EX-99.1 3 dex991.htm PRESS RELEASE DATED 10/28/2003 Press Release Dated 10/28/2003

Exhibit 99.1

 

NEWS RELEASE

 

FOR IMMEDIATE RELEASE

For more information, contact:

Liz Bauer, Senior Vice President

(303) 804-4065

E-mail: liz_bauer@csgsystems.com

 

CSG SYSTEMS INTERNATIONAL, INC. REPORTS

THIRD QUARTER 2003 RESULTS

GAAP Revenues of $25.5 Million;

Adjusted Revenues of $145.1 Million(1);

GAAP Net Loss at $1.04 Per Diluted Share;

Adjusted Net Income at $0.28 Per Diluted Share(1)

 

ENGLEWOOD, COLO. (October 28, 2003) — CSG Systems International, Inc. (Nasdaq: CSGS), a leading provider of customer care and billing solutions, today reported results for the quarter ended September 30, 2003.

 

Third Quarter 2003 Highlights(1):

 

• On October 7, 2003, CSG received a ruling in the arbitration between CSG and AT&T Broadband, now Comcast. As a result of this ruling, CSG recorded a charge, reflected as a reduction of revenue, for the arbitration award of $119.6 million in the third quarter;

 

• GAAP results were as follows: total revenues (which reflect the impact of the charge discussed above) were $25.5 million; operating loss was $(93.8) million; and net loss per diluted share was $(1.04);

 

• Adjusted results were as follows: total revenues were $145.1 million; operating income was $25.8 million; and net income per diluted share was $0.28;

 

• Cash flows from operations were $39.4 million;

 

• CSG signed a number of contracts during the quarter with the following providers:

 

  • Beijing Telecom, a wholly-owned subsidiary of China Telecom, China’s largest telecommunications service provider;

 

  • Saudi Telecom, Saudi Arabia’s largest telecommunications provider;

 

  • Sky Italia, the new Italian satellite platform owned by News Corp and Telecom Italia;

 

  • British Telecom, Britain’s largest telecommunications provider; and

 

  • Cometa Networks, which deploys and maintains public Wi-Fi wireless broadband Internet access sites in partnership with nationally and regionally branded retail partners.

 

• In addition, CSG introduced Kenan FX, a new business framework that is the culmination of 18 months of research and development, combining the best of the Kenan and CSG assets to offer service providers with pre-integrated products and modules in customer management, revenue enablement, billing and extendibility.

 

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CSG Systems International, Inc.

October 28, 2003

Page 2

 

“We are cautiously optimistic about the level of activity that we are seeing with communications providers,” said Neal Hansen, chairman and chief executive officer of CSG Systems International, Inc., “Our core third quarter results are indicative of the stabilization that we are seeing in spending with service providers. While the ruling regarding the arbitration with Comcast is not what we expected, we are happy to have this matter behind us and continue to focus our efforts on helping our customers roll out new products and services and run their operations more efficiently.”

 

Summary Results of Operations Information (unaudited)

 

(in thousands, except per share amounts and percentages):

 

    

Three Months Ended

September 30,

    

Nine months Ended

September 30,

  
     2003
     2002
    Percent
Change
     2003
     2002
    Percent
Change
  

Total revenues, net

    $ 25,510     $ 155,614    (84 %)   $ 309,803     $ 455,727    (32 %)

Operating income (loss)

      (93,792 )     17,241    (644 %)     (55,284 )     67,757    (182 %)

Net income (loss)

      (53,572 )     5,850    (1,016 %)     (32,884 )     27,561    (219 %)

Net income (loss) per diluted share

      (1.04 )     0.11    (1,045 %)     (0.64 )     0.52    (223 %)

Adjusted results of operations (1):

                                           

Adjusted revenues

      145,111       155,614    (7 %)     429,404       455,727    (6 %)

Adjusted operating income

      25,809       17,241    50 %     64,317       67,757    (5 %)

Adjusted net income

      14,664       5,850    151 %     36,186       27,561    31 %

Adjusted net income per diluted share

      0.28       0.11    155 %     0.70       0.52    35 %

 

(1) Adjusted results of operations amounts exclude the impact of the $119.6 million charge for the arbitration award (as more fully discussed under the “Adjusted Results of Operations” section).

