “separate units of accounting” in multiple element revenue contracts.  EITF 00-21 only addresses the determination of the separate units of accounting, not the specific revenue accounting for each of the units once they are identified. The guidelines of EITF 00-21 are effective for revenue transactions entered into after June 30, 2003.  The Company believes that EITF 00-21 does not apply to the Company’s software and services transactions that follow the guidelines of SOP 97-2, SOP 98-9 and EITF 00-03.  The Company is currently analyzing the impact, if any, of adopting EITF 00-21.

10.     COMMITMENTS, GUARANTEES AND CONTINGENCIES

Product Warranties. The Company generally warrants that its products and services will conform to published specifications, or to specifications provided in an individual client arrangement, as applicable.  The typical warranty period is 90 days from delivery of the product or service.  The typical remedy for breach of warranty is to correct or replace any defective deliverable, and if not possible or practical, the Company will accept the return of the defective deliverable and refund the amount paid to the Company under the client arrangement that is allocable to the defective deliverable.  Historically, the Company has incurred minimal warranty costs, and as a result, does not maintain a warranty reserve.

Product Indemnifications. The Company’s software arrangements generally include a product indemnification provision that will indemnify and defend a client in actions brought against the client that claim the Company’s products infringe upon a copyright, trade secret, or valid patent.  Historically, the Company has not incurred any significant costs related to product indemnification claims, and as a result, does not maintain a reserve for such exposure.

Contingent Consideration. Contingent consideration represents an arrangement to provide additional consideration in a business combination to the seller if contractually specified conditions related to the acquired entity are achieved.  As of March 31, 2003, the Davinci purchase agreement was the Company’s only arrangement which included contingent consideration.  Since the events which would trigger the additional purchase price payments had not occurred as of March 31, 2003, no amounts of the contingent consideration were accrued as of that date. 

Claims for Company Non-performance.  The Company’s arrangements with its clients typically cap the Company’s liability for breach to a specified amount of the direct damages incurred by the client resulting from the breach.  From time-to-time, the Company’s arrangements may also include provisions for possible liquidated damages or other financial remedies for non-performance by the Company.  As of March 31, 2003, the Company believes it had adequate reserves to cover any reasonably anticipated exposure as a result of the Company’s nonperformance for any

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past or current arrangements with its clients.

Legal Proceedings.  The Company is currently involved in various legal proceedings with its largest client, Comcast (formerly AT&T), consisting principally of arbitration proceedings regarding the Master Subscriber Agreement.  Comcast has also filed other complaints against the Company for matters related to the Master Subscriber Agreement.

In its demand for arbitration, Comcast cited the following claims: First, Comcast claimed that the Company has “interfered” with Comcast’s “right” to provide aggregated billing services to its customers.  In particular, Comcast contended that the Company has not cooperated with Comcast in utilizing another vendor to provide aggregated billing services and that the Company has improperly asserted its exclusivity rights under the Master Subscriber Agreement.  Second, Comcast claimed that the Company has breached the Most Favored Nations clause of the Master Subscriber Agreement.  And finally, Comcast claimed that the Company has violated its obligation to provide Comcast with its customer data in a deconversion format.

In the arbitration, Comcast seeks a “declaration” that it was entitled to terminate the Master Subscriber Agreement on its fifth anniversary (August 10, 2002), or at any time thereafter, on 90 days written notice to the Company.  If, as a result of the outcome of the arbitration proceedings, it is ruled that Comcast has the right to and ultimately elects to terminate the contract (or otherwise converts some or all of its customers to another service provider), Comcast seeks full cooperation from the Company for whatever period of time it takes to convert its approximately 16 million customers to another vendor’s customer care and billing system.  In addition, Comcast seeks unspecified damages from the Company.

In its response to the arbitration demands, the Company denied Comcast’s allegations that the Company had breached the Master Subscriber Agreement. The Company also filed a number of counter claims alleging that Comcast had breached its obligations to the Company and is seeking unspecified damages. Both parties have agreed upon a single arbitrator to hear the dispute, and the arbitration proceedings began the week of May 5, 2003.  The hearing portion of the proceedings is expected to take several weeks to complete.

The Company emphatically denies the allegations made by Comcast in the arbitration demand, and denies that it is in breach of the Master Subscriber Agreement.  However, if the arbitrator determines that the Company either has: (i) materially or repeatedly defaulted in the performance of its obligations without satisfying the cure provisions of the Master Subscriber Agreement; or (ii) failed to substantially comply with its material obligations under the Master Subscriber Agreement taken as a whole, then Comcast may be able to terminate the Master Subscriber Agreement prior to its natural expiration on December 31, 2012.   Should Comcast be successful in: (i) its claims for unspecified damages or its Most Favored Nations claims; or (ii) terminating the Master Subscriber Agreement in whole or in part, the resulting impact could have a material impact on the Company’s financial condition and results of operations.

In addition, if Comcast is successful in any of its other claims against the Company, in whole or in part, it could have a material impact on the Company’s financial condition and results of operations.

As of March 31, 2003, the Company has not reflected an accrual in the accompanying Condensed Consolidated Balance Sheet for the potential exposure for any loss related to the Comcast legal proceedings discussed above, primarily from the arbitration proceedings, because the Company has concluded that it is not probable that such a loss has occurred, and the amount of any potential loss could not reasonably be estimated at this time, even within a range.  In addition, the Company has various long-lived intangible assets (client contracts) related to the Master Subscriber Agreement which have a net carrying value as of March 31, 2003 of approximately $59.4 million.  Because of the uncertainty regarding the outcome of these matters, the Company does not believe there has been any impairment to the carrying value of these intangible assets as of the date of this filing.  However, should Comcast be successful in: (i) terminating the Master Subscriber Agreement in whole or in part; (ii) significantly modifying the terms of the Master Subscriber Agreement; or (iii) significantly reducing the revenues expected to be generated under the Master Subscriber Agreement, it is reasonably possible that an impairment of these intangible assets could result, and the amount of the impairment could be substantial.

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From time-to-time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business.  In the opinion of the Company’s management, the Company is not presently a party to any other material pending or threatened legal proceedings.

11.     RESTRUCTURING CHARGES

Due to the economic decline in the global telecommunications industry, and the uncertainty in the timing and the extent of any economic turnaround within the industry, the Company implemented several cost reduction initiatives during the third quarter of 2002. As a result of the business restructuring initiatives, the Company recorded restructuring charges of approximately $12.7 million during the year ended December 31, 2002. 

During the first quarter of 2003, the Company incurred additional restructuring charges of approximately $3.2 million related to: (i) the involuntary termination of 66 employees, primarily from the GSS Division; and (ii) an adjustment to the Company’s existing facilities abandonment reserves.  The first quarter of 2003 restructuring charges were accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which the Company adopted effective January 1, 2003, and have been reflected as a separate line item on the accompanying Condensed Consolidated Statements of Income.  The components of the restructuring charges are as follows (in thousands):

Involuntary employee terminations	$	2,472
Facilities abandonment		683
All other		4
Total restructuring charges	$	3,159

The involuntary employee terminations component of the restructuring charges relates primarily to severance payments and job placement assistance.  All of the involuntary employee terminations were completed during the first quarter of 2003.

The facilities abandonment component of the restructuring charges relates to office facilities that are under long-term lease agreements that the Company has abandoned.  The facilities abandonment charge is equal to the present value of the future costs associated with those abandoned facilities, net of the proceeds from any future sublease agreements.  The Company has used estimates to arrive at both the future costs of the abandoned facilities and the proceeds from any future sublease agreements.  The $0.7 million charge relates to revisions in the underlying estimates used in establishing the original restructuring charges.  The Company will continue to evaluate its estimates in recording the facilities abandonment charge.  As a result, there may be additional charges or reversals in the future. 

The activity in the business restructuring reserves during the first quarter of 2003, to include the December 31, 2002 balance of the liability the Company assumed in the Kenan Business acquisition related to the abandonment of certain assumed facility leases of $9.1 million (see Note 6), is as follows (in thousands).  Of the $14.9 million business restructuring reserve as of March 31, 2003, $6.5 million was included in current liabilities and $8.4 million was included in non-current liabilities.

	Termination Benefits			Abandonment of Facilities			Other			Total
December 31, 2002, balance	$	240		$	15,573		$	—		$	15,813
Charged to expense during period		2,472			683			4			3,159
Cash payments		(2,414	)		—			(4	)		(2,418	)
Amortization of liability for abandonment of facilities		—			(1,648	)		—			(1,648	)
Other		—			(29	)		—			(29	)
March 31, 2003, balance	$	298		$	14,579		$	—		$	14,877

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CSG SYSTEMS INTERNATIONAL, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following table sets forth certain financial data and the percentage of total revenues of the Company for the periods indicated (in thousands):

	Three months ended March  31,
	2003						2002
	Amount			% of Revenue			Amount			% of Revenue
Revenues:
Processing and related services	$	91,176			64.2	%	$	90,934			69.7	%
Software		10,164			7.2			22,500			17.3
Maintenance		22,403			15.8			12,219			9.4
Professional services		18,189			12.8			4,722			3.6
Total revenues		141,932			100.0			130,375			100.0
Cost of Revenues:
Cost of processing and related services		34,115			24.0			35,060			26.9
Cost of software and maintenance		18,309			12.9			5,308			4.0
Cost of professional services		18,552			13.1			11,049			8.5
Total cost of revenues		70,976			50.0			51,417			39.4
Gross margin (exclusive of depreciation)		70,956			50.0			78,958			60.6
Operating expenses:
Research and development		15,495			10.9			17,086			13.1
Selling, general and administrative		29,732			21.0			21,193			16.3
Depreciation		4,599			3.2			4,188			3.2
Restructuring charges		3,159			2.2			—			—
Kenan Business acquistion-related charges		—			—			23,792			18.2
Total operating expenses		52,985			37.3			66,259			50.8
Operating income		17,971			12.7			12,699			9.8
Other income (expense):
Interest expense		(3,874	)		(2.7	)		(1,911	)		(1.5	)
Interest and investment income, net		288			0.2			842			0.6
Other		386			0.2			87			0.1
Total other		(3,200	)		(2.3	)		(982	)		(0.8	)
Income before income taxes		14,771			10.4			11,717			9.0
Income tax provision		(5,968	)		(4.2	)		(9,254	)		(7.1	)
Net income	$	8,803			6.2	%	$	2,463			1.9	%

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Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Company Overview

CSG Systems International, Inc. (the “Company”) serves more 265 telecommunications service providers in more than 40 countries.  The Company is a leader in next-generation billing and customer care solutions for the cable television, satellite, advanced IP services, next-generation mobile, and fixed wireline markets.  The Company’s combination of proven and future-ready solutions, delivered in both outsourced and licensed formats, enables its clients to deliver high quality customer service, improve operational efficiencies and rapidly bring new revenue-generating products to market. The Company is a S&P MidCap 400 company.   The Company serves its clients through its two operating segments:  the Broadband Services Division (the “Broadband Division”) and the Global Software Services Division (the “GSS Division”).

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Condensed Consolidated Financial Statements (the “Financial Statements”) and Notes thereto included in this Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “Company’s 2002 10-K”).

Forward-Looking Statements

This report contains a number of forward-looking statements relative to future plans of the Company and its expectations concerning the customer care and billing industry, as well as the converging telecommunications industry it serves, and similar matters.  Such forward-looking statements are based on assumptions about a number of important factors, and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements.  Some of the risks that are foreseen by management are contained in Exhibit 99.01 “Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995—Certain Cautionary Statements and Risk Factors” of this report.  Exhibit 99.01 constitutes an integral part of this report, and readers are strongly encouraged to read this exhibit closely in conjunction with the MD&A.

Comcast and AT&T Broadband Business Relationship

Background. In September 1997, the Company entered into a 15-year exclusive contract (the “Master Subscriber Agreement”) with Tele-Communications, Inc. (“TCI”) to consolidate all TCI customers onto the Company’s customer care and billing system.  In 1999 and 2000, respectively, AT&T completed its mergers with TCI and MediaOne Group, Inc. (“MediaOne”), and consolidated the merged operations into AT&T Broadband (“AT&T”), and the Company continued to service the merged operations under the terms of the Master Subscriber Agreement.  On November 18, 2002, Comcast Corporation (“Comcast”) completed its merger with AT&T, and now under Comcast’s ownership, the Company continues to service the former AT&T operations under the terms of the Master Subscriber Agreement.  The key terms of the Master Subscriber Agreement are discussed below. 

Significance of the Master Subscriber Agreement.  The Company generates a significant percentage of its total revenues under the Master Subscriber Agreement. During the three months ended March 31, 2003, and 2002, revenues generated under the Master Subscriber Agreement represented approximately 27% and 31% of total revenues.  The Company expects that the percentage of its total revenues for the remainder of 2003 generated under the Master Subscriber Agreement will represent a percentage comparable to that of the first three months of 2003.  There are inherent risks whenever this large of a percentage of total revenues is concentrated with one client.  One such risk is that, should Comcast’s business generally decline, it would have a material impact on the Company’s financial condition and results of operations.

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Legal Proceedings. The Company has been involved in various legal proceedings with AT&T and Comcast (both before and after Comcast’s November 18, 2002 merger with AT&T) related to the Master Subscriber Agreement, which are summarized below.  In this discussion, the Company refers to the claimant in the various legal proceedings as “Comcast” even though some of the events described below occurred prior to Comcast’s merger with AT&T.

• On March 13, 2002, Comcast notified the Company that Comcast was “considering” initiating arbitration proceedings relating to the Master Subscriber Agreement. Comcast stated that any action to terminate the Master Subscriber Agreement would be based upon the following claims.  First, Comcast claimed that the Company has failed to provide bundled or aggregated billing services, including the Company’s breach of its obligation to provide telephony billing when required to do so under the Master Subscriber Agreement.  Second, the letter stated that the Company has not cooperated with Comcast in utilizing another vendor to provide aggregated billing services, as well as the Company’s improper assertion of its exclusivity rights. Third, the letter claimed that the Company has breached the Most Favored Nations clause of the Master Subscriber Agreement.  Comcast further stated that should a negotiated resolution not be achieved, Comcast could elect to seek a declaration that it is entitled to terminate the Master Subscriber Agreement on the fifth anniversary of the contract, which was August 10, 2002.

• On March 18, 2002, Comcast filed for injunctive relief in the Arapahoe County District Court in Colorado to obtain certain data files from the Company.  On April 15, 2002, the Court dismissed Comcast’s claim, ruling that if Comcast sought to pursue the matter, it must do so in arbitration pursuant to the dispute resolution clause of the Master Subscriber Agreement.

• On May 10, 2002, Comcast filed a demand with the American Arbitration Association (“AAA”) to arbitrate its claims against the Company.  In its demand for arbitration, Comcast cited matters consistent with those of the March 13, 2002 allegations against the Company, and the March 18, 2002 injunctive relief action, as discussed immediately above.  The claims are as follows:  First, Comcast claimed that the Company has “interfered” with Comcast ’s  “right” to provide aggregated billing services to its customers.  In particular, Comcast contended that the Company has not cooperated with Comcast in utilizing another vendor to provide aggregated billing services and that the Company has improperly asserted its exclusivity rights under the Master Subscriber Agreement.  Second, Comcast claimed that the Company has breached the Most Favored Nations clause of the Master Subscriber Agreement.  And finally, Comcast claimed that the Company has violated its obligation to provide Comcast with its customer data in a deconversion format.

• In the arbitration, Comcast seeks a “declaration” that it was entitled to terminate the Master Subscriber Agreement on its fifth anniversary (August 10, 2002), or at any time thereafter, on 90 days written notice to the Company.  If, as a result of the outcome of the arbitration proceedings, it is ruled that Comcast has the right to and ultimately elects to terminate the contract (or otherwise converts some or all of its customers to another service provider), Comcast seeks full cooperation from the Company for whatever period of time it takes to convert its approximately 16 million customers to another vendor’s customer care and billing system.  In addition, Comcast seeks unspecified damages from the Company.

• On May 31, 2002, the Company responded to Comcast’s arbitration demand.  In its response, the Company denied Comcast’s allegations that the Company had breached the Master Subscriber Agreement. The Company also filed a number of counter claims alleging that Comcast had breached its obligations to the Company and is seeking unspecified damages.  Included among the Company’s counterclaims against Comcast is a request for a declaratory judgement that following the AT&T and Comcast merger (which occurred on November 18, 2002), the approximately 8 million Comcast customers would be subject to the Master Subscriber Agreement and thereby must, subject to certain conditions, be processed on the Company’s system.  See the discussion below for the status of the arbitration proceedings.

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	•	On June 21, 2002, the Company filed a complaint in U.S. District Court in Denver, Colorado alleging, among other things, that Comcast had unlawfully interfered with the Master Subscriber Agreement as of that date, and sought a declaratory judgement that the approximately 8 million Comcast customers would be subject to the Master Subscriber Agreement and thereby must, subject to certain conditions, be processed on the Company’s system.  In its complaint, the Company sought unspecified damages for Comcast’s illegal conduct and interference with the Master Subscriber Agreement.
	•	On November 4, 2002, the Company voluntarily withdrew the June 21, 2002 complaint against Comcast without prejudice.  The Company has the right to resubmit this complaint against Comcast.
	•	On November 15, 2002, Comcast, and its wholly-owned subsidiaries, Comcast Holdings Corporation (“Comcast Holdings”) and Comcast Cable Communications, Inc. (“Comcast Cable”), filed a complaint in the US District Court for the Eastern District of Pennsylvania.  The complaint was filed in connection with a complex series of corporate transactions undertaken in connection with the merger between Comcast and AT&T.  The complaint seeks a declaration that Comcast, Comcast Holdings and Comcast Cable (subsidiaries under the parent company Comcast) are not bound by the existing Master Subscriber Agreement, either as a result of Comcast’s pre-existing subsidiaries not being bound by the Master Subscriber Agreement, or alternatively, Comcast’s customers serviced by those subsidiaries not being bound by the Master Subscriber Agreement prior to July 1, 2007 due to preexisting contractual obligations with other billing vendors. Further, the complaint alleges that Comcast has the right to terminate the Master Subscriber Agreement by transferring all customers the Company services under the Master Subscriber Agreement to a different contract between the Company and Comcast Cable.  Finally, Comcast sought to have all of these issues decided by the US District Court, not in the pending arbitration initiated by Comcast against the Company.
	•	On December 16, 2002, the Company filed a motion in the US District Court for the Eastern District of Pennsylvania requesting the Court to dismiss the complaint filed by Comcast on November 15, 2002, or alternatively, stay any action on the complaint until the arbitration proceedings between the two parties regarding the Master Subscriber Agreement are completed. In addition, in its motion, the Company argues that the complaints detailed in Comcast’s lawsuit should be added as part of the Master Subscriber Agreement arbitration proceedings.
	•	On February 10, 2003, the US District Court for the Eastern District of Pennsylvania issued an order to stay the November 15, 2002 complaint filed by Comcast.  The order requires the Company and Comcast to submit to the Court a status report periodically on the arbitration proceedings between the two parties.
Current Status of the Legal Proceedings.  The Company believes that effective with the closing of the Comcast and AT&T merger, Comcast has effectively assumed all of the rights and obligations under the Master Subscriber Agreement, and is the party responsible for the Master Subscriber Agreement.  Unless specifically identified differently, references to Comcast hereafter in this document include AT&T and its predecessor companies referenced above.  The Company and Comcast have agreed upon a single arbitrator to hear the dispute, and the arbitration proceedings began the week of May 5, 2003.  The hearing portion of the proceedings is expected to take several weeks to complete.
The Company emphatically denies the allegations made by Comcast in the arbitration demand, and denies that it is in breach of the Master Subscriber Agreement.  However, if the arbitrator determines that the Company either has: (i) materially or repeatedly defaulted in the performance of its obligations without satisfying the cure provisions of the Master Subscriber Agreement; or (ii) failed to substantially comply with its material obligations under the Master Subscriber Agreement taken as a whole, then Comcast may be able to terminate the

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Master Subscriber Agreement prior to its natural expiration on December 31, 2012.  Should Comcast be successful in: (i) its claims for unspecified damages or its Most Favored Nations claims; or (ii) terminating the Master Subscriber Agreement in whole or in part, the resulting impact could have a material impact on the Company’s financial condition and results of operations.