 

Third Quarter 2003 Results

 

Processing revenues for the third quarter of 2003 were $92.8 million (excluding the impact of the $13.9 million arbitration charge attributable to the quarter), and were basically flat compared to the same period last year and the second quarter of 2003. Software revenues decreased 9 percent year-over-year to $10.6 million. Compared to the third quarter last year, maintenance revenues decreased 6 percent to $24.1 million, however increased 6 percent from the second quarter of 2003. Professional services generated $17.6 million of revenue in the quarter, a 29 percent decrease when compared to the same period last year and a 7 percent increase over the second quarter of 2003.

 

During the current quarter, CSG recorded the $119.6 million Comcast arbitration award as a charge to revenue. As a result, revenues presented under generally accepted accounting principles (“GAAP”) were $25.5 million in the current quarter. Adjusted revenues (as discussed below) were $145.1 million, down 7 percent when compared to the same period in 2002.

 

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CSG Systems International, Inc.

October 28, 2003

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GAAP net loss for the third quarter of 2003 was $(53.6) million, or $(1.04) per diluted share. These results reflect the $119.6 million attributable to the arbitration award. Adjusted net income (as discussed below) was $14.7 million, or $0.28 per diluted share. The 2003 third quarter Adjusted results were reduced by approximately $3.5 million, or $0.04 per diluted share, due to restructuring charges recorded in the current quarter. GAAP net income for the third quarter of 2002 was $5.8 million, or $0.11 per diluted share. The 2002 third quarter GAAP results were reduced by approximately $12.0 million, or $0.14 per diluted share, due to restructuring charges, and $2.1 million, or $0.05 per diluted share, due to Kenan Business acquisition-related expenses recorded in the third quarter of 2002.

 

Arbitration Ruling (for more details refer to press release and Form 8-K dated October 8, 2003)

 

On October 7, 2003, CSG received a ruling in the arbitration between CSG and AT&T Broadband, now Comcast. The arbitration ruling included an award of $119.6 million to be paid by CSG to Comcast. The award was based on the arbitrator’s determination that CSG had violated the most favored nations (“MFN”) clause of the Master Subscriber Agreement between CSG and Comcast. CSG recorded the impact from the arbitration ruling in the quarter ended September 30, 2003 as a charge to revenue. Based on the arbitrator’s ruling, the $119.6 million was segregated such that $105.7 million was attributable to periods prior to July 1, 2003, and $13.9 million was attributable to the third quarter of 2003.

 

CSG sought a modification to the award, believing the arbitrator had miscalculated the total amount of MFN damages. On October 27, 2003, the arbitrator ruled that he did not miscalculate the MFN damages and that CSG must pay the entire $119.6 million award to Comcast. The arbitrator further ruled that the minimum payment provision in the agreement between the parties is subject to the MFN clause. The effect of this ruling is that, while CSG maintains its exclusive right to process the Comcast subscribers previously owned by AT&T, the minimum financial obligation under the agreement is reduced to reflect the charges and fees under a contract with another customer.

 

On October 21, 2003, CSG paid approximately $65 million of the arbitration award to Comcast, using available corporate funds. The $65 million payment represented the portion of the arbitration award that CSG did not contest. CSG expects to pay the remaining $55 million of the damages award. CSG expects to receive an income tax benefit (at an estimated income tax rate of approximately 37%) for the total amount of the arbitration award paid to Comcast, through a reduction of 2003 income taxes payable and through CSG’s ability to carry back net operating losses to previous years.

 

Adjusted Results of Operations

 

As discussed above, CSG recorded a charge for the $119.6 million arbitration award during the current quarter. To provide for additional comparison of CSG’s current results of operations with prior periods, and its previously communicated third quarter financial guidance, CSG has adjusted out the impact of the arbitration charge (“Adjusted” results).

 

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CSG Systems International, Inc.

October 28, 2003

Page 4

 

Revenue, operating income, net income, and segment results (see “Divisional Results” below) on an Adjusted basis have been computed by excluding the impact of the arbitration charge and using CSG’s estimated normalized overall income tax rate of 38%. Reconciliations of CSG’s GAAP results and Adjusted results for revenues, operating income, and net income are as follows (in thousands, except per share amounts). Reconciliations of GAAP segment results and Adjusted segment results are included in “Divisional Results” below:

 

    

Three Months Ended

September 30, 2003

  
    

GAAP

Results

     Impact of
Charge for
Arbitration
Ruling
   

Adjusted

Results

  

Total revenues, net

    $ 25,510     $ 119,601    $ 145,111  

Total operating expenses

      119,302       —        119,302  
    
 
  

Operating income (loss)

      (93,792 )     119,601      25,809  

Net interest and other

      (2,157 )     —        (2,157 )
    
 
  

Income (loss) before income taxes

      (95,949 )   $ 119,601      23,652  
            
        

Income tax (provision) benefit

      42,377              (8,988 )
    
        

Net income (loss)

    $ (53,572 )          $ 14,664  
    
        

Weighted average shares (2)

      51,456              52,076  

Net income (loss) per diluted share

    $ (1.04 )          $ 0.28  
    
        
    

Nine Months Ended

September 30, 2003

  
    

GAAP

Results

     Impact of
Charge for
Arbitration
Ruling
   

Adjusted

Results

  

Total revenues, net

    $ 309,803     $ 119,601    $ 429,404  

Total operating expenses

      365,087       —        365,087  
    
 
  

Operating income (loss)

      (55,284 )     119,601      64,317  

Net interest and other

      (5,953 )     —        (5,953 )
    
 
  

Income (loss) before income taxes

      (61,237 )   $ 119,601      58,364  
            
        

Income tax (provision) benefit

      28,353              (22,178 )
    
        

Net income (loss)

    $ (32,884 )          $ 36,186  
    
        

Weighted average shares(2)

      51,372              51,757  

Net income (loss) per diluted share

    $ (0.64 )          $ 0.70  
    
        

 

(2) Weighted average shares are different for GAAP results and Adjusted results. For GAAP results, because CSG recorded a net loss in the three and nine months ended September, 2003, potentially dilutive common shares (i.e., stock-based compensation awards) are excluded in calculating the net loss per diluted share, as their effect is anitidilutive. For Adjusted results, because CSG reflects net income, these potentially dilutive common shares (620,000 and 385,000 for the three and nine months ended September 30, 2003, respectively) are included in calculating net income per diluted share, as their effect is dilutive for this purpose.

 

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CSG Systems International, Inc.

October 28, 2003

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Divisional Results

 

CSG is organized into two divisions: the Broadband Services Division and the Global Software Services Division. CSG excludes its restructuring charges and Kenan Business acquisition-related expenses in the determination of its GAAP segment results. The GAAP segment results, and the reconciliation of these amounts to the Adjusted segment results, for the divisions are as follows (in thousands, except percentages):

 

     Three Months Ended September 30, 2003(3)
  
     Broadband
Services
Division
    

GSS

Division

     Corporate
     Total
  

GAAP Segment Results:

                                 

Processing revenues

    $ 92,203     $ 638     $ —       $ 92,841  

Software revenues

      1,897       8,703       —         10,600  

Maintenance revenues

      5,099       19,027       —         24,126  

Professional services revenues

      310       17,234       —         17,544  
    
 
 
 

Subtotal – revenues, gross

      99,509       45,602       —         145,111  
    
 
 
 

Charge for arbitration ruling:

                                 

Attributable to current quarter

      (13,922 )     —         —         (13,922 )

Attributable to prior quarters

      (105,679 )     —         —         (105,679 )
    
 
 
 

Subtotal – arbitration ruling

      (119,601 )     —         —         (119,601 )
    
 
 
 

Total revenues, net

      (20,092 )     45,602       —         25,510  

Segment operating expenses

      54,531       46,456       14,864       115,851  
    
 
 
 

Contribution loss

    $ (74,623 )   $ (854 )   $ (14,864 )   $ (90,341 )
    
 
 
 

Contribution loss percentage

      (371.4 %)     (1.9 %)     N/A       (354.1 %)
    
 
 
 

Adjusted Segment Results: (4)

                                 

Total net revenues, per above

    $ (20,092 )   $ 45,602     $ —       $ 25,510  

Impact of arbitration ruling

      119,601       —         —         119,601  
    
 
 
 

Adjusted revenues

      99,509       45,602       —         145,111  

Segment operating expenses

      54,531       46,456       14,864       115,851  
    
 
 
 

Adjusted contribution margin (loss)

    $ 44,978     $ (854 )   $ (14,864 )   $ 29,260  
    
 
 
 