In addition, if Comcast is successful in any of its claims under either of its complaints discussed above, in whole or in part, it could have a material impact on the Company’s financial condition and results of operations.

As of March 31, 2003, the Company has not reflected an accrual on its consolidated balance sheet for the potential exposure for any loss related to the Comcast legal proceedings discussed above, primarily from the arbitration proceedings, because the Company has concluded that it is not probable that such a loss has occurred, and the amount of any potential loss could not reasonably be estimated at this time, even within a range.  In addition, the Company has various long-lived intangible assets (client contracts) related to the Master Subscriber Agreement which have a net carrying value as of March 31, 2003 of approximately $59.4 million.  Because of the uncertainty regarding the outcome of these matters, the Company does not believe there has been any impairment to the carrying value of these intangible assets as of the date of this filing.  However, should Comcast be successful in: (i) terminating the Master Subscriber Agreement in whole or in part; (ii) significantly modifying the terms of the Master Subscriber Agreement; or (iii) significantly reducing the revenues expected to be generated under the Master Subscriber Agreement, it is reasonably possible that an impairment of these intangible assets could result, and the amount of the impairment could be substantial.

While the substance of any negotiations between the Company and Comcast, as well as any arbitration proceedings, are not being made public at this time, readers are strongly encouraged to review frequently the Company’s filings with the SEC as well as all public announcements from the Company relating to the dispute between the companies. This is of particular importance as it is impossible to predict accurately at this time when any partial or entire resolution to this dispute may be forthcoming, either inside or outside of the arbitration process.

Contract Rights and Obligations (as amended).  The Master Subscriber Agreement has an original term of 15 years and expires in 2012.  The Master Subscriber Agreement has minimum financial commitments (based upon processing 13 million wireline video customers and one million Internet/high speed data customers) over the term of the contract, and in the Company’s view, includes exclusive rights to provide customer care and billing products and services for Comcast’s offerings of wireline video, Internet/high-speed data services, and print and mail services.  The minimum financial commitments due from Comcast under the Master Subscriber Agreement for 2003 are approximately $120 million, and increase by an inflation factor each year through the end of the contract expiration date of 2012.  During the fourth quarter of 2000, the Company relinquished its exclusive rights to process Comcast’s wireline telephony customers, and those Comcast customers were fully converted to another service provider by the end of 2001.  The loss of these customers did not have a material impact on the Company’s result of operations.

Effective April 2001, the Company amended its agreement with Comcast giving the Company certain additional contractual rights to continue processing, for a minimum of one year, customers that Comcast may divest. These new rights are co-terminus with and are in addition to the existing minimum processing commitments the Company has with Comcast through 2012. Any such divestitures to a third party would not: (i) relieve Comcast of its minimum processing commitments; (ii) impact the Company’s exclusivity rights under the Master Subscriber Agreement; or (iii) impact the term of the Master Subscriber Agreement.

The Master Subscriber Agreement contains certain performance criteria and other obligations to be met by the Company. To fulfill the Master Subscriber Agreement and to remain competitive, the Company believes it will be required to develop additional features to existing products and services, and possibly in certain circumstances, new products and services, all of which will require substantial research and development, as well as implementation and operational aptitude.   The Company is required to perform certain remedial efforts and is subject to certain penalties if it fails to meet the performance criteria or other obligations.  The Company is also subject to an annual technical audit to determine whether the Company’s products and services include innovations in features and functions that have become standard in the wireline video industry. If the audit determines the Company is not providing such an innovation and it fails to do so in the manner and time period dictated by the contract, then Comcast would be

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released from its exclusivity obligation to the extent necessary to obtain the innovation from a third party.  As a result of two separate technical audits, the Company believes that it is in compliance with the Master Subscriber Agreement’s technical audit requirements.  Comcast has recently requested that the companies forego the third technical audit in light of the pending arbitration.  In light of Comcast’s request and the arbitration proceedings, the Company is not pursuing a technical audit at this time. 

Comcast has the right to terminate the Master Subscriber Agreement in the event of certain defaults by the Company. To date, the Company believes it has complied with the terms of the contract, and expects to continue to perform successfully under the Master Subscriber Agreement.  Should the Company fail to meet its obligations under the Master Subscriber Agreement, or should Comcast be successful in any action to either terminate the Master Subscriber Agreement in whole or in part, or collect damages caused by an alleged breach, it would have a material impact on the Company’s financial condition and results of operations.  Likewise, if Comcast were to breach its material obligations to the Company, that would have a material impact on the Company’s financial condition and results of operations.  Indeed, on September 27, 2000, Comcast (then AT&T Broadband) filed a Demand for Arbitration relating to the Master Subscriber Agreement, causing a significant drop in the trading price of the Company’s Common Stock.  On October 10, 2000, Comcast (then AT&T Broadband) and the Company entered into a settlement and release agreement whereby all claims, except for certain claims relating to the scope of the Company’s exclusive rights under the Master Subscriber Agreement, that were or could have been raised were mutually released by the parties.  In connection with the dismissal, the companies agreed to amend the Master Subscriber Agreement.  See the Company’s 2000 Form 10-K for additional discussions of this matter.

Historically, a substantial percentage of the Company’s revenue growth has resulted from the sale of products and services under the Master Subscriber Agreement, both of which are in excess of the minimum financial commitments included in the contract.  There can be no assurance that the Company will continue to sell products and services to Comcast  in excess of the minimum financial commitments included in the contract.

A copy of the Master Subscriber Agreement and all subsequent amendments are included in the Company’s exhibits to its periodic public filings with the SEC. These documents are available on the Internet and the Company encourages readers to review these documents for further details.

Current Economic State of the Global Telecommunications Industry

The economic state of the global telecommunications industry (e.g., cable television, DBS, wireline and wireless telephony, Internet and high speed data, etc.) continues to be depressed, with many of the companies operating within this industry publicly reporting decreased revenues and earnings, as well as several companies recently filing for bankruptcy protection.  Public reports indicate any expected turnaround in the economic state of the global telecommunications industry could be slow, and a sustained recovery could take several years.  Many telecommunications companies have announced cost and capital expenditure reduction programs to cope with the depressed economic state of the industry.  Since most of the Company’s current and future clients operate within this industry sector, the economic state of this industry directly impacts the Company’s business, potentially limiting the amount of products and services current or future clients may purchase from the Company, as well as increasing the likelihood of uncollectible amounts from current and future accounts receivable and lengthening the cash collection cycle.  For these reasons, the continued depressed economic state of the global telecommunications industry may materially impact the Company’s future results of operations and limit the Company’s ability to grow its revenues.   Indeed, in response to the lingering poor economic conditions within this industry, during 2003 and 2002, the Company has undertaken several cost reduction initiatives (e.g., involuntary employee terminations) and has reduced its revenue and earnings expectations.  These cost reduction initiatives are discussed in more detail below. 

Assessment of Goodwill and Other Intangible Assets 

During 2002 and 2001, the Company acquired several businesses which operate within the GSS Division (principally the Kenan Business).  The key drivers of the value of these acquired businesses are the global telecommunications industry customer base and the software assets acquired.  In connection with these acquisitions, the Company has

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recorded approximately $214 million of goodwill (approximately $195 million relates to the Kenan Business) which has been assigned to the GSS Division.  In addition, as of March 31, 2003, in conjunction with these acquisitions, the Company had other long-lived intangible assets (client contracts and software) attributable to the GSS Division with a net carrying value of approximately $46.6 million (approximately $36.5 million relates to the Kenan Business).

The Company performed its annual goodwill impairment test as of September 30, 2002, and concluded that no impairment of goodwill had occurred as of that date. In addition to the requirement to perform an annual goodwill impairment test, goodwill and other long-lived intangible assets are required to be evaluated for possible impairment on a periodic basis (e.g., quarterly) if events occur or circumstances change that would indicate that a possible impairment of these assets may have occurred.  The Company has concluded that no events or changes in circumstances had occurred during the first quarter of 2003 to warrant an impairment assessment.  The Company will continually monitor the carrying value of these assets during this economic downturn in this industry sector.  If the current economic conditions worsen and/or take longer to recover than anticipated, it is reasonably possible that a review for impairment of the goodwill and/or related long-lived intangible assets in the future may indicate that these assets are impaired, and the amount of impairment could be substantial.

Restructuring Charges

As discussed above, due to the economic decline in the global telecommunications industry, and the uncertainty in the timing and the extent of any economic turnaround within the industry, the Company implemented several cost reduction initiatives beginning in the third quarter of 2002.  These initiatives included: (i) involuntary employee terminations from all areas of the Company of approximately 300 people (approximately 10% of the Company’s then current workforce); (ii) limited hiring of new employees; (iii) a reduction of the Company’s facilities and infrastructure support costs, including facilities consolidations and abandonments; and (iv) reductions in costs in several discretionary spending areas, such as travel and entertainment.  Substantially all of these involuntary employee terminations were completed during the third quarter of 2002, with the remainder completed during the fourth quarter of 2002. The first quarter of 2003 financial results reflect the full implementation of the cost savings initiatives, which were expected to result in approximately $45 million of annual cost savings, when compared to the Company’s operating results for the second quarter of 2002.

Due to continued reduced demand for the Company’s products and services as a result of the depressed global telecommunications industry, during the first quarter of 2003, the Company reduced its workforce by 66 people (approximately 2% of the Company’s then current workforce).  All of these involuntary employee terminations were completed by the end of the first quarter of 2003 and consisited principally of individuals within the GSS Division. The cost savings resulting from these terminations were not significant in the first quarter of 2003. The Company expects the annual cost savings from these involuntary employee terminations to be approximately $7 million.

The Company believes that the operational impact from the above mentioned cost reduction initiatives will not negatively impact its ability to service its current or future clients, and will not limit its ability to grow its business in the future when the economic conditions within the global telecommunications industry improve.

The components of the restructuring charges for the three months ended March 31, 2003 are as follows (in thousands):

Involuntary employee terminations	$	2,472
Facilities abandonment		683
All other		4
Total restructuring charges	$	3,159

The involuntary employee terminations component of the restructuring charges relates primarily to severance payments and job placement assistance for those terminated employees.  The facilities abandonment component of the restructuring charges relates to office facilities that are under long-term lease agreements that the Company has abandoned.  The $0.7 million charge relates to revisions in the underlying estimates used in establishing the original restructuring charges.  The Company will continue to evaluate its estimates

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in recording the facilities abandonment charge.  As a result, there may be additional charges or reversals in the future.

See Note 11 to the Financial Statements for additional discussions of the Company’s restructuring charges, including the current activity in the accrued liabilities related to the restructuring charges.

Business Acquisitions

Kenan Business.  The Company completed its acquisition of the Kenan Business from Lucent Technologies on February 28, 2002.  When comparing operating results between years, the first quarter of 2002 results of operations include only one month of results from this acquisition, while the first quarter of 2003 reflects a full three months of results.

In conjunction with the Kenan Business acquisition, the Company incurred certain direct and incremental acquisition-related charges.  The acquisition-related charges for the three months ended March 31, 2002 are presented below (in thousands).  The Company completed its integration of the Kenan Business in 2002, and therefore, there were no similar expenses in the first three months of 2003.

In-process research and development (“IPRD”)	$	19,300
Impairment of an existing intangible asset displaced by software  products acquired		1,906
Employee-related costs (primarily existing CSG employee redundancy costs)		1,506
Integration costs (e.g., legal, accounting, etc.)		757
All other		323
Total Kenan Business acquisition-related charges	$	23,792

IPRD represents research and development of various software products which had not reached technological feasibility as of the acquisition date, and had no other alternative future use.  IPRD was charged to operations in the first quarter of 2002.  As of December 31, 2002, substantially all of the IPRD projects had been completed, with the remaining projects scheduled to be completed in 2003.  The remaining costs to complete these projects are not material.

Other Acquisitions.  The Company completed its acquisition of Davinci Technologies Inc. in December 2002, and its acquisition of the ICMS business from IBM in August 2002.  These acquisitions did not have a material impact on the results of operations for the three months ended March 31, 2003.

See the Company’s 2002 10-K for a detailed discussion of the Company’s 2002 business acquisitions.

Adjusted Results of Operations

Operating income presented under accounting principles generally accepted in the U.S.  (“Reported Earnings”) for the three months ended March 31, 2003 was $18.0 million, compared to $12.7 million for the three months ended March 31, 2002, an increase of $5.3 million.  Net income on a Reported Earnings basis for the three months ended March 31, 2003 was $8.8 million ($0.17 per diluted share), compared to $2.5 million ($0.05 per diluted share) for the three months ended March 31, 2002, an increase of $6.3 million ($0.12 per diluted share).  The increase between periods relates primarily to approximately $23.8 million ($0.34 per diluted share) of Kenan Business acquisition-related expenses incurred in the first quarter of 2002, with no comparable amounts in the first quarter of 2003.  This increase is partially offset by lower earnings from core operations in the first quarter of 2003 when compared to the first quarter of 2002.

As discussed in greater detail above, during the first quarter of 2003, the Company incurred restructuring charges in conjunction with certain cost reduction initiatives, principally involuntary employee termination benefits.  In

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conjunction with the Kenan Business acquisition in 2002, the Company incurred certain direct and incremental acquisition-related expenses.  To provide for an additional comparison of the Company’s current results of operations with past and future periods, CSG has adjusted out from Reported Earnings the impact of the 2003 restructuring charges and the 2002 Kenan Business acquisition-related expenses (“Adjusted Earnings”). CSG believes that Adjusted Earnings disclosures enhance the understanding of the Company’s “core” operating performance.  Management reviews both Reported Earnings and Adjusted Earnings financial measures in evaluating the Company’s performance, and certain of the Company’s internal financial management targets are established using Adjusted Earnings.  Adjusted Earnings are non-GAAP financial measures and should be viewed in addition to, and not in lieu of, the Company’s Reported Earnings.  A reconciliation of the Company’s Reported Earnings to Adjusted Earnings is as follows:

	Three Months Ended March 31, 2003
	Reported Earnings			Impact of Restructuring Charges			Adjusted Earnings
Total revenues	$	141,932		$	—		$	141,932
Total operating expenses		123,961			(3,159	)		120,802
Operating income		17,971			3,159			21,130
Net interest and other		(3,200	)		—			(3,200	)
Income before income taxes		14,771			3,159			17,930
Income tax provision		(5,968	)		(1,276	)		(7,244	)
Net income	$	8,803		$	1,883		$	10,686
Weighted average diluted common shares		51,494			51,494			51,494
Net income per diluted share	$	0.17		$	0.04		$	0.21

	Three Months Ended March 31, 2002
	Reported Earnings			Impact of Acquisition- Related Expenses			Adjusted Earnings
Total revenues	$	130,375		$	—		$	130,375
Total operating expenses		117,676			(23,792	)		93,884
Operating income		12,699			23,792			36,491
Net interest and other		(982	)		—			(982	)
Income before income taxes		11,717			23,792			35,509
Income tax provision		(9,254	)		(5,447	)		(14,701	)
Net income	$	2,463		$	18,345		$	20,808
Weighted average diluted common shares		53,450			53,450			53,450
Net income per diluted share	$	0.05		$	0.34		$	0.39

Adelphia Communications Corporation

The Company provides processing services for approximately three million of Adelphia Communications Corporation’s (“Adelphia”) video customers.  Adelphia filed for bankruptcy protection under Chapter 11 on June 25, 2002.  The Company deferred the recognition of Adelphia’s June 2002 processing revenues due to the collectibility risk resulting from the bankruptcy filing and increased its allowance for doubtful accounts in the second quarter of 2002 for outstanding accounts receivable from Adelphia dated prior to June 2002.  The Company believes it is

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adequately reserved against its collectibility exposure for pre-bankruptcy accounts receivable of Adelphia as of March 31, 2003.  The Company continues to provide processing services for Adelphia post-bankruptcy.  As of the date of this filing, Adelphia is current on substantially all invoices related to services provided post-bankruptcy, and the Company believes that all amounts invoiced for future services will be fully collected under the current contractual payment terms.

Implementation Projects in Progress

The Company’s GSS Division provides a variety of implementation services in conjunction with its software arrangements.  The nature of the efforts required to complete the implementations can range from relatively short and noncomplex projects to long and complex projects.  These implementation projects typically range from six to twelve months in length, but can be longer or shorter depending upon the specifics of the project.  Lengthy and/or complex projects carry a greater degree of business risk than those projects that are short and/or noncomplex in nature.  The length and complexity of an individual project is dependent upon many factors.  The Company’s inability to timely and successfully complete a project and meet client expectations could have a material impact on the Company’s financial condition and results of operations.  See Exhibit 99.01 under “Implementation Project Complexities and Risks” included in this report for a more detailed discussion of the factors impacting the length and complexity of the Company’s implementation projects, as well as the related risks resulting from the Company’s inability to timely and successfully complete a project and meet client expectations. 

The Company is currently engaged in a lengthy and complex implementation project with a client located in Europe in which the Company has responsibility for the implementation of certain of its software products, and also has responsibilities for certain aspects of the overall project management.  The project began in 2001 and was in progress when the Company acquired the Kenan Business from Lucent in February 2002.  The Company assumed the contractual obligation to complete the project from Lucent, and originally expected to complete the project in early 2003.  This project is significantly longer and more complex than the Company’s typical implementation projects.  The Company is using the percentage-of-completion (“POC”) method of accounting for this arrangement.  The Company’s total estimated professional services revenue to be generated under this arrangement is approximately $24 million.  During the three months ended March 31, 2003, the Company recognized revenue under this arrangement of approximately $1 million, and has recognized revenue to date on this arrangement of approximately $17 million (approximately 70% complete as of March 31, 2003).

As the Company has progressed through this project, the estimated costs and efforts required to complete the project have increased from the Company’s original expectations due to various work complexities of the project, and as a result of certain project difficulties and other factors experienced in the first quarter of 2003, the Company now expects the estimated hours to complete the project to be greater than the estimates that were prepared as of December 31, 2002.  As a result, the Company now expects to substantially complete the project by the end of 2003.  The Company believes its accounting conclusions made as of December 31, 2002 were based on reasonably dependable estimates of the total hours required to complete the project at that time, and the events that have caused the recent increase in the estimated hours to complete the project occurred subsequent to December 31, 2002, and could not have been reasonably foreseen as of December 31, 2002.  As a result of this increase in estimated hours to complete the project, the Company’s revenue from this arrangement for the first quarter of 2003 was approximately $2 million less than originally anticipated, and the overall project is expected to have an estimated loss of approximately $3 million.  The Company accrued expense of approximately $1 million (included in cost of professional services) in the first quarter of 2003 in order to reflect the entire expected loss of $3 million for the project as of March 31, 2003.  Furthermore, in addition to standard contractual damages provisions, the arrangement includes performance penalties of approximately $2 million.  Such contractual performance penalties may be due as a result of the Company missing certain project milestones.

The Company had accounts receivable of approximately $7 million (approximately $1 million billed and $6 million unbilled) recorded as of March 31, 2003 related to this project.  The Company has approximately $13 million of fees yet to be invoiced under the arrangement.  The Company believes the revised timeline for completion of the project is attainable, and that the client will pay the fees included in accounts receivable as of March 31, 2003, and the future fees yet to be invoiced under the arrangement.  In addition, the Company believes it will not be subject to payment of the

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contractual penalties and/or potential damages based on the revised implementation schedule and recent discussions with the client.  Because of the various complexities of this project, there can be no assurances that the Company will complete the project under its revised schedule and at its revised cost estimate, and avoid the penalties and/or potential damages currently included in the arrangement.  Additional delays in the project will directly impact the timing of future revenue recognition, the overall profitability on the project, and will likely delay the collection of the fees due under the arrangement.

Critical Accounting Policies

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the U.S. requires the Company to select appropriate accounting policies, and to make judgements and estimates affecting the application of those accounting policies.  In applying the Company’s accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in the Company’s Consolidated Financial Statements.

The Company has identified the most critical accounting principles upon which the Company’s financial status depends.  The critical accounting principles were determined by considering accounting policies that involve the most complex or subjective decisions or assessments.  The most critical accounting principles identified relate to: (i) revenue recognition; (ii) allowance for doubtful accounts receivable; (iii) business restructuring; (iv) capitalization of internal software development costs; (v) intangible assets; (vi) business combinations; and (vii) income taxes. These critical accounting policies and the Company’s other significant accounting policies are discussed in the Company’s 2002 10-K.

Results of Operations – Consolidated Basis
Total Revenues.  Total revenues for the three months ended March 31, 2003 increased 8.9% to $141.9 million, from $130.4 million for the three months ended March 31, 2002.  The increase between periods relates to a 0.3% increase in processing and related services, a 54.8% decrease in software revenues, an 83.3% increase in maintenance revenues, and a 285.2% increase in professional services revenues. The decrease in software revenues is due primarily to a decrease in software sales within both the Broadband Division and the GSS Division.  The increase in maintenance and professional services revenues relates primarily to the first quarter of 2003 having a full three months of operating results from the Kenan Business (acquired as of February 28, 2002), as compared to only one month of operations during the first quarter of 2002. 

The Company uses the location of the client as the basis of attributing revenues to individual countries.  Revenues by geographic region is as follows (in thousands):

	Three Months  Ended March 31,
	2003		2002
North America (principally the United States)	$	106,604	$	109,423
Europe, Middle East and Africa (principally Europe)		19,892		16,713
Asia Pacific		8,140		2,717
Central and South America		7,296		1,522
Total revenues	$	141,932	$	130,375

For revenues generated outside North America, no single country accounts for more than 5% of the Company’s total revenues.

See the “Results of Operations - Operating Segments” section below for a detailed discussion of revenues and related changes between periods on a segment basis.

Cost of Processing and Related Services.  The cost of processing and related services revenues consists principally of: (i) data processing and communications costs; (ii) statement production costs (e.g., labor, paper, envelopes,

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equipment maintenance, etc.); (iii) client support organizations (e.g., client call centers, account management, etc.); (iv) various product support organizations (e.g., product management and delivery, product development, etc.); and (v) facilities and infrastructure costs related to the statement production and support organizations.

The cost of processing and related services for the three months ended March 31, 2003 decreased 2.7% to $34.1 million, from $35.1 million for the three months ended March 31, 2002.  Processing costs as a percentage of related processing revenues were 37.4% (gross margin of 62.6%) for the three months ended March 31, 2003 compared to 38.6% (gross margin of 61.4%) for the three months ended March 31, 2002.  The decrease in processing costs and processing costs as a percentage of related revenue is due primarily to the Company’s continued focus on cost controls in this area.

Cost of Software and Maintenance. The cost of software and maintenance revenues consists principally of: (i) amortization of acquired software and certain acquired client contracts; (ii) client support organizations (e.g., client call centers, account management, etc.); (iii) various product support organizations (e.g., product management and delivery, product maintenance, etc.); (iv) facilities and infrastructure costs related to these organizations; and (v) third-party software costs and/or royalties related to certain software products of the Company.  The Company does not differentiate between cost of software and cost of maintenance revenues, and therefore, such costs are reported on a combined basis.  The costs related to new product development (including enhancements to existing products) are included in research and development expense.

The combined cost of software and maintenance for the three months ended March 31, 2003 increased 244.9% to $18.3 million, from $5.3 million for the three months ended March 31, 2002. The increase relates primarily to the first quarter of 2003 having a full three months of Kenan Business operations, which include $3.4 million of amortization related to the acquired Kenan Business intangible assets, as compared to only one month of Kenan Business operations in 2002, including $1.3 million of amortization related to the acquired Kenan Business intangible assets. The cost of software and maintenance as a percentage of related revenues was 56.2% (gross margin of 43.8%) for the three months ended March 31, 2003 as compared to 15.3% (gross margin of 84.7%) for the three months ended March 31, 2002. 

While the quarterly cost of software and maintenance revenues were relatively comparable for the last three quarters sequentially, the gross margin percentage for these revenue sources for both the third and fourth quarters of 2002 was approximately 53%, compared to 43.8% for the current quarter.  As discussed below, fluctuations in the quarterly gross margin for software and maintenance revenues are an inherent characteristic of software companies, which can be impacted by, among others things, the timing of executed contracts in any one quarter.

Cost of Professional Services.  The cost of professional services consists principally of: (i) the Company’s professional services organizations; (ii) subcontracted professional consultants; and (iii) facilities and infrastructure costs related to the Company’s professional services organizations.

The cost of professional services for the three months ended March 31, 2003 increased 67.9% to $18.6 million, from $11.0 million for the three months ended March 31, 2002.  The increase relates primarily to first quarter of 2003 having a full three months of Kenan Business operations, as compared to only one month of Kenan Business operations in 2002.  The cost of professional services as a percentage of related revenues was 102.0% (negative gross margin of 2%) for the three months ended March 31, 2003, as compared to 234.0% (negative gross margin of 134%) for the three months ended March 31, 2002.  The large negative gross margin in the first quarter of 2002 is attributed to the timing of the Kenan Business acquisition.

The gross margin percentages for the third and fourth quarters of 2002 for this revenue source were approximately 1% and 28%, respectively.  The gross margin percentages for the fourth quarter of 2002 and first quarter of 2003 are reflective of the recent difficulties the Company has experienced on the large European implementation project discussed above.  For the second quarter of 2003, the Company expects the gross margin for this revenue source to remain comparable to that of the last two quarters.  As discussed below, fluctuations in the gross margin for professional services revenues are an inherent characteristic of professional services companies.

Gross Margin. As a result of the Kenan Business acquisition, the Company revenues from software licenses, maintenance services and professional services have increased and become a larger percentage of total revenues.

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Variability in quarterly revenues and operating results are inherent characteristics of companies that sell software licenses, maintenance services, and perform professional services.  The Company’s quarterly revenues for software licenses, maintenance services and professional services revenues may fluctuate, depending on various factors, including the timing of executed contracts and the delivery of contracted services or products.  However, the costs associated with software and maintenance revenues, and professional services revenues are not subject to the same degree of variability (i.e., these costs are generally fixed in nature within a relatively short period of time), and thus, fluctuations in the cost of software and maintenance as a percentage of related revenues, and the cost of professional services as a percentage of related revenues, will likely occur between periods.

The overall gross margin for the three months ended March 31, 2003 decreased 10.1% to $71.0 million from $79.0 million for the three months ended March 31, 2002.  The overall gross margin percentage decreased to 50.0% for the three months ended March 31, 2003, compared to 60.6% for the three months ended March 31, 2002.  The changes in the gross margin and gross margin percentage were due to the factors discussed above. 

Research and Development Expense.  R&D expense for the three months ended March 31, 2003, decreased 9.3% to $15.5 million, from $17.1 million for the three months ended March 31, 2002.  As a percentage of total revenues, R&D expense decreased to 10.9% for the three months ended March 31, 2003, from 13.1% for the three months ended March 31, 2002.  The Company did not capitalize any internal software development costs during the three months ended March 31, 2003 and 2002.

The decrease in the R&D expenditures between periods is due primarily to the Company discontinuing the development of its CSG NextGen software product.  Prior to the Kenan acquisition, the primarily focus of the GSS Division was on the development efforts of the Company’s CSG NextGen software product.  Following the Kenan Business acquisition, the Company discontinued the development of CSG NextGen as a stand-alone customer care and billing system.

During the first quarter of 2003, the Company focused its development and enhancement efforts on:
	•	various R&D projects for the Kenan Business, which includes updates and enhancements to the existing versions of the Kenan Business product suite, as well as new products; and
	•	enhancements to CSG CCS/BP and related software products to increase the functionalities and features of the products.

The Company expects its investment in R&D over time will approximate the Company’s historical investment rate of 10-12% of total revenues.  This investment will be focused on the CSG CCS/BP and the Kenan Business product suite, as well as additional stand-alone products as they are identified.

Selling, General and Administrative Expense.  SG&A expense for the three months ended March 31, 2003, increased 40.3% to $29.7 million, from $21.2 million for the three months ended March 31, 2002.  As a percentage of total revenues, SG&A expense increased to 20.9% for the three months ended March 31, 2003, from 16.3% for the three months ended March 31, 2002.  The increase in SG&A expense relates primarily to the inclusion of a three full months of Kenan SG&A expense in the first quarter of 2003 as compared to only one month in the first quarter of 2002, and to a lesser degree: (i) an increase in legal fees related to the Comcast litigation; and (ii) stock-based compensation expense. The Company incurred approximately $5 million of legal fees in defense of the Comcast litigation and $1.2 million of stock-based compensation in the first quarter of 2003, with no comparable amounts for 2002.

Going forward on a quarterly basis, the Company expects to incur similar costs to that of the first quarter of 2003 for legal fees related to the Comcast litigation until resolution of this matter in mid- to late- third quarter of 2003.  

Depreciation Expense.  Depreciation expense for the three months ended March 31, 2003 increased 9.8% to $4.6 million, from $4.2 million for the three months ended March 31, 2002.  The increase in depreciation expense related to capital expenditures made during the last nine months of 2002 and first three months of 2003 in support of the overall growth of the Company and depreciation expense related to the acquired fixed assets from the Kenan Business acquisition.  The capital expenditures during the aforementioned period consisted principally of: (i) computer hardware and related equipment; (ii) statement production equipment; and (iii) facilities and internal infrastructure. 

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Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the cost of revenues or the other components of operating expenses. 

Kenan Business Acquisition-Related Expenses.  See the “Business Acquisitions” section above for discussions of these expenses.

Restructuring Charges. See the “Restructuring Charges” section above for discussions of the Company’s restructuring initiatives and related charges for the three months ended March 31, 2003.

Operating Income.  Operating income for the three months ended March 31, 2003, was $18.0 million or 12.7% of total revenues, compared to $12.7 million or 9.7% of total revenues for the three months ended March 31, 2002.  The increase in these measures between years relates to the factors discussed above. Operating income on an adjusted basis (excluding the restructuring charges and the Kenan Business acquisition-related expenses) for the three months ended March 31, 2003, was $21.1 million or 14.9% of total revenues, compared to $36.5 million or 28.0% of total revenues for the three months ended March 31, 2002. See the “Adjusted Results of Operations” section above for a more detailed discussion of the impact of the Kenan Business acquisition-related charges and restructuring charges on the Company’s results of operations.

Interest Expense.  Interest expense for the three months ended March 31, 2003, increased 102.7% to $3.9 million, from $1.9 million for the three months ended March 31, 2002, with the increase due primarily to the Company borrowings to finance the Kenan Business acquisition.  The weighted-average balance of the Company’s long-term debt for the three months ended March 31, 2003 was $270.0 million, compared to approximately $96.2 million for the three months ended March 31, 2002.  The weighted-average interest rate on the Company’s debt borrowings for the three months ended March 31, 2003, including the amortization of deferred financing costs and commitment fees on the Company’s revolving credit facility, was approximately 5.5%, compared to 5.9% for the three months ended March 31, 2002.  On May 6, 2003, the Company made a voluntary principal payment on its long-term debt of $20.0 million. 

Interest and Investment Income.  Interest and investment income for the three months ended March 31, 2003, decreased 65.8% to $0.3 million, from $0.8 million for the three months ended March 31, 2002. The decrease was due primarily to lower funds available for investment throughout the period, and to a lesser degree, the reduction in the returns on invested funds.

Other income/expense.  Other income for the three months ended March 31, 2003, was $0.4 million compared to $0.1 for the three months ended March 31, 2002.  The increase is due primarily to foreign currency transaction gains during the three months ended March 31, 2003.

Income Tax Provision.  For the three months ended March 31, 2003, the Company recorded an income tax provision of $6.0 million, or an effective income tax rate of approximately 40.4%, compared to an effective income tax rate of 79% for the three months ended March 31, 2002.  The effective income tax rate for 2002 was negatively impacted by certain items recorded in conjunction with the Kenan Business acquisition. 

The effective income tax rate for the first quarter of 2003 represents the Company’s estimate of the effective income tax rate for 2003.  This estimate for 2003 is based on various assumptions, with the two primary assumptions related to the Company’s estimate of total pretax income, and the amounts and sources of foreign pretax income.  The actual effective income tax rate for 2003 could deviate from the 40.4% estimate based on the Company’s actual 2003 experiences with these items, as well as others.

The Company is in the process of evaluating its long-term international income tax strategy.  The effective income tax rate may be adversely impacted during this interim period based on the location in which future foreign profits and losses are generated. 

As of March 31, 2003, the Company’s net deferred tax assets of $45.6 million were related primarily to its domestic operations, and represented approximately 6% of total assets.  The Company continues to believe that sufficient taxable income will be generated to realize the benefit of these deferred tax assets.  The Company’s assumptions of future profitable domestic operations are supported by strong operating performances by the Broadband Division over the last several years.

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Results of Operations - Operating Segments

The Company serves its clients through its two operating segments:  the Broadband Division and the GSS Division. See the Company’s 2002 Form 10-K for further discussion of the operations of each operating segment and the related product and service offerings, and the components of segment operating results.

The Company’s operating segment information and corporate overhead costs for the three months ended March 31, 2003 and 2002 are presented below (in thousands). 

	Three Months Ended March 31, 2003
	Broadband Services Division
				GSS
				Division			Corporate			Total
Processing revenues	$	90,449		$	727		$	—		$	91,176
Software revenues		1,669			8,495			—			10,164
Maintenance revenues		5,029			17,374			—			22,403
Professional services revenues		370			17,819			—			18,189
Total revenues		97,517			44,415			—			141,932
Segment operating expenses (1)		51,598			51,391			17,813			120,802
Contribution margin (loss) (1)	$	45,919		$	(6,976	)	$	(17,813	)	$	21,130
Contribution margin (loss) percentage		47.1	%		(15.7	)%		N/A			14.9	%

	Three Months Ended March 31,  2002
	Broadband Services Division
				GSS
				Division			Corporate			Total
Processing revenues	$	90,812		$	122		$	—		$	90,934
Software revenues		7,078			15,422			—			22,500
Maintenance revenues		4,762			7,457			—			12,219
Professional services revenues		1,097			3,625			—			4,722
Total revenues		103,749			26,626			—			130,375
Segment operating expenses (1)		50,019			33,942			9,923			93,884
Contribution margin (loss) (1)	$	53,730		$	(7,316	)	$	(9,923	)	$	36,491
Contribution margin (loss) percentage		51.8	%		(27.5	)%		N/A			28.0	%

(1) Segment operating expenses and contribution margin (loss) exclude:  (i) the restructuring charges of $3.2 million for the three months ended March 31, 2003; and (ii) the Kenan Business acquisition-related expenses of $23.8 million for the three months ended March 31, 2002.  Of the $3.2 million restructuring charges recorded in 2003, approximately $0.1 million relates to the Broadband Division and $3.1 million relates to the GSS Division.

Broadband Division
Total Revenues. Total Broadband Division revenues for the three months ended March 31, 2003 decreased 6.0% to $97.5 million, from $103.7 million for the three months ended March 31, 2002, primarily as a result of lower software revenues in 2003.

Processing revenues.  Processing revenues for the three months ended March 31, 2003 were $90.4 million, compared to $90.8 million for the three months ended March 31, 2002.  The decrease in processing revenues resulted from a decrease in revenue per customer, which was offset by an increase in the number of customers of the Company’s

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clients which were serviced by the Company.  Customers served were as follows (in thousands):

	As of March 31,
	2003		2002		Increase (Decrease)
Video		41,418		39,966		1,452
Internet		5,135		3,986		1,149
Telephony		78		133		(55	)
Total		46,631		44,085		2,546

Total customers processed on the Company systems increased approximately 6% from the first quarter of 2002, and when compared to the fourth quarter of 2002, total customers processed increased sequentially by approximately 800,000.  These increases in the number of customers serviced were due to the conversion of additional customers to the Company’s systems, and internal customer growth experienced by existing clients.  As of March 31, 2003, the Company had no customers in its conversion backlog.

The annualized revenue per unit (“ARPU”) for video and Internet accounts for the first quarter of 2003 were in line with the Company’s expectations, and were as follows:

	Three months ended March 31,
	2003		2002		Increase (Decrease)
Video account	$	8.40	$	8.64		(2.8	)%
Internet account		3.27		4.07		(19.7	)%

The annualized processing revenue per video account for the fourth quarter of 2002 was $9.14.  The decreases from the first and fourth quarters of 2002 in processing revenues per video account relates primarily to: (i) lower consulting fees (i.e., special projects) being purchased by the Company’s clients; and (ii) changes in the usage of ancillary services by clients.  The decrease in processing revenues per Internet account from the first quarter of 2002 was due primarily to: (i) the ability of Internet clients to spread their processing costs, some of which are fixed, across a larger customer base; (ii) lower pricing tiers due to volume growth in customers processed for certain clients; and (iii) lower usage of ancillary services.  The annualized processing revenues per Internet account for the fourth quarter of 2002 was $3.25.

For the remainder of 2003, the Company expects the annualized processing revenue per video account to range between $8.40 and $8.50, and between $3.00 and $3.25 per Internet account.

Software Revenue.  Software revenue for the three months ended March 31, 2003 decreased by 76.4% to $1.7 million, from $7.1 million for the three months ended March 31, 2002.  The decrease in software revenue was due primarily to a large software purchase in the first quarter of 2002, with no corresponding amount in the first quarter of 2003.

Maintenance Revenue.  Maintenance revenue for the three months ended March 31, 2003 increased by 5.6% to $5.0 million, from $4.8 million for the three months ended March 31, 2002.  The increase in maintenance revenue was due primarily to annual inflationary price increases included in certain maintenance agreements, and an increase in the usage of the Company’s Broadband Division software products. 

Segment Operating Expenses and Contribution Margin.  Broadband Division operating expenses for the three months ended March 31, 2003 increased by 3.2% to $51.6 million, from $50.0 million for the three months ended March 31, 2002.  Broadband Division contribution margin decreased by 14.5% to $45.9 million (contribution margin percentage of 47.1%) for the three months ended March 31, 2003, from $53.7 million (contribution margin percentage of 51.8%) for the three months ended March 31, 2002.  The Broadband Division contribution margin and contribution margin percentage decreased between periods primarily as a result of a decrease in software revenues during the three months ended March 31, 2003.  As discussed above, the costs associated with software and maintenance revenues, and professional services generally are fixed in nature within a relatively short period of time, and thus, decreases in these

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revenues generally do not result in a corresponding decrease in operating expenses.

GSS Division

Total Revenues. Total GSS Division revenues for the three months ended March 31, 2003 were $44.4 million, as compared to $26.6 million for the three months ended March 31, 2002, with the increase due primarily to the first quarter of 2003 having a full three months of operating results from the Kenan Business (acquired as of February 28, 2002), as compared to only one month of operations during the first quarter of 2002.

Software Revenue.  Software revenue for the three months ended March 31, 2003 decreased by 44.9% to $8.5 million, from $15.4 million for the three months ended March 31, 2002. The decrease in software revenue was due primarily to a large software purchase in the first quarter of 2002, with no corresponding amount in the first quarter of 2003. 

Software revenues for the fourth quarter of 2002 were approximately $11.4 million.  As explained above, variability in revenues from software sales is an inherent characteristic of software companies and is expected to continue in future periods. 

Maintenance Revenue.  Maintenance revenue for the three months ended March 31, 2003 increased by 133.0% to $17.4 million, from $7.5 million for the three months ended March 31, 2002.  This increase in maintenance revenue was due to the Company having three months of Kenan Business maintenance revenue in the first quarter of 2003, as compared to one month of maintenance revenue in the first quarter of 2002. 

Maintenance revenue for the fourth quarter of 2002 was $22.4 million. The GSS Division’s maintenance services are typically contracted for on an annual basis, with the majority of the renewal dates occurring in the first and fourth fiscal quarters of the year.  The sequential decrease of maintenance revenue of approximately $5 million from the fourth quarter of 2002 relates primarily to several maintenance agreements not being renewed as anticipated, and certain maintenance agreements being renewed at lower than previous rates.  The Company expects to renew several of these agreements in future periods.  For the second quarter of 2003, the Company expects the GSS Division’s maintenance revenue to be comparable to that of the first quarter of 2003.

Professional Services Revenue.  Professional services revenue for the three months ended March 31, 2003 increased by 391.6% to $17.8 million, from $3.6 million for the three months ended March 31, 2002.  The increase in professional services revenue was due primarily to the Company having three months of Kenan Business professional services revenue during the first quarter of 2003, as compared to one month of professional services revenue during the first quarter of 2002. 

Professional services revenue for the fourth quarter of 2002 was $18.1 million.  As discussed above, because of the difficulties experienced on the large European implementation project, the Company’s revenue from this arrangement for the first quarter of 2003 was approximately $2 million less than originally anticipated.  For the second quarter of 2003, the Company expects the GSS Division’s professional services revenue to be comparable to that of the first quarter of 2003.

Segment Operating Expenses and Contribution Loss.  GSS Division operating expenses for the three months ended March 31, 2003 increased by 51.4% to $51.4 million, from $33.9 million for the three months ended March 31, 2002.  The increase in operating expenses between periods relates primarily to the inclusion of three months of operating expenses for the Kenan Business in the first quarter of 2003, as compared to one month in the first quarter of 2002. 

The GSS Division contribution loss decreased by 4.6% to $7.0 million (a negative contribution margin percentage of 15.7%) for the three months ended March 31, 2003, from $7.3 million (a negative contribution margin percentage of 27.5%) for the three months ended March 31, 2002.

The GSS Division contribution loss for the fourth quarter of 2002 was $0.3 million.  The significant sequential increase in the contribution loss in the first quarter of 2003 relates primarily to lower revenues between periods, as segment operating expenses were comparable between quarters.  The GSS Division’s total revenues for the fourth quarter of 2002 were $52.1 million.  The $7.7 million sequential decrease in revenues between these periods is discussed above. 

30

The Company had originally expected to operate the GSS Division at breakeven or better for 2003.  However, due to the continued depressed economic state of the global telecommunications industry (as discussed above), the Company now believes it may take up to twelve months to achieve a breakeven position for this Division.

Corporate
Corporate Operating Expenses. Corporate overhead expenses for the three months ended March 31, 2003, increased 79.5% to $17.8 million, from $9.9 million for the three months ended March 31, 2002. The increase in operating expenses related primarily to the additional marketing and administrative costs to support the Company’s overall growth (to include the Kenan Business acquisition), and to a lesser degree: (i) an increase in legal fees related to the Comcast litigation; and (ii) stock-based compensation expense.  The Company incurred approximately $5 million of legal fees in defense of the Comcast litigation and $1.2 million of stock-based compensation in the first quarter of 2003, with no comparable amounts for 2002.

Financial Condition, Liquidity and Capital Resources

Sources of Liquidity.  As of March 31, 2003, the Company’s principal sources of liquidity included cash, cash equivalents, and short-term investments of  $114.4 million.  The Company also has a revolving credit facility in the amount of $100 million, under which there were no borrowings outstanding as of March 31, 2003.  The Company’s ability to borrow under the revolving credit facility is subject to a limitation of total indebtedness based upon the results of a leverage ratio calculation, as determined in the Company’s credit agreement.  As of March 31, 2003, all of the $100 million revolving credit facility was available to the Company.  The entire amount of the revolving credit facility is expected to be available through mid-May 2003.  Subsequent to that date, the Company expects the amount available under the revolving credit facility to be less than $100 million, with such availability dependent upon many factors.  The Company does not believe the expected reduction in the amount available under the revolving credit facility will result in any material deficiencies in liquidity.  The revolving credit facility expires in February 2007.

The Company generally has ready access to substantially all of its cash and short-term investment balances, but does face limitations on moving cash out of certain foreign jurisdictions.  As of March 31, 2003, the cash and short-term investments subject to such limitations were not significant. In addition, the Company’s credit facility places certain restrictions on the amount of cash that can be freely transferred between certain operating subsidiaries.  These restrictions are not expected to cause any liquidity issues at the individual subsidiary level in the foreseeable future

Billed Accounts Receivable.  As of March 31, 2003 and December 31, 2002, the Company had $170.0 million and $160.4 million, respectively, in net billed trade accounts receivable.  This increase relates primarily to: (i) weaker cash collections during the current quarter within the GSS Division than anticipated; and (ii) several large professional services invoices within the GSS Division being issued at the end of the quarter as a result of the Company reaching various billing milestones as of that date.

The Company’s trade accounts receivable balance includes billings for several non-revenue items (primarily postage, sales tax, and deferred revenue items).  As a result, the Company evaluates its performance in collecting its accounts receivable through its calculation of days billings outstanding (“DBO”) rather than a typical days sales outstanding (“DSO”) calculation.  DBO is calculated based on the billing for the period (including non-revenue items) divided by the average monthly net trade accounts receivable balance for the period.  The Company’s DBO calculations for the three months ended March 31, 2003 and December 31, 2002 were 68 days and 73 days, respectively.  The Company’s target DBO range is 65-75 days.

The Broadband Division’s credit risk for its accounts receivable is concentrated among large, established cable television and satellite companies located in the U.S.  The GSS Division’s credit risk for its accounts receivable is spread among a wide range of telecommunications service providers located throughout the world.  The Company’s billed accounts receivable balance by geographic region (based on the location of the client) as of March 31, 2003 and December 31, 2002 is as follows (in thousands):

31

	March 31, 2003			December 31, 2002
North America (principally the U.S.)	$	111,470		$	119,765
Europe, Middle East and Africa (principally Europe)		29,985			27,058
Asia Pacific		27,278			15,959
Central and South America		13,840			9,714
Total billed accounts receivable		182,573			172,496
Less allowance for doubtful accounts		(12,609	)		(12,079	)
Total billed accounts receivable, net of allowance	$	169,964		$	160,417

As expected, the composition of the client base has increased the Company’s accounts receivable balance and adversely impacted DBO (when compared to the Company’s historical experience prior to the Kenan Business acquisition) as longer billing cycles (i.e., billing terms and cash collection cycles) are an inherent characteristic of international software and professional services transactions.  For example, the Company’s ability to bill (i.e., send an invoice) and collect arrangement fees may be dependent upon, among other things, the: (i) completion of various client administrative matters, local country billing protocols and processes, and/or non-client administrative matters; (ii) Company meeting certain contractual invoicing milestones; or (iii) overall project status in certain situations in which the Company acts as a subcontractor to another vendor on a project, as well as other circumstances as described elsewhere in this document. 

In particular, as of March 31, 2003, the Company had two large implementation projects in progress in the Asia/Pacific region where the Company was executing on the implementation projects generally as expected, but for which accounts receivable balances of approximately $22.7 million ($21.2 million billed and $1.5 million unbilled) existed as of March 31, 2003, compared to $12.1 million ($7.8 million billed and $4.3 million unbilled) as of December 31, 2002.  The Company had originally expected to bill and collect a substantial percentage of these amounts by the end of the first quarter of 2003, but due to various complications in the billing and cash collection cycle related to these two arrangements, the Company now expects to collect a substantial percentage of the amounts by the end of the second quarter of 2003.  Although the Company believes the amounts due under these arrangements are fully collectible, because of the various circumstances experienced with these arrangements to date, there can be no assurances that the Company will collect these amounts within the expected time frames.  In addition, both of these clients are located within India, resulting in approximately 13% of the Company’s net billed accounts receivable being concentrated in this foreign country as of March 31, 2003.  There is an inherent risk whenever such a large percentage of total accounts receivable is concentrated with one foreign country.  One such risk is that, should a foreign country’s political or economic conditions adversely change, it could become difficult to receive payments from clients within that foreign country.  The Company does not expect such conditions to exist for India in the foreseeable future, and as a result, the Company does not believe the concentration of accounts receivable in India subjects the Company to higher collection risks.

Allowance for Doubtful Accounts Receivable.  The net billed accounts receivable balances as of March 31, 2003 and December 31, 2002, includes an allowance for doubtful accounts of approximately $12.6 million and $12.1 million, respectively, which is approximately 7% of the gross billed accounts receivable for both periods.  The increase in the allowance between periods relates primarily to the increase in the billed accounts receivable during this period.  As of March 31, 2003, the Company believes it has adequately reserved for the collectibility exposure on its accounts receivable.

Unbilled Accounts Receivable.  Revenue recognized prior to the scheduled billing date of an item is reflected as unbilled accounts receivable. As of March 31, 2003 and December 31, 2002, the Company had $25.6 million and $28.9 million, respectively, of unbilled accounts receivable, with the decrease attributed primarily to several large professional services invoices within the GSS Division being issued at the end of the quarter as a result of the Company reaching various billing milestones as of that date.  Unbilled accounts receivable are an inherent characteristic of software and professional services transactions, as these types of transactions typically have scheduled invoicing terms over several quarters, as well as certain milestone billing events.  The March 31, 2003 unbilled accounts receivable balance consists primarily of several large transactions with various milestone billing dates which have not yet been reached.  Substantially all of the March 31, 2003 unbilled accounts receivable are scheduled to be billed and paid by the end of the third quarter of 2003.  There can be no assurances that the fees will be billed and collected within the expected time frames.

32

Accounts Payable and Accrued Employee Compensation.  As of March 31, 2003 and December 31, 2002, the Company had $37.0 million and $51.5 million, respectively, of trade accounts payable and accrued employee compensation.  The decrease relates primarily to the timing of various payments, in particular, payment of the 2002 management performance bonuses were made during the current quarter.

Deferred Revenues.  Client payments and billed amounts due from clients in excess of revenue recognized are recorded as deferred revenue.  Deferred revenue broken out by source of revenue as of March 31, 2003 and December 31, 2002, was as follows (in thousands):

	March 31, 2003		December 31, 2002
Processing and related services	$	3,726	$	3,887
Software		5,035		2,854
Maintenance services		38,140		30,994
Professional services		15,035		9,766
Total	$	61,936	$	47,501

The increase in deferred revenues related to maintenance services and professional services relates to the timing of invoices for such services.  The majority of the Company’s maintenance agreements provide for invoicing of annual maintenance fees in the first fiscal quarter of the year.

Deferred Employee Compensation.  As of March 31, 2003 and December 31, 2002, the Company had deferred employee compensation of $9.3 million and $3.9 million, respectively, with the increase related to restricted stock grants made in 2003, as discussed in Note 3 to the Condensed Consolidated Financial Statements.

Cash Flows.  The Company’s net cash flows from operating activities for the three months ended March 31, 2003 and 2002 were $22.2 million and $26.2 million, respectively.  The decrease in cash flows from operations relates primarily to a decrease in earnings between periods.

The Company’s net cash flows used in investing activities totaled $3.4 million for the three months ended March 31, 2003, compared to $218.0 million for the three months ended March 31, 2002, an decrease of $214.6 million.  The decrease between periods relates primarily to the decrease in acquisitions of $265.8 million between years (principally the Kenan Business), offset by a decrease in proceeds from the sale of short-term investments of $53.4 million.

The Company’s net cash flows used in financing activities was $0.7 million for three months ended March 31, 2003, compared to cash flows provided by of $229.8 million for the year ended December 31, 2002, a change of $230.5 million.  The decrease between periods can be attributed to the Company borrowing $300.0 million to finance the Kenan Business acquisition and retire its previous bank debt offset by a decrease in debt payments of $68.7 million (including deferred financing costs). 

Long-term Debt.  On March 31, 2003, the Company made a scheduled principal payment of approximately $1.1 million.  On May 6, 2003, the Company made a voluntary principal payment of $20 million.  As a result of this prepayment, the remaining scheduled principal payments for 2003 are $6.2 million.

Stock Repurchase Program.  The Company’s Board of Directors has authorized the Company, at its discretion, to purchase up to a total of 10.0 million shares of its Common Stock from time-to-time as market and business conditions warrant.  The Company did not purchase any of its shares during the current quarter.  A summary of the Company’s activity to date for this repurchase program as of March 31, 2003 is as follows (in thousands, except per share amounts):

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	2003		2002		2001		2000		1999		Total
Shares repurchased		—		1,573		3,020		1,090		656		6,339
Total amount paid		—	$	18,920	$	109,460	$	51,088	$	20,242	$	199,710
Weighted-average price per share		—	$	12.02	$	36.25	$	46.87	$	30.88	$	31.51

At March 31, 2003, the total remaining number of shares available for repurchase under the program totaled approximately 3.7 million shares. The Company’s credit facility restricts the amount of Common Stock the Company can repurchase under its stock repurchase program to $50 million, subject to certain limitations as specified in the credit facility.

Adjusted EBITDA. Adjusted Earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the first quarter of 2003 was $30.0 million compared to $43.6 million for the same period in 2002, a decrease of 31.3%. 

The Company’s Adjusted EBITDA calculation presented here is defined by the Company’s current credit facility, which may differ from the EBITDA calculation for other companies.  The Company’s Adjusted EBITDA is calculated by beginning with net income, adding back: (i) income tax provision; (ii) interest expense; (iii) depreciation and amortization; (iv) acquisition-related expenses (to include the Kenan Business acquisition-related expenses); (v) any extraordinary, unusual or non-recurring expenses or losses (which, by definition in the Company’s credit facility, include the restructuring charges); and (vi) any other non-cash charges, and subtracting: (i) interest income; (ii) any extraordinary, unusual or non-recurring income or gains; (iii) any other non-cash income; and (iv) any cash payments made in subsequent periods related to any extraordinary, unusual or non-recurring expenses or losses.  Adjusted EBITDA is presented here as it provides investors and management with one of the Company’s primary measures of its debt service ability and is a significant component of the Company’s debt leverage ratio, upon which many of the provisions of the Company’s credit facility are dependent.  Adjusted EBITDA is not intended to represent cash flows for the periods in accordance with generally accepted accounting principles.  Adjusted EBITDA includes certain non-cash revenue and expense items as a result of the purchase accounting for the Kenan Business acquisition.  The Kenan Business acquisition-related expenses are discussed in detail in the Company’s 2002 10-K.  Reconciliation of the Company’s Adjusted EBITDA to net income and cash flow from operations is as follows (in thousands):

	Three Months Ended March 31,
	2003			2002
Net income	$	8,803		$	2,463
Income tax provision		5,968			9,254
Interest expense		3,874			1,911
Depreciation and amortization		10,680			7,132
Kenan Business acquisition-related expenses		—			23,792
Restructuring charges (1)		981			—
Stock-based compensation		1,180			—
Interest income		(288	)		(842	)
Other non-cash charges (income)		(386	)		(87	)
Subsequent cash payments related to restructuring charges		(849	)		—
Adjusted EBITDA	$	29,963		$	43,623

     (1)      This reconciling item relates to the non-cash portion of the restructuring charges.

34

	Three Months Ended March 31,
	2003			2002
Cash flows from operating activities	$	22,222		$	26,153
Income tax provision		5,968			9,254
Changes in operating assets and liabilities		(2,072	)		2,530
Kenan Business acquisition-related expenses (2)		—			2,586
Restructuring charges (3)		(551	)		—
Amortization of reserve for facilities abandonment		1,663			—
Deferred income taxes		45			2,304
Interest income		(288	)		(842	)
Interest expense		3,874			1,911
Other		(898	)		(273	)
Adjusted EBITDA	$	29,963		$	43,623

     (2)     This reconciling item relates to certain cash items that are added back in determining Adjusted EBITDA.

     (3)     This reconciling item relates to certain cash items that are deducted in determining Adjusted EBITDA.

Capital Resources.  The Company continues to make significant investments in client contracts, capital equipment, facilities, research and development, and at its discretion, may continue to make stock repurchases under its stock repurchase program.  In addition, as part of its growth strategy, the Company is expanding its international business and is continually evaluating potential business and asset acquisitions.  The Company had no significant capital commitments as of March 31, 2003.  The Company believes that cash generated from operating activities, together with its current cash and cash equivalents, and the amount available under its revolving credit facility, will be sufficient to meet its anticipated cash requirements for both its short and long-term purposes.  The Company also believes it has additional borrowing capacity and could obtain additional cash resources by amending its current credit facility.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

As discussed in the Company’s 2002 Form 10-K, the Company is exposed to various market risks, including changes in interest rates and foreign currency exchange rates.  Market risk is the potential loss arising from adverse changes in market rates and prices.  The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk. As of March 31, 2003, the Company had long-term debt of $268.9 million, consisting of a Tranche A Term Loan (“Tranche A”) with an outstanding balance of $106.2 million, a Tranche B Term Loan (“Tranche B”) with an outstanding balance of $162.7 million, and a $100 million revolving credit facility (the “Revolver”), with an outstanding balance of zero.

During the first quarter of 2003, the Company made a scheduled principal payment on its long-term debt of $1.1 million.  On May 6, 2003, the Company made a voluntary prepayment on its long-term debt of $20.0 million.  Subsequent to the scheduled principal payment and the voluntary prepayment, the scheduled principal payments for Tranche A and Tranche B are as follows (in thousands):

	2003		2004		2005		2006		2007		2008		Total
Tranche A Loan	$	6,160	$	23,438	$	29,688	$	31,250	$	7,812	$	—	$	98,348
Tranche B Loan		—		1,152		1,536		1,537		109,860		36,492		150,577
Total Payments	$	6,160	$	24,590	$	31,224	$	32,787	$	117,672	$	36,492	$	248,925

The interest rate features of the Company’s long-term debt are discussed in detail in the Company’s 2002 Form 10-K.   On April 1, 2003, the Company entered into three-month LIBOR contracts to lock in the interest rates on $5.1

35

million of its long-term debt (the amount of the Company’s then scheduled June 30, 2003 principal payments), and entered into six-month LIBOR contracts to lock in the interest rate on the remaining $263.8 million of its long-term debt.  For the three months ended June 30, 2003, the interest rates for the $5.1 million of Tranche A and Tranche B debt will be based upon a contracted LIBOR rate of 1.29% (for a combined interest rate of 3.79% for the Tranche A and 4.04% for Tranche B).  For the six months ended September 30, 2003, the interest rates for the $263.8 million of Tranche A and Tranche B debt will be based upon a contracted LIBOR rate of 1.27% (for a combined interest rate of 3.77% for the Tranche A and 4.02% for Tranche B). 

The Company continually evaluates whether it should enter into derivative financial instruments as an additional means to manage its interest rate risk but, as of the date of this filing, has not entered into such instruments.  The Company believes the carrying amount of the Company’s long-term debt approximates its fair value due to the long-term debt’s interest rate features.

Foreign Exchange Rate Risk. The Company’s percentage of total revenues generated outside the U.S. for the years ended December 31, 2002 and 2001 was 25% and 2%, respectively.  The Company’s percentage of total revenues generated outside the U.S. for the three months ended March 31, 2003 and 2002 was 25% and 16% respectively.  The increase between periods in revenues generated outside the U.S. is attributable to the Kenan Business acquisition in February 2002.  The Company expects that in the foreseeable future, the percentage of its total revenues to be generated outside the U.S. will be comparable to that of the first quarter of 2003.  Refer to the Company’s 2002 Form 10-K for further discussion of the Company’s foreign exchange rate risk. 

The Company continues to evaluate whether it should enter into derivative financial instruments for the purposes of managing its foreign currency exchange rate risk, but, as of the date of this filing, has not entered into such instruments.  A hypothetical adverse change of 10% in the March 31, 2003 exchange rates would not have a material impact upon the Company’s results of operations.

Market Risk Related to Short-term Investments.  There have been no material changes to the Company’s market risks related to short-term investments during the three months ended March 31, 2003. 

Item 4.  Controls and Procedures

Within the 90-day period prior to filing this report, the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the date of that evaluation.  There have been no significant changes in the Company’s internal controls, or in other factors that could significantly affect internal controls, subsequent to the date the Company completed its evaluation.

36

CSG SYSTEMS INTERNATIONAL, INC.
PART II.   OTHER INFORMATION

Item 1.     Legal Proceedings

The Company is currently in arbitration with its largest client, Comcast.  Discussions of this matter can be found in “MD&A-Comcast and AT&T Broadband Business Relationship” included in this document and is incorporated herein by reference.

From time-to-time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business.  In the opinion of the Company’s management, the Company is not presently a party to any other material pending or threatened legal proceedings.

Item 2-5. None

Item 6.     Exhibits and Reports on Form 8-K

(a)	Exhibits
	10.62		Restricted Stock Award Agreement with Neal C. Hansen, dated January 2, 2003
	10.63		Restricted Stock Award Agreement with Neal C. Hansen, dated January 2, 2003
	99.01		Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors
	99.03		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.04		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports on Form 8-K
	•	Form 8-K dated April 15, 2003, under Item 9, Regulation FD Disclosure, and Item 12, Disclosure of Results of Operations and Financial Condition, was filed with the Securities and Exchange Commission which included a press release dated April 14, 2003.  The press release related to the anticipated results of the Company’s operations for the first quarter of 2003.
	•	Form 8-K dated April 29, 2003, under Item 9, Regulation FD Disclosure, and Item 12, Disclosure of Results of Operations and Financial Condition, was filed with the Securities and Exchange Commission which included a press release dated April 29, 2003.  The press release announced the Company’s first quarter earnings release.

37

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:  May 15, 2003

CSG SYSTEMS INTERNATIONAL, INC.

/s/ NEAL C. HANSEN

Neal C. Hansen
Chairman and Chief Executive Officer
(Principal Executive Officer)

/s/ PETER E. KALAN

Peter E. Kalan
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

/s/ RANDY R. WIESE

Randy R. Wiese
Vice President and Chief Accounting Officer
(Principal Accounting Officer)

38

CERTIFICATIONS PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Neal C. Hansen, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of CSG Systems International, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:     May 15, 2003	/s/ NEAL C. HANSEN
	Neal C. Hansen Chairman and Chief Executive Officer

39

CERTIFICATIONS PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Peter E. Kalan, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of CSG Systems International, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	(a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	(b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
	(c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
	(a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:     May 15, 2003	/s/ PETER E. KALAN
	Peter E. Kalan Senior Vice President and Chief Financial Officer

40

CSG SYSTEMS INTERNATIONAL, INC.

INDEX TO EXHIBITS

Exhibit Number	Description
10.62	Restricted Stock Award Agreement with Neal C. Hansen, dated January 2, 2003
10.63	Restricted Stock Award Agreement with Neal C. Hansen, dated January 2, 2003
99.01	Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors
99.03	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.04	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-10.62

Exhibit 10.62

RESTRICTED STOCK AWARD AGREEMENT

                    This Restricted Stock Award Agreement (this “Agreement”) is entered into as of January 2, 2003 (the “Award Date”), by and between CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation (the “Company”), and NEAL C. HANSEN (“Grantee”).

* * *

                    WHEREAS, the Company has adopted a 1996 Stock Incentive Plan (the “Plan”); and

                    WHEREAS, the Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors of the Company; and

                    WHEREAS, the Committee has authority under the Plan to grant Restricted Stock Awards covering shares of the Common Stock of the Company (the “Common Stock”); and

                    WHEREAS, pursuant to the Plan, on the Award Date the Committee granted a Restricted Stock Award of 209,167 shares of the Common Stock (the “Award”) to Grantee and directed the Company to execute this Agreement for the purpose of setting forth the terms and conditions of the Award;

                    NOW, THEREFORE, in consideration of the premises and of the covenants and conditions contained herein, the Company and Grantee agree as follows:

          1.          Award of Restricted Shares.

                    (a)          The Company hereby confirms the grant of the Award to Grantee as of the Award Date.  The Award covers 209,167 shares of the Common Stock (the “Shares”) and is subject to all of the terms and conditions of this Agreement.

                    (b)          Promptly after the execution of this Agreement, the Company shall cause one or more certificates evidencing the Shares to be issued in the name of Grantee and deposited with the Escrow Agent pursuant to Section 5.

          2.          Vesting of the Shares.

                    (a)          Twenty-five percent (25%) of the Shares automatically shall vest in Grantee on each of the first four (4) anniversaries of the Award Date (each such anniversary being referred to herein as a “Vesting Date”); provided, however, that no Shares shall vest in Grantee on a particular Vesting Date unless Grantee has been continuously employed by the Company from the Award Date until such Vesting Date.  For purposes of this Agreement, in the context of employment of Grantee, the term “Company” shall include a Subsidiary (as defined in the Plan) if Grantee is then employed by a Subsidiary; provided, however, that neither a transfer of Grantee from the employ of the Company to the employ of a Subsidiary nor the transfer of

Grantee from the employ of a Subsidiary to the employ of the Company or another Subsidiary shall be deemed to be a Termination of Employment of Grantee.

                    (b)          Notwithstanding the provisions of Section 2(a), all Shares which have not previously vested in Grantee pursuant to Section 2(a) automatically shall vest in Grantee upon the occurrence of any of the following events while Grantee is employed by the Company:

(1)	Grantee’s death;
(2)	A Termination of Employment of Grantee by reason of a mental or physical condition that, in the opinion of the Committee, renders Grantee unable or incompetent to carry out the job responsibilities which Grantee then holds as an employee of the Company or the tasks to which Grantee is then assigned as an employee of the Company and that is expected to be permanent or to continue for an indefinite duration exceeding one year;
(3)	A Termination of Employment of Grantee after Grantee has reached the age of sixty-five (65) years; or
(4)	The occurrence of a Change of Control.

                    (c)          Notwithstanding the provisions of Section 2(a), fifty percent (50%) of any Shares which have not previously vested in Grantee pursuant to Section 2(a) automatically shall vest in Grantee upon an involuntary Termination of Employment of Grantee without Cause.

                    (d)          For purposes of this Agreement, a “Termination of Employment” of Grantee means the effective time when the employer-employee relationship between Grantee and the Company terminates for any reason whatsoever.

                    (e)          For purposes of this Agreement, a “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

(1) The Company is merged or consolidated into another corporation or entity, and immediately after such merger or consolidation becomes effective the holders of a majority of the outstanding shares of voting capital stock of the Company immediately prior to the effectiveness of such merger or consolidation do not own (directly or indirectly) a majority of the outstanding shares of voting capital stock or other equity interests having voting rights

2

	of the surviving or resulting corporation or other entity in such merger or consolidation;
(2)	any person, entity, or group of persons within the meaning of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934 (the “1934 Act”) and the rules promulgated thereunder becomes the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of thirty percent (30%) or more of the outstanding voting capital stock of the Company;
(3)	the Common Stock of the Company ceases to be publicly traded because of an issuer tender offer or other “going private” transaction (other than a transaction sponsored by the then current management of the Company);
(4)	the Company dissolves or sells or otherwise disposes of all or substantially all of its property and assets (other than to an entity or group of entities which is then under common majority ownership (directly or indirectly) with the Company); or
(5)	In one or more substantially concurrent transactions or in a series of related transactions, the Company directly or indirectly disposes of a portion or portions of its business operations (collectively, the “Sold Business”) other than by ceasing to conduct the Sold Business without its being acquired by a third party (regardless of the entity or entities through which the Company conducted the Sold Business and regardless of whether such disposition is accomplished through a sale of assets, the transfer of ownership of an entity or entities, a merger, or in some other manner) and either (i) the fair market value of the consideration received or to be received by the Company for the Sold Business is equal to at least thirty percent (30%) of the market value of the outstanding Common Stock of the Company determined by multiplying the average of the closing prices for the Common Stock of the Company on the thirty (30) trading days immediately preceding the date of the first public announcement of the proposed disposition of the Sold Business by the average of the numbers of

3

outstanding shares of Common Stock on such thirty (30) trading days or (ii) the revenues of the Sold Business during the most recent four (4) calendar quarters ended prior to the first public announcement of the proposed disposition of the Sold Business represented thirty percent (30%) or more of the total consolidated revenues of the Company during such four (4) calendar quarters.

(6)

during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board of Directors of the Company, unless the election or nomination for election of each new director of the Company who took office during such period was approved by a vote of at least seventy-five percent (75%) of the directors of the Company still in office at the time of such election or nomination for election who were directors of the Company at the beginning of such period.

                    (f)          For purposes of this Agreement, “Cause” shall mean only (i) Grantee’s confession or conviction of theft, fraud, embezzlement, or other crime involving dishonesty, (ii) Grantee’s excessive absenteeism (other than by reason of physical injury, disease, or mental illness) without a reasonable justification, (iii) material violation by Grantee of the provisions of any employment or non-disclosure agreement with the Company or any Subsidiary, (iv) habitual and material negligence by Grantee in the performance of Grantee’s duties and responsibilities as an employee of the Company or any Subsidiary and failure on the part of Grantee to cure such negligence within twenty (20) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such negligence, (v) material failure by Grantee to comply with a lawful directive of the Board of Directors or the Chief Executive Officer of the Company and failure to cure such non-compliance within twenty (20) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such non-compliance, (vi) a material breach by Grantee of any of Grantee’s fiduciary duties to the Company and, if such breach is curable, Grantee’s failure to cure such breach within ten (10) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such breach, or (vii) willful misconduct or fraud on the part of Grantee in the performance of Grantee’s duties as an employee of the Company or any Subsidiary.  In no event shall the results of operations of the Company or any Subsidiary or any business judgment made in good faith by Grantee constitute an independent basis for a Termination of Employment of Grantee for Cause.

          3.          Cancellation of Unvested Shares.

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                    Upon a Termination of Employment of Grantee, all of the rights and interests of Grantee in any of the Shares which have not vested in Grantee prior to or upon such Termination of Employment of Grantee, as provided in Section 2, automatically shall completely and forever terminate; and the Escrow Agent shall deliver to the Company for cancellation the certificates for such Shares.

          4.          Employment. 

                    Nothing contained in this Agreement (i) obligates the Company, or a Subsidiary, to continue to employ Grantee in any capacity whatsoever or (ii) prohibits or restricts the Company or a Subsidiary from terminating the employment of Grantee at any time or for any reason whatsoever, subject to any rights which Grantee may have under any other agreement with the Company or a Subsidiary.  In the event of any Termination of Employment of Grantee, Grantee shall have only the rights set forth in this Agreement with respect to the Shares.

          5.          Escrow of Shares.

                    To ensure the availability for delivery to the Company for cancellation of the certificates for any unvested Shares in the event of a Termination of Employment of Grantee, Grantee shall deliver to and deposit with the escrow agent (the “Escrow Agent”) named in joint escrow instructions in the form of Annex A hereto (the “Joint Escrow Instructions”) a stock power duly endorsed in blank for each certificate for the Shares, and the Company shall cause the certificates for the Shares to be delivered to and deposited with the Escrow Agent as provided in Section 1(b).  Such stock powers and certificates are to be held and delivered by the Escrow Agent pursuant to the terms of the Joint Escrow Instructions, which shall be executed by Grantee and the Company and delivered to the Escrow Agent concurrently with the execution of this Agreement. The parties acknowledge that the Joint Escrow Instructions have been executed solely for administrative convenience and that all questions as to Share ownership and whether or not Shares have vested shall be determined solely pursuant to this Agreement notwithstanding any action by the Escrow Agent.  Grantee at all times shall have the right to vote with respect to all of the Shares, whether or not they have vested in Grantee.

          6.          Change in Capitalization.

                    If at any time that any of the Shares have not vested in Grantee there is any non-cash dividend of securities or other property or rights to acquire securities or other property, any liquidating dividend of cash and/or property, or any stock dividend or stock split or other change in the character or amount of any of the outstanding securities of the Company, then in such event any and all new, substituted, or additional securities or other property to which Grantee may become entitled by reason of Grantee’s ownership of such unvested Shares immediately shall become subject to this Agreement, shall be delivered to the Escrow Agent to be held pursuant to the Joint Escrow Instructions, and shall have the same status with respect to vesting as the Shares upon which such dividend was paid or with respect to which such new, substituted, or additional securities or other property was distributed.  Any cash or cash equivalents received pursuant to the first sentence of this Section 6 shall be invested in conservative short-term interest-bearing securities, and interest earned thereon also shall have the same status as to

5

vesting. Cash dividends (other than liquidating dividends) paid on such unvested Shares shall be paid to Grantee and shall not be subject to vesting or to the Joint Escrow Instructions.

          7.          Grantee Representations.

                    Grantee hereby represents and warrants to the Company as follows:

                    (a)          Grantee has full power and authority to execute, deliver, and perform Grantee’s obligations under this Agreement; and this Agreement is a valid and binding obligation of Grantee, enforceable in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

                    (b)          Grantee (i) received and reviewed copies of this Agreement and the accompanying Joint Escrow Instructions prior to their execution, (ii) received all such business, financial, tax, and other information as Grantee deemed necessary and appropriate to enable Grantee to evaluate any financial risk inherent in his accepting the award of the Shares, and (iii) received satisfactory and complete information concerning the business and financial condition of the Company in response to all of Grantee’s inquiries in respect thereof.  Grantee acknowledges the public availability of the Company’s periodic and other filings made with the United States Securities and Exchange Commission at www.sec.gov.

          8.          Company Representations and Warranties.

                    The Company hereby represents and warrants to Grantee as follows:

                    (a)          The Company is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and has all requisite corporate power and authority to enter into this Agreement, to issue the Shares to Grantee, and to perform its obligations hereunder.

                    (b)          The execution and delivery of this Agreement by the Company have been duly and validly authorized, and all necessary corporate action has been taken to make this Agreement a valid and binding obligation of the Company, enforceable in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

                    (c)          When issued to Grantee as provided for herein, the Shares will be duly and validly issued, fully paid, and non-assessable.

          9.          Gross-Up Payments.

                    If the vesting of any Shares is accelerated pursuant to Section 2(b)(4) and such accelerated vesting causes Grantee to become liable for any excise tax on “excess parachute payments” (within the meaning of Section 280G of the Internal Revenue Code of 1986, as

6

amended, and any regulations thereunder) and any interest or penalties thereon (such excise tax, interest, and penalties, collectively, the “Tax Penalties”), then the Company promptly shall make a cash payment (the “Cash Payment”) to Grantee in an amount equal to the Tax Penalties.  The Company also promptly shall make an additional cash payment to Grantee in an amount rounded to the nearest $100.00 which is equal to any additional income, excise, and other taxes (using the individual tax rates applicable to Grantee for the year for which such Tax Penalties are owed) for which Grantee will be liable as a result of the Grantee’s receipt of the Cash Payment (the additional cash payment provided for in this sentence being referred to as a “Gross-Up Payment”).  In addition, Grantee shall be entitled to promptly receive from the Company a further Gross-Up Payment in respect of each prior Gross-Up Payment until the amount of the last Gross-Up Payment is less than $100.00.

          10.          Restriction on Sale or Transfer.

                    None of the Shares that have not vested in Grantee pursuant to this Agreement (or any beneficial interest therein) may be sold, transferred, assigned, pledged, or encumbered in any way (including transfer by operation of law); and any attempt to make any such sale, transfer, assignment, pledge, or encumbrance shall be null and void and of no effect.

          11.          Legends.

                    The certificates representing the Shares will, upon their issuance to Grantee, bear a legend in substantially the following form:

          “This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the CSG Systems International, Inc. 1996 Stock Incentive Plan and a Restricted Stock Award Agreement entered into between the registered owner and CSG Systems International, Inc.  Release from such terms and conditions may be obtained only in accordance with the provisions of such Plan and Agreement, a copy of each of which is on file in the office of the Secretary of CSG Systems International, Inc.”

Grantee shall be entitled to have such legend removed from the certificates representing Shares which have vested in Grantee.

          12.          Enforcement.

                    The parties acknowledge that the remedy at law for any breach or violation or attempted breach or violation of the provisions of Section 10 will be inadequate and that, in the event of any such breach or violation or attempted breach or violation, the Company shall be entitled to injunctive relief in addition to any other remedy, at law or in equity, to which the Company may be entitled.

          13.          Violation of Transfer Provisions.

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                    The Company shall not be required to transfer on its books any Shares which have been sold, transferred, assigned, pledged, or encumbered  in violation of any of the provisions of this Agreement or to treat as the owner of such Shares or to accord the right to vote or pay dividends to any purported transferee or pledgee to whom such Shares shall have been so sold, transferred, assigned, pledged, or encumbered.

          14.          Section 83(b) Election.

                    Grantee shall have the right to make an election pursuant to Treasury Regulation § 1.83-2 with respect to the Shares and promptly will furnish the Company with a copy of the form of election Grantee has filed and evidence that such an election has been filed in a timely manner.

          15.          Dispute Resolution.

                    Subject to the provisions of Section 12, any claim or dispute by Grantee or the Company arising from or in connection with this Agreement, whether based on contract, tort, common law, equity, statute, regulation, order, or otherwise (a “Dispute”), shall be resolved as follows:

(a)

Such Dispute shall be submitted to mandatory and binding arbitration at the election of either Grantee or the Company (the “Disputing Party”).  Except as otherwise provided in this Section 15, the arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the “AAA”).

(b)

To initiate the arbitration, the Disputing Party shall notify the other party in writing within 30 days after the occurrence of the event or events which give rise to the Dispute (the “Arbitration Demand”), which notice shall (i) describe in reasonable detail the nature of the Dispute, (ii) state the amount of any claim, and (iii) specify the requested relief.  Within fifteen (15) days after the other party’s receipt of the Arbitration Demand, such other party shall serve on the Disputing Party a written statement (i) answering the claims set forth in the Arbitration Demand and including any affirmative defenses of such party and (ii) asserting any counterclaim, which statement shall (A) describe in reasonable detail the nature of the Dispute relating to the counterclaim, (B) state the amount of the counterclaim, and (C) specify the requested relief. The parties shall attempt in good faith to agree upon a single arbitrator (the “Sole Arbitrator”).  If the parties are unable to so agree, then each party shall appoint an arbitrator who (A) has been licensed to practice law in the U.S. for at least ten years, (B) has no past or present relationship with either Grantee or the Company, and (C) is experienced in representing clients in connection with corporate law matters (the “Basic Qualifications”); and promptly, but in any event within five (5) days after such appointments, the two arbitrators so appointed shall select a third neutral arbitrator from a list provided by the AAA of potential arbitrators who satisfy the Basic Qualifications and who have no past or present

8

	relationship with the parties’ counsel, except as otherwise disclosed in writing to and approved by the parties.  If a Sole Arbitrator is not appointed, then the arbitration will be heard by a panel of the three arbitrators so appointed (the “Arbitration Panel”), with the third arbitrator so appointed serving as the chairperson of the Arbitration Panel.  Decisions of the Sole Arbitrator or of a majority of the members of the Arbitration Panel, as the case may be, shall be determinative.
(c)	The arbitration hearing shall be held in Denver, Colorado, or such other city in which the principal executive office of the Company was located immediately prior to a Change of Control (if a Change of Control has occurred).  The Sole Arbitrator or the Arbitration Panel, as the case may be, is specifically authorized to render partial or full summary judgment as provided for in the Federal Rules of Civil Procedure.  The Arbitration Panel will have no power or authority, under the Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this agreement, including, without limitation, the provisions of this Section 15.  At either party’s request, the Sole Arbitrator or the Arbitration Panel, as the case may be, shall have the right to grant injunctive relief.
(d)	Within ten (10) days after the closing of the arbitration hearing, the Sole Arbitrator or the Arbitration Panel, as the case may be, shall prepare and distribute to the parties a writing setting forth the Sole Arbitrator’s or the Arbitration Panel’s finding of facts and conclusions of law relating to the Dispute, including the reason for the giving or denial of any award.  The findings and conclusions and the award, if any, shall be deemed to be confidential information.
(e)	The Sole Arbitrator or the Arbitration Panel, as the case may be, is instructed to schedule promptly all discovery and other procedural steps and otherwise to assume case management initiatives and controls to effect an efficient, economical, and expeditious resolution of the Dispute.  The Sole Arbitrator or the Arbitration Panel, as the case may be, is authorized to issue monetary sanctions against either party if, upon a showing of good cause, such party is unreasonably delaying the proceeding.
(g)	Any award rendered by the Sole Arbitrator or the Arbitration Panel, as the case may be, will be final, conclusive, and binding upon the parties and shall be the exclusive remedy for all claims, counterclaims, or issues presented to the Sole Arbitrator or the Arbitration Panel, as the case may be; and any judgment on such award may be entered and enforced in any court of competent jurisdiction.
(h)	Each party will bear an equal share of all fees, costs, and expenses of the arbitrators.  Notwithstanding any law to the contrary, (i) if the Company is

9

the prevailing party in the arbitration, then each party will bear all of the fees, costs, and expenses of such party’s own attorneys, experts, and witnesses and (ii) if the Grantee is the prevailing party in the arbitration, then the Company shall pay all of the reasonable fees, costs, and expenses of both the Company’s and the Grantee’s attorneys, experts, and witnesses.  However, in connection with any judicial proceeding to compel arbitration pursuant to this agreement or to enforce any award rendered by the Sole Arbitrator or the Arbitration Panel, as the case may be, the prevailing party in such a proceeding will be entitled to recover reasonable attorneys’ fees and expenses incurred in connection with such proceedings, in addition to any other relief to which such party may be entitled.

(i)

Nothing contained in the preceding provisions of this Section 15 shall be construed to prevent either party from seeking from a court a temporary restraining order or other injunctive relief pending final resolution of a Dispute pursuant to this Section 15.

          16.          Withholding.

                    Upon Grantee’s making of the election referred to in Section 14 with respect to any of the Shares or upon the vesting in Grantee of any of the Shares as to which the election referred to in Section 14 was not made, Grantee shall pay to or provide for the payment to or withholding by the Company of all amounts which the Company is required to withhold for federal, state, or local tax purposes from Grantee’s compensation by reason of or in connection with such election or vesting.  Notwithstanding any provision of the Joint Escrow Instructions to the contrary, neither the Company nor the Escrow Agent shall be obligated to deliver any certificate for any of the Shares until Grantee’s obligations under this Section 16 have been satisfied.

          17.          Application of Plan. 

                    The relevant provisions of the Plan relating to Restricted Stock Awards and the authority of the Committee under the Plan shall be applicable to this Agreement to the extent that this Agreement does not otherwise expressly address the subject matter of such provisions.

          18.          General Provisions. 

                     (a)          No Assignments.  Grantee may not sell, transfer, assign, pledge, or encumber any of Grantee’s rights or obligations under this Agreement without the prior written consent of the Company; and any such attempted sale, transfer, assignment, pledge, or encumbrance shall be void.

                    (b)          Notices.  All notices, requests, consents, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given and made upon personal delivery to the person for whom it is intended (including by a reputable overnight delivery service which shall be deemed to have effected personal delivery) or upon

10

deposit, postage prepaid, registered or certified mail, return receipt requested, in the United States mail as follows:

                                   (i)           if to Grantee, addressed to Grantee at Grantee’s address shown on the stock register maintained by or on behalf of the Company or at such other address as Grantee may specify by written notice to the Company, or

                                   (ii)           if to the Company, addressed to the Chief Executive Officer of the Company at the principal office of the Company or at such other address as the Company may specify by written notice to the Grantee.

                    Each such notice, request, consent, and other communication shall be deemed to have been given upon receipt thereof as set forth above or, if sooner, three (3) business days after deposit as described above.  The addresses for purposes of this Section 18(b) may be changed by giving written notice of such change in the manner provided herein for giving notice.  Unless and until such written notice is received, the addresses provided herein shall be deemed to continue in effect for all purposes hereunder.

                    (c)          Choice of Law.  This Agreement shall be governed by and construed in accordance with the internal laws, and not the laws of conflicts of laws, of the State of Delaware.

                    (d)          Severability.  The parties hereto agree that the terms and provisions in this Agreement are reasonable and shall be binding and enforceable in accordance with the terms hereof and, in any event, that the terms and provisions of this Agreement shall be enforced to the fullest extent permissible under law.  In the event that any term or provision of this Agreement shall for any reason be adjudged to be unenforceable or invalid, then such unenforceable or invalid term or provision shall not affect the enforceability or validity of the remaining terms and provisions of this Agreement, and the parties hereto hereby agree to replace such unenforceable or invalid term or provision with an enforceable and valid arrangement which in its economic effect shall be as close as possible to the unenforceable or invalid term or provision.

                    (e)          Parties in Interest.  All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective permitted heirs, personal representatives, successors, and assigns of the parties hereto; provided, that the provisions of this Section 18(e) shall not authorize any assignment which is otherwise prohibited by this Agreement.

                    (f)          Modification, Amendment, and Waiver.  No modification, amendment, or waiver of any provision of this Agreement shall be effective against the Company or Grantee unless approved in writing and, in the case of the Company, authorized by the Committee and unless it specifically states that it is intended to modify, amend, or waive a specific provision of this Agreement.  The failure of a party at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

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                    (g)          Integration.  This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior negotiations, understandings, and agreements, written or oral.

                    (h)          Headings.  The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement.

                    (i)          Counterparts.  This Agreement may be executed in counterpart with the same effect as if all parties had signed the same document.  All such counterparts shall be deemed to be an original, shall be construed together, and shall constitute one and the same instrument.

                    (j)          Further Assurances.  The parties agree to use their best efforts and act in good faith in carrying out their obligations under this Agreement.  The parties also agree to execute such further instruments and to take such further actions as reasonably may be necessary or desirable to carry out the purposes and intent of this Agreement.

                    In Witness Whereof, the parties hereto have executed this Restricted Stock Award Agreement as of the date first above written.

COMPANY:		GRANTEE:
CSG SYSTEMS INTERNATIONAL, INC.,		/s/ NEAL C. HANSEN
a Delaware corporation
		Neal C. Hansen
By:	/s/ JOHN P. POGGE
John P. Pogge, President

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ANNEX A

JOINT ESCROW INSTRUCTIONS

January 2, 2003

Joseph T. Ruble, Corporate Secretary
CSG Systems International, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado  80111

Dear Sir:

                    As the Escrow Agent for CSG Systems International, Inc. (the “Company”), a Delaware corporation, and the undersigned holder of Common Stock of the Company (the “Grantee”), you hereby are authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Award Agreement (the “Agreement”) between the undersigned dated the date hereof, to which these Joint Escrow Instructions relate, in accordance with the following instructions:

                    1.          A copy of the Agreement has been delivered to you concurrently with the execution of these Joint Escrow Instructions.  By signing these Joint Escrow Instructions, you acknowledge receipt of such copy.

                    2.          The Company promptly shall notify you (with a copy to Grantee) upon (i) the vesting in Grantee of any of the Shares covered by the Agreement and (ii) Grantee’s satisfaction of the withholding requirements set forth in Section 16 of the Agreement.  Five (5) business days after your receipt of such notice, you shall deliver to Grantee the certificate or certificates for the Shares that have so vested and as to which such withholding requirements have been satisfied and any other items pertaining to such Shares then held by you pursuant to Section 6 of the Agreement.

                    3.          The Company promptly shall notify you (with a copy to Grantee) of a Termination of Employment (as defined in the Agreement) of Grantee which results in the termination of the rights and interests of Grantee in any of the Shares covered by the Agreement in accordance with Section 3 of the Agreement.  Five (5) business days after your receipt of such notice, you shall deliver to the Company for cancellation the certificates for such Shares and any other items pertaining to such Shares then held by you pursuant to Section 6 of the Agreement. 

                    4.          The escrow created by these Joint Escrow Instructions shall terminate upon the delivery by you, in accordance with the Agreement and these Joint Escrow Instructions, of all of the certificates for the Shares covered by the Agreement and all other items pertaining to the Shares received by you pursuant to Section 6 of the Agreement.

                    5.          Your duties hereunder may be altered, amended, modified, or revoked only by a writing signed by the parties hereto.

                    6.          You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in acting or refraining from acting in reliance upon any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties.  You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent while acting in good faith and in the exercise of your own good judgment and not in contravention of the express terms hereof, and any act done or omitted by you pursuant to the advice of your own independent attorneys shall be conclusive evidence of such good faith.

                    7.          You shall not be liable in any respect on account of the identity, authority, or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder or thereunder.

                    8.          You shall be entitled to employ such independent legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation for such advice.

                    9.          Your responsibilities as Escrow Agent hereunder shall terminate on the thirtieth day following receipt by the parties of your written notice of resignation or upon the joint selection of a successor Escrow Agent by the Company and Grantee and your receipt of written notification of such a selection.  In the event of your resignation, you and the Company shall jointly appoint a successor Escrow Agent.

                    10.          If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or your obligations in respect hereto, the necessary parties hereto shall furnish or join in furnishing such instruments.

                    11.          If a dispute arises with respect to the delivery and/or ownership or right of possession of the securities or any other property held by you hereunder, then you are authorized and directed to retain in your possession without liability to anyone all or any part of such securities or other property until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order of a court of competent jurisdiction, but you shall be under no duty whatsoever to institute or defend any such proceedings.  All questions as to whether any securities held by you have vested will be determined under the Agreement by the Company and Grantee or by a final order of a court of competent jurisdiction, and you have no authority to make any such decisions.  No transfer of securities or other property by you shall be effective unless made pursuant to the terms of the Agreement, and any transfer in contravention thereof shall be null and void.

                    12.          Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery (including by a reputable overnight delivery service which shall be deemed to have effected personal delivery) or upon deposit in the United States mail, by registered or certified mail with postage and fees prepaid, return receipt requested, addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10) days’ advance written notice to each of the other parties hereto:

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Company:	CSG Systems International, Inc.
	7887 East Belleview Avenue, Suite 1000
	Englewood, Colorado  80111
	Attn:  Chief Executive Officer
Grantee:	Notice to Grantee shall be sent to the address set forth below Grantee’s signature on these Joint Escrow Instructions.
Escrow Agent:	Notice to the Escrow Agent shall be sent to his address at the beginning of these Joint Escrow Instructions.

                    13.          By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of these Joint Escrow Instructions; and you do not become a party to the Agreement.

                    14.          All liabilities, losses, costs, fees, and disbursements incurred or made by you in connection with the performance of your duties hereunder, including without limitation the compensation paid to legal counsel pursuant to Paragraph 8 hereof, shall be borne by the Company; and the Company hereby agrees to indemnify you against and hold you harmless from all claims, actions, demands, liabilities, losses, costs, fees, and expenses incurred by you in the performance of your duties hereunder; provided, however, that this indemnity shall not extend to conduct which has been determined, by a final order of a court of competent jurisdiction, to have been grossly negligent or to have constituted intentional misconduct.  You shall not be entitled to compensation for your services hereunder.

                    15.          This instrument shall be governed by and construed in accordance with the internal laws, and not the laws of conflicts of laws, of the State of Delaware.

                    16.          This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

[This space intentionally left blank]

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                    19.          This instrument may be executed in counterparts with the same effect as if all parties had signed the same document.  All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.

	Very truly yours,
	COMPANY:
	CSG SYSTEMS INTERNATIONAL, INC.
	By:	/s/ JOHN P. POGGE
		John P. Pogge, President
	GRANTEE:
	/s/ NEAL C. HANSEN
	Neal C. Hansen
	Grantee’s Address:
	41 Charlou Circle
	Englewood, CO  80111
Accepted:
ESCROW AGENT:
/s/ JOSEPH T. RUBLE
Joseph T. Ruble, Corporate Secretary of CSG Systems International, Inc.

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EX-10.63

Exhibit 10.63

RESTRICTED STOCK AWARD AGREEMENT

                    This Restricted Stock Award Agreement (this “Agreement”) is entered into as of January 2, 2003 (the “Award Date”), by and between CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation (the “Company”), and NEAL C. HANSEN (“Grantee”).

* * *

                    WHEREAS, the Company has adopted a 1996 Stock Incentive Plan (the “Plan”); and

                    WHEREAS, the Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors of the Company; and

                    WHEREAS, the Committee has authority under the Plan to grant Restricted Stock Awards covering shares of the Common Stock of the Company (the “Common Stock”); and

                    WHEREAS, pursuant to the Plan, on the Award Date the Committee granted a Restricted Stock Award of 270,833 shares of the Common Stock (the “Award”) to Grantee in further exchange for Grantee’s prior surrender and cancellation of certain stock options previously granted to Grantee by the Company covering an aggregate of 1,390,000 shares of the Common Stock (the “Cancelled Options”) and directed the Company to execute this Agreement for the purpose of setting forth the terms and conditions of the Award; and

                    WHEREAS, Grantee previously agreed to such exchange and has accepted the Award;

                    NOW, THEREFORE, in consideration of the premises and of the covenants and conditions contained herein, the Company and Grantee agree as follows:

                    1.          Award of Restricted Shares.

                    (a)          The Company hereby confirms the grant of the Award to Grantee as of the Award Date in further exchange for the prior surrender and cancellation of the Cancelled Options, and Grantee hereby confirms Grantee’s acceptance of the Award from the Company in further exchange for the prior surrender and cancellation of the Cancelled Options.  The Award covers 270,833 shares of the Common Stock (the “Shares”) and is subject to all of the terms and conditions of this Agreement.

                    (b)          Promptly after the execution of this Agreement, the Company shall cause one or more certificates evidencing the Shares to be issued in the name of Grantee and deposited with the Escrow Agent pursuant to Section 5.

                    2.          Vesting of the Shares.

                    (a)          90,278 of the Shares automatically shall vest in Grantee on the second anniversary of the Award Date, 90,278 of the Shares automatically shall vest in Grantee on the third anniversary of the Award Date, and 90,277 of the Shares automatically shall vest in Grantee on the fourth anniversary of the Award Date (each such anniversary being referred to herein as a “Vesting Date”; provided, however, that no Shares shall vest in Grantee on a particular Vesting Date unless Grantee as been continuously employed by the Company from the Award Date until such Vesting Date. 

                    (b)          Notwithstanding the provisions of Section 2(a), all Shares which have not previously vested in Grantee pursuant to Section 2(a) automatically shall vest in Grantee upon the occurrence of any of the following events while Grantee is employed by the Company:

(1)	Grantee’s death;
(2)	A Termination of Employment of Grantee by reason of a mental or physical condition that, in the opinion of the Committee, renders Grantee unable or incompetent to carry out the job responsibilities which Grantee then holds as an employee of the Company or the tasks to which Grantee is then assigned as an employee of the Company and that is expected to be permanent or to continue for an indefinite duration exceeding one year;
(3)	A Termination of Employment of Grantee after Grantee has reached the age of sixty-five (65) years; or
(4)	The occurrence of a Change of Control.

                    (c)          Notwithstanding the provisions of Section 2(a), fifty percent (50%) of any Shares which have not previously vested in Grantee pursuant to Section 2(a) automatically shall vest in Grantee upon an involuntary Termination of Employment of Grantee without Cause.

                    (d)          For purposes of this Agreement, a “Termination of Employment” of Grantee means the effective time when the employer-employee relationship between Grantee and the Company terminates for any reason whatsoever.

                    (e)          For purposes of this Agreement, a “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

(1) The Company is merged or consolidated into another corporation or entity, and immediately after such merger or consolidation becomes effective the holders of a majority of the outstanding shares of voting capital stock of the Company immediately prior to the effectiveness of such merger or consolidation do not own (directly or indirectly) a majority of the outstanding shares of

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	voting capital stock or other equity interests having voting rights of the surviving or resulting corporation or other entity in such merger or consolidation;
(2)	any person, entity, or group of persons within the meaning of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934 (the “1934 Act”) and the rules promulgated thereunder becomes the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of thirty percent (30%) or more of the outstanding voting capital stock of the Company;
(3)	the Common Stock of the Company ceases to be publicly traded because of an issuer tender offer or other “going private” transaction (other than a transaction sponsored by the then current management of the Company);
(4)	the Company dissolves or sells or otherwise disposes of all or substantially all of its property and assets (other than to an entity or group of entities which is then under common majority ownership (directly or indirectly) with the Company); or
(5)	In one or more substantially concurrent transactions or in a series of related transactions, the Company directly or indirectly disposes of a portion or portions of its business operations (collectively, the “Sold Business”) other than by ceasing to conduct the Sold Business without its being acquired by a third party (regardless of the entity or entities through which the Company conducted the Sold Business and regardless of whether such disposition is accomplished through a sale of assets, the transfer of ownership of an entity or entities, a merger, or in some other manner) and either (i) the fair market value of the consideration received or to be received by the Company for the Sold Business is equal to at least thirty percent (30%) of the market value of the outstanding Common Stock of the Company determined by multiplying the average of the

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closing prices for the Common Stock of the Company on the thirty (30) trading days immediately preceding the date of the first public announcement of the proposed disposition of the Sold Business by the average of the numbers of outstanding shares of Common Stock on such thirty (30) trading days or (ii) the revenues of the Sold Business during the most recent four (4) calendar quarters ended prior to the first public announcement of the proposed disposition of the Sold Business represented thirty percent (30%) or more of the total consolidated revenues of the Company during such four (4) calendar quarters.

(6)

during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board of Directors of the Company, unless the election or nomination for election of each new director of the Company who took office during such period was approved by a vote of at least seventy-five percent (75%) of the directors of the Company still in office at the time of such election or nomination for election who were directors of the Company at the beginning of such period.

                    (f)          For purposes of this Agreement, “Cause” shall mean only (i) Grantee’s confession or conviction of theft, fraud, embezzlement, or other crime involving dishonesty, (ii) Grantee’s excessive absenteeism (other than by reason of physical injury, disease, or mental illness) without a reasonable justification, (iii) material violation by Grantee of the provisions of any employment or non-disclosure agreement with the Company or any Subsidiary, (iv) habitual and material negligence by Grantee in the performance of Grantee’s duties and responsibilities as an employee of the Company or any Subsidiary and failure on the part of Grantee to cure such negligence within twenty (20) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such negligence, (v) material failure by Grantee to comply with a lawful directive of the Board of Directors or the Chief Executive Officer of the Company and failure to cure such non-compliance within twenty (20) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such non-compliance, (vi) a material breach by Grantee of any of Grantee’s fiduciary duties to the Company and, if such breach is curable, Grantee’s failure to cure such breach within ten (10) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such breach, or (vii) willful misconduct or fraud on the part of Grantee in the

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performance of Grantee’s duties as an employee of the Company or any Subsidiary.  In no event shall the results of operations of the Company or any Subsidiary or any business judgment made in good faith by Grantee constitute an independent basis for a Termination of Employment of Grantee for Cause.

          3.          Cancellation of Unvested Shares.

                    Upon a Termination of Employment of Grantee, all of the rights and interests of Grantee in any of the Shares which have not vested in Grantee prior to or upon such Termination of Employment of Grantee, as provided in Section 2, automatically shall completely and forever terminate; and the Escrow Agent shall deliver to the Company for cancellation the certificates for such Shares.

          4.          Employment. 

                    Nothing contained in this Agreement (i) obligates the Company, or a Subsidiary, to continue to employ Grantee in any capacity whatsoever or (ii) prohibits or restricts the Company or a Subsidiary from terminating the employment of Grantee at any time or for any reason whatsoever, subject to any rights which Grantee may have under any other agreement with the Company or a Subsidiary.  In the event of any Termination of Employment of Grantee, Grantee shall have only the rights set forth in this Agreement with respect to the Shares.

          5.          Escrow of Shares.

                    To ensure the availability for delivery to the Company for cancellation of the certificates for any unvested Shares in the event of a Termination of Employment of Grantee, Grantee shall deliver to and deposit with the escrow agent (the “Escrow Agent”) named in joint escrow instructions in the form of Annex A hereto (the “Joint Escrow Instructions”) a stock power duly endorsed in blank for each certificate for the Shares, and the Company shall cause the certificates for the Shares to be delivered to and deposited with the Escrow Agent as provided in Section 1(b).  Such stock powers and certificates are to be held and delivered by the Escrow Agent pursuant to the terms of the Joint Escrow Instructions, which shall be executed by Grantee and the Company and delivered to the Escrow Agent concurrently with the execution of this Agreement. The parties acknowledge that the Joint Escrow Instructions have been executed solely for administrative convenience and that all questions as to Share ownership and whether or not Shares have vested shall be determined solely pursuant to this Agreement notwithstanding any action by the Escrow Agent.  Grantee at all times shall have the right to vote with respect to all of the Shares, whether or not they have vested in Grantee.

          6.          Change in Capitalization.

                    If at any time that any of the Shares have not vested in Grantee there is any non-cash dividend of securities or other property or rights to acquire securities or other property, any liquidating dividend of cash and/or property, or any stock dividend or stock split or other change in the character or amount of any of the outstanding securities of the Company, then in such event any and all new, substituted, or additional securities or other property to which Grantee may become entitled by reason of Grantee’s ownership of such unvested Shares immediately

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shall become subject to this Agreement, shall be delivered to the Escrow Agent to be held pursuant to the Joint Escrow Instructions, and shall have the same status with respect to vesting as the Shares upon which such dividend was paid or with respect to which such new, substituted, or additional securities or other property was distributed.  Any cash or cash equivalents received pursuant to the first sentence of this Section 6 shall be invested in conservative short-term interest-bearing securities, and interest earned thereon also shall have the same status as to vesting. Cash dividends (other than liquidating dividends) paid on such unvested Shares shall be paid to Grantee and shall not be subject to vesting or to the Joint Escrow Instructions.

          7.          Grantee Representations.

                    Grantee hereby represents and warrants to the Company as follows:

                    (a)          Grantee has full power and authority to execute, deliver, and perform Grantee’s obligations under this Agreement; and this Agreement is a valid and binding obligation of Grantee, enforceable in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

                    (b)          Grantee (i) received and reviewed copies of this Agreement and the accompanying Joint Escrow Instructions prior to their execution, (ii) received all such business, financial, tax, and other information as Grantee deemed necessary and appropriate to enable Grantee to evaluate the financial risk inherent in accepting the award of the Shares in further exchange for Grantee’s prior surrender and cancellation of the Cancelled Options, and (iii) received satisfactory and complete information concerning the business and financial condition of the Company in response to all of Grantee’s inquiries in respect thereof.  Grantee acknowledges the public availability of the Company’s periodic and other filings made with the United States Securities and Exchange Commission at www.sec.gov.

          8.          Company Representations and Warranties.

                    The Company hereby represents and warrants to Grantee as follows:

                    (a)          The Company is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and has all requisite corporate power and authority to enter into this Agreement, to issue the Shares to Grantee, and to perform its obligations hereunder.

                    (b)          The execution and delivery of this Agreement by the Company have been duly and validly authorized, and all necessary corporate action has been taken to make this Agreement a valid and binding obligation of the Company, enforceable in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

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                    (c)          When issued to Grantee as provided for herein, the Shares will be duly and validly issued, fully paid, and non-assessable.

          9.          Gross-Up Payments.

                    If the vesting of any Shares is accelerated pursuant to Section 2(b)(4) and such accelerated vesting causes Grantee to become liable for any excise tax on “excess parachute payments” (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder) and any interest or penalties thereon (such excise tax, interest, and penalties, collectively, the “Tax Penalties”), then the Company promptly shall make a cash payment (the “Cash Payment”) to Grantee in an amount equal to the Tax Penalties.  The Company also promptly shall make an additional cash payment to Grantee in an amount rounded to the nearest $100.00 which is equal to any additional income, excise, and other taxes (using the individual tax rates applicable to Grantee for the year for which such Tax Penalties are owed) for which Grantee will be liable as a result of the Grantee’s receipt of the Cash Payment (the additional cash payment provided for in this sentence being referred to as a “Gross-Up Payment”).  In addition, Grantee shall be entitled to promptly receive from the Company a further Gross-Up Payment in respect of each prior Gross-Up Payment until the amount of the last Gross-Up Payment is less than $100.00.

          10.          Restriction on Sale or Transfer.

                    None of the Shares that have not vested in Grantee pursuant to this Agreement (or any beneficial interest therein) may be sold, transferred, assigned, pledged, or encumbered in any way (including transfer by operation of law); and any attempt to make any such sale, transfer, assignment, pledge, or encumbrance shall be null and void and of no effect.

          11.          Legends.

                    The certificates representing the Shares will, upon their issuance to Grantee, bear a legend in substantially the following form:

          “This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the CSG Systems International, Inc. 1996 Stock Incentive Plan and a Restricted Stock Award Agreement entered into between the registered owner and CSG Systems International, Inc.  Release from such terms and conditions may be obtained only in accordance with the provisions of such Plan and Agreement, a copy of each of which is on file in the office of the Secretary of CSG Systems International, Inc.”

Grantee shall be entitled to have such legend removed from the certificates representing Shares which have vested in Grantee.

          12.          Enforcement.

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                    The parties acknowledge that the remedy at law for any breach or violation or attempted breach or violation of the provisions of Section 10 will be inadequate and that, in the event of any such breach or violation or attempted breach or violation, the Company shall be entitled to injunctive relief in addition to any other remedy, at law or in equity, to which the Company may be entitled.

          13.           Violation of Transfer Provisions.

                    The Company shall not be required to transfer on its books any Shares which have been sold, transferred, assigned, pledged, or encumbered  in violation of any of the provisions of this Agreement or to treat as the owner of such Shares or to accord the right to vote or pay dividends to any purported transferee or pledgee to whom such Shares shall have been so sold, transferred, assigned, pledged, or encumbered.

          14.          Section 83(b) Election.

                    Grantee shall have the right to make an election pursuant to Treasury Regulation § 1.83-2 with respect to the Shares and promptly will furnish the Company with a copy of the form of election Grantee has filed and evidence that such an election has been filed in a timely manner.

          15.          Dispute Resolution.

                    Subject to the provisions of Section 12, any claim or dispute by Grantee or the Company arising from or in connection with this Agreement, whether based on contract, tort, common law, equity, statute, regulation, order, or otherwise (a “Dispute”), shall be resolved as follows:

(a)

Such Dispute shall be submitted to mandatory and binding arbitration at the election of either Grantee or the Company (the “Disputing Party”).  Except as otherwise provided in this Section 15, the arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the “AAA”).

(b)

To initiate the arbitration, the Disputing Party shall notify the other party in writing within 30 days after the occurrence of the event or events which give rise to the Dispute (the “Arbitration Demand”), which notice shall (i) describe in reasonable detail the nature of the Dispute, (ii) state the amount of any claim, and (iii) specify the requested relief.  Within fifteen (15) days after the other party’s receipt of the Arbitration Demand, such other party shall serve on the Disputing Party a written statement (i) answering the claims set forth in the Arbitration Demand and including any affirmative defenses of such party and (ii) asserting any counterclaim, which statement shall (A) describe in reasonable detail the nature of the Dispute relating to the counterclaim, (B) state the amount of the counterclaim, and (C) specify the requested relief. The parties shall attempt in good faith to agree upon a single arbitrator (the “Sole Arbitrator”).  If the parties are unable to so agree,

8

	then each party shall appoint an arbitrator who (A) has been licensed to practice law in the U.S. for at least ten years, (B) has no past or present relationship with either Grantee or the Company, and (C) is experienced in representing clients in connection with corporate law matters (the “Basic Qualifications”); and promptly, but in any event within five (5) days after such appointments, the two arbitrators so appointed shall select a third neutral arbitrator from a list provided by the AAA of potential arbitrators who satisfy the Basic Qualifications and who have no past or present relationship with the parties’ counsel, except as otherwise disclosed in writing to and approved by the parties.  If a Sole Arbitrator is not appointed, then the arbitration will be heard by a panel of the three arbitrators so appointed (the “Arbitration Panel”), with the third arbitrator so appointed serving as the chairperson of the Arbitration Panel.  Decisions of the Sole Arbitrator or of a majority of the members of the Arbitration Panel, as the case may be, shall be determinative.
(c)	The arbitration hearing shall be held in Denver, Colorado, or such other city in which the principal executive office of the Company was located immediately prior to a Change of Control (if a Change of Control has occurred).  The Sole Arbitrator or the Arbitration Panel, as the case may be, is specifically authorized to render partial or full summary judgment as provided for in the Federal Rules of Civil Procedure.  The Arbitration Panel will have no power or authority, under the Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this agreement, including, without limitation, the provisions of this Section 15.  At either party’s request, the Sole Arbitrator or the Arbitration Panel, as the case may be, shall have the right to grant injunctive relief.
(d)	Within ten (10) days after the closing of the arbitration hearing, the Sole Arbitrator or the Arbitration Panel, as the case may be, shall prepare and distribute to the parties a writing setting forth the Sole Arbitrator’s or the Arbitration Panel’s finding of facts and conclusions of law relating to the Dispute, including the reason for the giving or denial of any award.  The findings and conclusions and the award, if any, shall be deemed to be confidential information.
(e)	The Sole Arbitrator or the Arbitration Panel, as the case may be, is instructed to schedule promptly all discovery and other procedural steps and otherwise to assume case management initiatives and controls to effect an efficient, economical, and expeditious resolution of the Dispute.  The Sole Arbitrator or the Arbitration Panel, as the case may be, is authorized to issue monetary sanctions against either party if, upon a showing of good cause, such party is unreasonably delaying the proceeding.

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(g)	Any award rendered by the Sole Arbitrator or the Arbitration Panel, as the case may be, will be final, conclusive, and binding upon the parties and shall be the exclusive remedy for all claims, counterclaims, or issues presented to the Sole Arbitrator or the Arbitration Panel, as the case may be; and any judgment on such award may be entered and enforced in any court of competent jurisdiction.
(h)	Each party will bear an equal share of all fees, costs, and expenses of the arbitrators.  Notwithstanding any law to the contrary, (i) if the Company is the prevailing party in the arbitration, then each party will bear all of the fees, costs, and expenses of such party’s own attorneys, experts, and witnesses and (ii) if the Grantee is the prevailing party in the arbitration, then the Company shall pay all of the reasonable fees, costs, and expenses of both the Company’s and the Grantee’s attorneys, experts, and witnesses.  However, in connection with any judicial proceeding to compel arbitration pursuant to this agreement or to enforce any award rendered by the Sole Arbitrator or the Arbitration Panel, as the case may be, the prevailing party in such a proceeding will be entitled to recover reasonable attorneys’ fees and expenses incurred in connection with such proceedings, in addition to any other relief to which such party may be entitled.
(i)	Nothing contained in the preceding provisions of this Section 15 shall be construed to prevent either party from seeking from a court a temporary restraining order or other injunctive relief pending final resolution of a Dispute pursuant to this Section 15.

          16.          Withholding.

                    Upon Grantee’s making of the election referred to in Section 14 with respect to any of the Shares or upon the vesting in Grantee of any of the Shares as to which the election referred to in Section 14 was not made, Grantee shall pay to or provide for the payment to or withholding by the Company of all amounts which the Company is required to withhold for federal, state, or local tax purposes from Grantee’s compensation by reason of or in connection with such election or vesting.  Notwithstanding any provision of the Joint Escrow Instructions to the contrary, neither the Company nor the Escrow Agent shall be obligated to deliver any certificate for any of the Shares until Grantee’s obligations under this Section 16 have been satisfied.

          17.          Application of Plan. 

                    The relevant provisions of the Plan relating to Restricted Stock Awards and the authority of the Committee under the Plan shall be applicable to this Agreement to the extent that this Agreement does not otherwise expressly address the subject matter of such provisions.

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          18.          General Provisions.

                    (a)          No Assignments.   Grantee may not sell, transfer, assign, pledge, or encumber any of Grantee’s rights or obligations under this Agreement without the prior written consent of the Company; and any such attempted sale, transfer, assignment, pledge, or encumbrance shall be void.

                    (b)          Notices.  All notices, requests, consents, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given and made upon personal delivery to the person for whom it is intended (including by a reputable overnight delivery service which shall be deemed to have effected personal delivery) or upon deposit, postage prepaid, registered or certified mail, return receipt requested, in the United States mail as follows:

                                   (i)           if to Grantee, addressed to Grantee at Grantee’s address shown on the stock register maintained by or on behalf of the Company or at such other address as Grantee may specify by written notice to the Company, or

                                   (ii)           if to the Company, addressed to the Chief Executive Officer of the Company at the principal office of the Company or at such other address as the Company may specify by written notice to the Grantee.

                    Each such notice, request, consent, and other communication shall be deemed to have been given upon receipt thereof as set forth above or, if sooner, three (3) business days after deposit as described above.  The addresses for purposes of this Section 18(b) may be changed by giving written notice of such change in the manner provided herein for giving notice.  Unless and until such written notice is received, the addresses provided herein shall be deemed to continue in effect for all purposes hereunder.

                    (c)          Choice of Law.  This Agreement shall be governed by and construed in accordance with the internal laws, and not the laws of conflicts of laws, of the State of Delaware.

                    (d)          Severability.  The parties hereto agree that the terms and provisions in this Agreement are reasonable and shall be binding and enforceable in accordance with the terms hereof and, in any event, that the terms and provisions of this Agreement shall be enforced to the fullest extent permissible under law.  In the event that any term or provision of this Agreement shall for any reason be adjudged to be unenforceable or invalid, then such unenforceable or invalid term or provision shall not affect the enforceability or validity of the remaining terms and provisions of this Agreement, and the parties hereto hereby agree to replace such unenforceable or invalid term or provision with an enforceable and valid arrangement which in its economic effect shall be as close as possible to the unenforceable or invalid term or provision.

                    (e)          Parties in Interest.  All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective permitted heirs, personal representatives, successors, and assigns of the parties hereto; provided, that the provisions of this Section 18(e) shall not authorize any assignment which is otherwise prohibited by this Agreement.

                    (f)          Modification, Amendment, and Waiver.  No modification, amendment, or waiver of any provision of this Agreement shall be effective against the Company or Grantee

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unless approved in writing and, in the case of the Company, authorized by the Committee and unless it specifically states that it is intended to modify, amend, or waive a specific provision of this Agreement.  The failure of a party at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

                    (g)          Integration.  This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior negotiations, understandings, and agreements, written or oral.

                    (h)          Headings.  The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement.

                    (i)          Counterparts.  This Agreement may be executed in counterpart with the same effect as if all parties had signed the same document.  All such counterparts shall be deemed to be an original, shall be construed together, and shall constitute one and the same instrument.

                    (j)          Further Assurances.  The parties agree to use their best efforts and act in good faith in carrying out their obligations under this Agreement.  The parties also agree to execute such further instruments and to take such further actions as reasonably may be necessary or desirable to carry out the purposes and intent of this Agreement.

                    In Witness Whereof, the parties hereto have executed this Restricted Stock Award Agreement as of the date first above written.

COMPANY:		GRANTEE:
CSG SYSTEMS INTERNATIONAL, INC.,		/s/ NEAL C. HANSEN
a Delaware corporation
		Neal C. Hansen
By:	/s/ JOHN P. POGGE
	John P. Pogge, President

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ANNEX A

JOINT ESCROW INSTRUCTIONS

January 2, 2003

Joseph T. Ruble, Corporate Secretary
CSG Systems International, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado  80111

Dear Sir:

                    As the Escrow Agent for CSG Systems International, Inc. (the “Company”), a Delaware corporation, and the undersigned holder of Common Stock of the Company (the “Grantee”), you hereby are authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Award Agreement (the “Agreement”) between the undersigned dated the date hereof, to which these Joint Escrow Instructions relate, in accordance with the following instructions:

                    1.          A copy of the Agreement has been delivered to you concurrently with the execution of these Joint Escrow Instructions.  By signing these Joint Escrow Instructions, you acknowledge receipt of such copy.

                    2.          The Company promptly shall notify you (with a copy to Grantee) upon (i) the vesting in Grantee of any of the Shares covered by the Agreement and (ii) Grantee’s satisfaction of the withholding requirements set forth in Section 16 of the Agreement.  Five (5) business days after your receipt of such notice, you shall deliver to Grantee the certificate or certificates for the Shares that have so vested and as to which such withholding requirements have been satisfied and any other items pertaining to such Shares then held by you pursuant to Section 6 of the Agreement.

                    3.          The Company promptly shall notify you (with a copy to Grantee) of a Termination of Employment (as defined in the Agreement) of Grantee which results in the termination of the rights and interests of Grantee in any of the Shares covered by the Agreement in accordance with Section 3 of the Agreement.  Five (5) business days after your receipt of such notice, you shall deliver to the Company for cancellation the certificates for such Shares and any other items pertaining to such Shares then held by you pursuant to Section 6 of the Agreement. 

                    4.          The escrow created by these Joint Escrow Instructions shall terminate upon the delivery by you, in accordance with the Agreement and these Joint Escrow Instructions, of all of the certificates for the Shares covered by the Agreement and all other items pertaining to the Shares received by you pursuant to Section 6 of the Agreement.

                    5.          Your duties hereunder may be altered, amended, modified, or revoked only by a writing signed by the parties hereto.

                    6.          You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in acting or refraining from acting in reliance upon any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties.  You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent while acting in good faith and in the exercise of your own good judgment and not in contravention of the express terms hereof, and any act done or omitted by you pursuant to the advice of your own independent attorneys shall be conclusive evidence of such good faith.

                    7.          You shall not be liable in any respect on account of the identity, authority, or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder or thereunder.

                    8.          You shall be entitled to employ such independent legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation for such advice.

                    9.          Your responsibilities as Escrow Agent hereunder shall terminate on the thirtieth day following receipt by the parties of your written notice of resignation or upon the joint selection of a successor Escrow Agent by the Company and Grantee and your receipt of written notification of such a selection.  In the event of your resignation, you and the Company shall jointly appoint a successor Escrow Agent.

                    10.          If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or your obligations in respect hereto, the necessary parties hereto shall furnish or join in furnishing such instruments.

                    11.          If a dispute arises with respect to the delivery and/or ownership or right of possession of the securities or any other property held by you hereunder, then you are authorized and directed to retain in your possession without liability to anyone all or any part of such securities or other property until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order of a court of competent jurisdiction, but you shall be under no duty whatsoever to institute or defend any such proceedings.  All questions as to whether any securities held by you have vested will be determined under the Agreement by the Company and Grantee or by a final order of a court of competent jurisdiction, and you have no authority to make any such decisions.  No transfer of securities or other property by you shall be effective unless made pursuant to the terms of the Agreement, and any transfer in contravention thereof shall be null and void.

                    12.          Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery (including by a reputable overnight delivery service which shall be deemed to have effected personal delivery) or upon deposit in the United States mail, by registered or certified mail with postage and fees prepaid, return receipt requested, addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10) days’ advance written notice to each of the other parties hereto:

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Company:	CSG Systems International, Inc.
	7887 East Belleview Avenue, Suite 1000
	Englewood, Colorado  80111
	Attn:  Chief Executive Officer
Grantee:	Notice to Grantee shall be sent to the address set forth below Grantee’s signature on these Joint Escrow Instructions.
Escrow Agent:	Notice to the Escrow Agent shall be sent to his address at the beginning of these Joint Escrow Instructions.

                    13.          By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of these Joint Escrow Instructions; and you do not become a party to the Agreement.

                    14.          All liabilities, losses, costs, fees, and disbursements incurred or made by you in connection with the performance of your duties hereunder, including without limitation the compensation paid to legal counsel pursuant to Paragraph 8 hereof, shall be borne by the Company; and the Company hereby agrees to indemnify you against and hold you harmless from all claims, actions, demands, liabilities, losses, costs, fees, and expenses incurred by you in the performance of your duties hereunder; provided, however, that this indemnity shall not extend to conduct which has been determined, by a final order of a court of competent jurisdiction, to have been grossly negligent or to have constituted intentional misconduct.  You shall not be entitled to compensation for your services hereunder.

                    15.          This instrument shall be governed by and construed in accordance with the internal laws, and not the laws of conflicts of laws, of the State of Delaware.

                    16.          This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

[This space intentionally left blank]

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                    19.          This instrument may be executed in counterparts with the same effect as if all parties had signed the same document.  All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.

	Very truly yours,
	COMPANY:
	CSG SYSTEMS INTERNATIONAL, INC.
	By:	/s/ JOHN  P. POGGE
	John P. Pogge, President
	GRANTEE:
	/s/ NEAL C. HANSEN
	Neal C. Hansen
	Grantee’s Address:
	41 Charlou Circle
	Englewood, CO  80111
Accepted:
ESCROW AGENT:
/s/ JOSEPH T. RUBLE
Joseph T. Ruble, Corporate Secretary of CSG Systems International, Inc.

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EX-99.01

Exhibit 99.01

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

CERTAIN CAUTIONARY STATEMENTS AND
RISK FACTORS

CSG Systems International, Inc. and its subsidiaries (collectively, the “Company”) or their representatives from time-to-time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contained in its various SEC filings or orally in conferences or teleconferences. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995.

ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.

This list of factors is likely not exhaustive. The Company operates in a rapidly changing and evolving business involving the converging global communications markets, and new risk factors will likely emerge. Management cannot predict all of the important risk factors, nor can it assess the impact, if any, of such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements.

ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS, AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS AND THAT SUCH DIFFERENCES MAY BE MATERIAL.

RELIANCE ON KEY CUSTOMER CARE AND BILLING PRODUCTS AND SERVICES

In connection with the Kenan Business acquisition, the Company has reorganized its business into two operating segments: the Broadband Services Division (the “Broadband Division”) and the Global Software Services Division (the “GSS Division”). 

The Broadband Division generates a substantial percentage of its revenues by providing customer care and billing services to the United States (“U.S.”) cable television and satellite industries through its core service bureau processing product, CSG CCS/BP (“CCS”).  Historically, a substantial percentage of the Company’s total revenues were generated from providing CCS products and related services.  These CCS products and services are expected to provide a large percentage of the Company’s and most of the Broadband Division’s total revenues in the foreseeable future.

The GSS Division consists of the Company’s stand-alone software products and related services, which consists principally of the Kenan Business acquired in February 2002. Historically, a significant percentage of Kenan Business’ revenues have been generated from its core customer care and billing system product, CSG Kenan/BP (formerly Arbor B/P), to include software maintenance services and professional services associated with this product.  CSG Kenan/BP and related software maintenance services and professional services are expected to provide a large percentage of the GSS Division’s total revenues in the foreseeable future.

Any reduction in demand for CCS and/or CSG Kenan/BP and related services discussed above would have a material impact on the Company’s financial condition and results of operations, including possible impairments to related goodwill and other intangible assets.

In addition, the market for customer care and billing systems is characterized by rapid changes in technology and is highly competitive with respect to the need for timely product innovations and new product introductions. The Company believes that its future success in sustaining and growing its processing revenues and software and professional services revenues depends upon continued market acceptance of its current products, including CCS and CSG Kenan/BP, and the Company’s ability to adapt, modify, maintain, and operate its products to address the increasingly complex and evolving needs of its clients, without sacrificing the reliability or quality of the products.  As a result, substantial research and development will be required to maintain the competitiveness of the Company’s products and services in the market. There is an inherent risk of technical problems in maintaining and operating the Company’s products and services as the complexities are increased.  Development projects can be lengthy and costly, and are subject to changing requirements, programming difficulties, a shortage of qualified personnel, and unforeseen factors which can result in delays.  In addition, the Company is typically responsible for the implementation of new products, and depending upon the specific product, may also be responsible for operations of the product.  There is an inherent risk in the successful implementation and operations of these products as the technological complexities increase.  There can be no assurance: (i) of continued market acceptance of the Company’s current products; (ii) that the Company will be successful in the timely development of product enhancements or new products that respond to technological advances or changing client needs; or (iii) that the Company will be successful in supporting the implementation and/or operations of product enhancements or new products.  There are additional risks related to implementation projects addressed below.

COMCAST AND AT&T BROADBAND BUSINESS RELATIONSHIP

The Company generates a significant percentage of its total revenues under the Comcast Master Subscriber Agreement.  The Company is currently involved in various legal proceedings (principally contract arbitration) with Comcast and its predecessor company, AT&T Broadband.  See  “MD&A-Comcast and AT&T Broadband Business Relationship” for a discussion of the business relationship, various legal proceedings, and related risk factors.

RENEWAL OF ECHOSTAR COMMUNICATIONS CONTRACT

The percentages of the Company’s total revenues generated from Echostar Communications (“Echostar”) for the three months ended March 31, 2003 and 2002 were approximately 10.9% and 10.3%, respectively.  The Company expects that the percentage of its total revenues for the remainder of 2003 generated from Echostar will represent a percentage comparable to that of the first three months of 2003.  The Company provides services to Echostar under a master agreement which is scheduled to expire on December 31, 2004.  The failure of Echostar to renew its contract, representing a significant part of its business with the Company, would have a material impact on the Company’s financial condition and results of operations.

DEPENDENCE ON U.S. VIDEO INDUSTRY – CABLE TELEVISION AND SATELLITE

The Broadband Division generates its revenues by providing products and services to the U.S. and Canadian cable television and satellite industries.  Although the Company’s dependence on these industries has been lessened as a result of additional revenues being generated outside the U.S. as a result of the Kenan Business acquisition, revenues from the U.S. cable television and satellite industries are still expected to provide a large percentage of the Company’s, and substantially all of the Broadband Division’s, total revenues in the foreseeable future.  A decrease in the number of customers served by the Company’s clients, loss of business due to non-renewal of client contracts, industry and client consolidations, and/or changing consumer demand for services would have a material impact on the Company’s results of operations.   There can be no assurance that new entrants into the video market will become clients of the Company.  Also, there can be no assurance that video providers will be successful in expanding into

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other segments of the converging communications markets. Even if major forays into new markets are successful, the Company may be unable to meet the special billing and customer care needs of that market. 

CURRENT ECONOMIC STATE OF THE GLOBAL TELECOMMUNICATIONS INDUSTRY

The economic state of the global telecommunications industry (e.g., cable television, DBS, wireline and wireless telephony, Internet and high speed data, etc.) continues to be depressed, with many of the companies operating within this industry publicly reporting decreased revenues and earnings, as well as several companies recently filing for bankruptcy protection.  Public reports indicate any expected turnaround in the economic state of the global telecommunications industry could be slow, and a sustained recovery could take several years.  Many telecommunications companies have announced cost and capital expenditure reduction programs to cope with the depressed economic state of the industry.  Since most of the Company’s current and future clients operate within this industry sector, the economic state of this industry directly impacts the Company’s business, potentially limiting the amount of products and services current or future clients may purchase from the Company, as well as increasing the likelihood of uncollectible amounts from current and future accounts receivable and lengthening the cash collection cycle.  For these reasons, the continued depressed economic state of the global telecommunications industry may materially impact the Company’s future results of operations and limit the Company’s ability to grow its revenues.   Indeed, in response to the lingering poor economic conditions within this industry, during 2003 and 2002, the Company has undertaken several cost reduction initiatives (e.g., involuntary employee terminations) and has reduced its revenue and earnings expectations.

CONSOLIDATION OF THE GLOBAL TELECOMMUNICATIONS INDUSTRY

The global telecommunications industry is undergoing significant ownership changes at an accelerated pace.  One facet of these changes is that telecommunications service providers are consolidating, decreasing the potential number of buyers for the Company’s products and services. In addition, consolidation in the telecommunications industry may put at risk the Company’s ability to leverage its existing relationships.  Should this consolidation result in a concentration of customer accounts being owned by companies with whom the Company does not have a relationship, or with whom competitors are entrenched, it could negatively effect the Company’s ability to maintain or expand its market share, thereby having a material impact to the Company’s results of operations.

COMPETITION

The market for the Company’s products and services is highly competitive.  The Company directly competes with both independent providers of products and services and in-house systems developed by existing and potential clients.  In addition, some independent providers are entering into strategic alliances with other independent providers, resulting in either a new competitor, or a competitor(s) with greater resources.  Many of the Company’s current and potential competitors have significantly greater financial, marketing, technical, and other competitive resources than the Company, many with significant and well-established international operations.  There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors.

ATTRACTION AND RETENTION OF PERSONNEL

The Company’s future success depends in large part on the continued service of its key management, sales, product development, and operational personnel.  The Company is particularly dependent on its executive officers.  The Company believes that its future success also depends on its ability to attract and retain highly skilled technical, managerial, operational, and marketing personnel, including, in particular, additional personnel in the areas of research and development and technical support. Competition for qualified personnel is intense, particularly in the areas of research and development, conversions, software implementations, and technical support. The Company

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may not be successful in attracting and retaining the personnel it requires, which would have a material impact on the Company’s ability to meet its commitments and new product delivery objectives.

INTEGRATION OF ACQUISITIONS

As part of its growth strategy, the Company seeks to acquire assets, technology, and businesses which would provide the technology and technical personnel to expedite the Company’s product development efforts, provide complementary products or services, or provide access to new markets and clients.  Consistent with this strategy, the Company completed several acquisitions in 2002, including the Kenan Business.

Acquisitions involve a number of risks and difficulties, including: (i) expansion into new geographic markets and business areas; (ii) the requirement to understand local business practices; (iii) the diversion of management’s attention to the assimilation of acquired operations and personnel; and (iv) potential adverse effects on the Company’s operating results for various reasons, including, but not limited to, the following items: (a) the Company’s inability to achieve revenue targets; (b) the Company’s inability to manage and/or reduce operating costs; (c) the Company’s inability to achieve certain operating synergies; (d) costs incurred to integrate, support, and expand the acquired businesses; (e) charges related to purchased in-process  research and development projects; (f) costs incurred to exit current or acquired contracts or activities; (g) costs incurred to manage the size of the combined existing and acquired workforce, due to certain redundancies or inefficiencies; (h) costs incurred to service any acquisition debt; and (i) the amortization or impairment of intangible assets.

Due to the multiple risks and difficulties associated with any acquisition, there can be no assurance that the Company will be successful in achieving its expected strategic and operating goals for any such acquisition. 

IMPLEMENTATION PROJECT COMPLEXITIES AND RISKS

The Company’s GSS Division provides a variety of implementation services in conjunction with its software arrangements.  The nature of the efforts required to complete the implementations can range from relatively short and noncomplex projects to long and complex projects.  These implementation projects typically range from six to twelve months in length, but can be longer or shorter depending upon the specifics of the project.  The length and complexity of an individual project is dependent upon many factors including, but not limited to, the following: (i) the level of software customization, if any, required in the implementation; (ii) the complexity of the client’s business, and the client’s intended use of the Company’s products and services to address its business needs; (iii) whether the project includes multiple software product implementations or services; (iv) the extent of efforts required to integrate the Company’s products with the client’s other computer systems and business processes; (v) the amount and type of data that is required to be converted from the client’s old application system to the newly implemented system; (vi) the geographic location of the implementation project; (vii) whether the arrangement includes additional vendors participating in the overall project, including, but not limited to, prime and subcontractor relationships with the Company; and (viii) the responsibility the Company has assumed for the overall project completion.  For example, from time-to-time the Company may assume a prime contractor (or prime integrator) role in a project in addition to its software implementation responsibilities.  Prime contractor roles are inherently more difficult and/or complex as the Company takes on the additional responsibility of managing other vendors as part of the project.

Lengthy and/or complex projects carry a greater degree of business risk than those projects that are short and/or noncomplex in nature.  The Company’s inability to timely and successfully complete a project and meet client expectations could have a material impact on the Company’s financial condition and results of operations by impacting:

• the amount and timing of revenue recognition.  As discussed in greater detail in the Company’s 2002 10-K under “MD&A-Critical Accounting Policies”, the Company generally accounts for its implementation projects using the percentage-of-completion (“POC”) method of accounting.  The Company applies various judgements and estimates in following this accounting method, the primary one being the determination of the estimated efforts required to complete a project.  Significant increases between quarters in the total estimated efforts required to complete a project accounted for in this manner can result in a reduction in anticipated revenues, and

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	possibly, the reversal of previously recognized revenue;
•	the overall profitability of a project.  Many of the Company’s projects are priced on a fixed-fee basis or the amount of fees that can be billed on a time-and-materials basis is capped. As a result, unexpected costs and/or delays result in the projects being less profitable than originally anticipated, or even unprofitable (i.e., a loss contract).  In addition, the Company’s products are considered mission critical customer management systems by its clients.  As a result, an arrangement may include penalties and/or potential damages for failure of the Company to perform under the agreed-upon terms of the arrangement; and/or
•	the timing of invoicing and/or collection of arrangement fees.  The Company’s ability to invoice and collect arrangement fees may be dependent upon the Company meeting certain contractual milestones, or may be dependent on the overall project status in certain situations in which the Company acts as a subcontractor to another vendor on a project.  As a result, the status of and/or delays in a project can impact the timing of invoicing and collection of the Company’s arrangement fees.

VARIABILITY OF QUARTERLY RESULTS

The Company’s quarterly revenues and operating results, particularly relating to software licenses, software maintenance services, and professional services, may fluctuate depending on various factors, including: (i) the timing of executed contracts; (ii) the delivery of products and services; (iii) the amount of work performed on, and the overall status of implementation projects; (iv) the cancellation of the Company’s services and products by existing or new clients; (v) the hiring of additional staff; and (vi) new product development and other expenses.  No assurance can be given that results will not vary due to these and other factors.

Variability in quarterly revenues and operating results are inherent characteristics of the software and professional services industries.  Common causes of a failure to meet revenue and operating expectations in these industries include, among others: (i) the inability to close one or more material software transactions that may have been anticipated by management in any particular period; (ii) the inability to timely renew one or more material software maintenance agreements, or renewing such agreements at lower rates than anticipated; and (iii) the inability to timely and successfully complete an implementation project and meet client expectations, as discussed in greater detail above.

The Company expects software license, software maintenance services, and professional services revenues to become an increasingly larger percentage of its total revenues in the future.  Consequently, as the Company’s total revenues grow, so too does the risk associated with meeting financial expectations for revenues derived from its software licenses, software maintenance services, and professional services offerings.  As a result, there is a proportionately increased likelihood that the Company may fail to meet revenue and earnings expectations of the analyst community.  With the current volatility of the stock market, should the Company fail to meet analyst expectations, by even a relatively small amount, it would most likely have a disproportionately negative impact upon the market price for the Company’s Common Stock.

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company relies on a combination of trade secret and copyright laws, nondisclosure agreements, and other contractual and technical measures to protect its proprietary rights in its products. The Company also holds a limited number of patents on some of its newer products, and does not rely upon patents as a primary means of protecting its rights in its intellectual property. There can be no assurance that these provisions will be adequate to protect its proprietary rights.  Although the Company believes that its intellectual property rights do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company or the Company’s clients.

Historically, the vast majority of the Company’s revenue has come from domestic sources, limiting the need to develop a strong international intellectual property protection program.  With the Kenan Business acquisition, the Company has clients using its products in more than 40 countries.  As a result, the Company needs to continually assess whether there is any risk to its intellectual property rights in many countries throughout the world.  Should

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these risks be improperly assessed or if for any reason should the Company’s right to develop, produce and distribute its products anywhere in the world be successfully challenged or be significantly curtailed, it could have a material impact on the Company’s financial condition and results of operations.

INTERNATIONAL OPERATIONS

The Company’s growth strategy includes a commitment to the marketing of its products and services internationally.  The Company has conducted international operations in the past and has significantly increased the level of its international operations as a result of its acquisition of the Kenan Business. The Company is subject to certain inherent risks associated with operating internationally including: (i) difficulties with product development meeting local requirements such as the conversion to local currencies and languages; (ii) difficulties in staffing and management of personnel, including considerations for cultural differences; (iii) reliance on independent distributors or strategic alliance partners; (iv) fluctuations in foreign currency exchange rates for which a natural or purchased hedge does not exist or is ineffective; (v) longer collection cycles for client billings (i.e., accounts receivable), as well as heightened client collection risks, especially in countries with highly inflationary economies and/or with restrictions on the  movement of cash out a country; (vi) compliance with laws and regulations related to the collection, use, and disclosure of certain personal information relating to clients’ customer’s (i.e., privacy laws) that are more strict than those currently in force in the U.S.; (vii) effective coordination of worldwide sales and marketing programs; (viii) compliance with foreign regulatory requirements, including local labor laws; (ix) variability of foreign economic conditions; (x) changing restrictions imposed by U.S. or foreign import/export laws; (xi) political and economic instability; (xii) reduced protection for intellectual property rights in some countries; (xiii) inability to recover value added taxes (“VAT”) and/or goods and services taxes (“GST”) in foreign jurisdictions; (xiv) competition from companies which have firmly established significant international operations; (xv) the effects of terrorist activities and/or conflicts between two or more political governments or factions, which could impact general economic activities, as well as the Company’s ability to operate effectively in the affected regions; (xvi) the effects of Severe Acute Respiratory Syndrome (“SARS”) on general economic activities, as well as the Company’s ability to operate effectively under such circumstances (e.g., the impact of travel restrictions, quarantines, etc.), particularly in the Company’s Asia/Pacific region, and (xvii) a potential  adverse impact to the Company’s overall effective income tax rate resulting from: (a) operations in foreign countries with higher tax rates than the U.S.; (b) the inability to utilize certain foreign tax credits; and (c) the inability to utilize some or all of losses generated in one or more foreign countries.

SYSTEM SECURITY

The end users of the Company’s systems are continuously connected to the Company’s products through a variety of public and private telecommunications networks.  The Company plans to expand its use of the Internet with its product offerings thereby permitting, for example, our clients’ customers to use the Internet to review account balances, order services or execute similar account management functions.  The Company also operates an extensive internal network of computers and systems used to manage internal communications, financial information, development data and the like.  The Company’s product and internal communications networks and systems carry an inherent risk of failure as a result of human error, acts of nature and intentional, unauthorized attacks from computer “hackers.”  Opening up these networks and systems to permit access via the Internet increases their vulnerability to unauthorized access and corruption, as well as increasing the dependency of the systems’ reliability on the availability and performance of the Internet’s infrastructure.  Certain system security and other controls for CCS are reviewed periodically by an independent party.  The Company periodically undergoes a security review of its internal systems by independent parties, and has implemented a plan intended to limit the risk of an unauthorized access to the networks and systems, including network firewalls, intrusion detection systems and antivirus applications.

The method, manner, cause and timing of an extended interruption or outage in the Company’s networks or systems are impossible to predict.  As a result, there can be no assurances that the Company’s networks and systems will not fail, or that the Company’s business recovery plans will adequately mitigate any damages incurred as a consequence.  In addition, should the Company’s networks or systems be significantly compromised, it would most likely have a

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material impact on the Company’s financial condition and results of operations, including its ability to meet product delivery obligations or client expectations.  Likewise, should the Company’s networks or systems experience an extended interruption or outage, have their security compromised or data lost or corrupted, it would most likely result in an immediate loss of revenue or increase in expense, as well as damaging the reputation of the Company.  Any of these events could have both an immediate, negative impact upon the Company’s short-term revenue and profit expectations, as well as its long-term ability to attract and retain new clients.

PRODUCT OPERATIONS AND SYSTEM AVAILABILITY

The Company’s product operations are run in both mainframe and distributed system computing environments, as follows:

Mainframe Environment

CCS operates in a mainframe data processing center managed by First Data Corporation (“FDC”), with end users dispersed throughout the U.S. and Canada.  These services are provided under an agreement with FDC, which is scheduled to expire June 30, 2005.  The Company believes it could obtain mainframe data processing services from alternative sources, if necessary.  The Company has a business recovery plan as part of its agreement with FDC should the FDC data center (the “FDC Data Center”) suffer an extended business interruption or outage.  This plan is tested on an annual basis.

Distributed Systems Environment

Several of the Broadband Division’s product applications operate in a distributed systems environment (also known as “open systems”), running on multiple servers for the benefit of certain clients.  The Company operates these distributed systems servers in the FDC Data Center.  Under an agreement with FDC that runs through June 30, 2005, FDC provides the operations monitoring and facilities management services, while the Company provides hardware, operating systems and application support.

Typically, these distributed product applications interface to and operate in conjunction with CCS via telecommunication networks.  The Company is currently implementing its business recovery plan for these applications.  The Company and FDC have extensive experience in running applications within the mainframe computing platform, and only within the last few years began running applications within a distributed systems environment.  In addition, the mainframe computing environment and related technology is mature and has proven to be a highly reliable and scaleable computing platform.  The distributed systems computing platform is not at the same level of maturity as the mainframe computing platform.  In addition, security attacks on distributed systems throughout the industry are more prevalent than on mainframe environments due to the open nature of those systems.

The end users of the Company’s systems are continuously connected to the Company’s CCS products through a variety of public and private telecommunications networks, and are highly dependent upon the continued availability of the Company’s systems to conduct their business operations.  Should the FDC Data Center, or any particular product application or internal system which is operated within the FDC Data Center or the Company’s facilities, as well as the connecting telecommunications networks, experience an extended business interruption or outage, it could have an immediate impact to the business operations of the Company’s clients, which could have a material impact on the Company’s financial condition and results of operations, as well as negatively affect the Company’s ability to attract and retain new clients.

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EX-99.03

Exhibit 99.03

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CSG Systems International, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Neal C. Hansen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

May 15, 2003

/s/ NEAL C. HANSEN

Neal C. Hansen
Chief Executive Officer

EX-99.04

Exhibit 99.04

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CSG Systems International, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter E. Kalan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

May 15, 2003

/s/ PETER E. KALAN

Peter E. Kalan
Chief Financial Officer