Adjusted contribution margin (loss) percentage

      45.2 %     (1.9 %)     N/A       20.1 %
    
 
 
 
     Three Months Ended September 30, 2002(3)
  
     Broadband
Services
Division
    

GSS

Division

     Corporate
     Total
  

Processing revenues

    $ 93,432     $ 155     $ —       $ 93,587  

Software revenues

      615       11,018       —         11,633  

Maintenance revenues

      5,351       20,298       —         25,649  

Professional services revenues

      95       24,650       —         24,745  
    
 
 
 

Total revenues

      99,493       56,121       —         155,614  

Segment operating expenses

      53,291       58,390       12,561       124,242  
    
 
 
 

Contribution margin (loss)

    $ 46,202     $ (2,269 )   $ (12,561 )   $ 31,372  
    
 
 
 

Contribution margin (loss) percentage

      46.4 %     (4.0 %)     N/A       20.2 %
    
 
 
 

 

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CSG Systems International, Inc.

October 28, 2003

Page 6

 

     Nine Months Ended September 30, 2003(3)
  
     Broadband
Services
Division
    

GSS

Division

     Corporate
     Total
  

GAAP Segment Results:

                                 

Processing revenues

    $ 273,085     $ 1,973     $ —       $ 275,058  

Software revenues

      4,032       28,880       —         32,912  

Maintenance revenues

      15,207       54,150       —         69,357  

Professional services revenues

      892       51,185       —         52,077  
    
 
 
 

Subtotal—revenues, gross

      293,216       136,188       —         429,404  
    
 
 
 

Charge for arbitration ruling:

                                 

Attributable to current quarter

      (13,922 )     —         —         (13,922 )

Attributable to prior quarters

      (105,679 )     —         —         (105,679 )
    
 
 
 

Subtotal—arbitration ruling

      (119,601 )     —         —         (119,601 )
    
 
 
 

Total revenues, net

      173,615       136,188       —         309,803  

Segment operating expenses

      159,538       146,008       51,938       357,484  
    
 
 
 

Contribution margin (loss)

    $ 14,077     $ (9,820 )   $ (51,938 )   $ (47,681 )
    
 
 
 

Contribution loss percentage

      8.1 %     (7.2 %)     N/A       (15.4 %)
    
 
 
 

Adjusted Segment Results: (4)

                                 

Total net revenues, per above

    $ 173,615     $ 136,188     $ —       $ 309,803  

Impact of arbitration ruling

      119,601       —         —         119,601  
    
 
 
 

Adjusted revenues

      293,216       136,188       —         429,404  

Segment operating expenses

      159,538       146,008       51,938       357,484  
    
 
 
 

Adjusted contribution margin (loss)

    $ 133,678     $ (9,820 )   $ (51,938 )   $ 71,920  
    
 
 
 

Adjusted contribution margin (loss) percentage

      45.6 %     (7.2 %)     N/A       16.7 %
    
 
 
 
     Nine Months Ended September 30, 2002(3)
  
     Broadband
Services
Division
    

GSS

Division

     Corporate
     Total
  

Processing revenues

    $ 275,690     $ 414     $ —       $ 276,104  

Software revenues

      23,294       32,717       —         56,011  

Maintenance revenues

      15,196       46,418       —         61,614  

Professional services revenues

      1,895       60,103       —         61,998  
    
 
 
 

Total revenues

      316,075       139,652       —         455,727  

Segment operating expenses

      160,263       151,392       34,830       346,485  
    
 
 
 

Contribution margin (loss)

    $ 155,812     $ (11,740 )   $ (34,830 )   $ 109,242  
    
 
 
 

Contribution margin (loss) percentage

      49.3 %     (8.4 %)     N/A       24.0 %
    
 
 
 

 

(3) CSG’s segment operating expenses and contribution margin (loss), determined in accordance with GAAP, exclude: (i) restructuring charges of: $3.5 million and $7.6 million, respectively, for the three and nine months ended September 30, 2003; and $12.0 million for the three and nine months ended September 30, 2002; and (ii) Kenan Business acquisition-related expenses of $2.1 million and $29.5 million, respectively, for the three and nine months ended September 30, 2002.
(4) Adjusted segment results exclude the impact of the $119.6 million charge for the arbitration award (as more fully discussed under the “Adjusted Results of Operations” section).

 

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CSG Systems International, Inc.

October 28, 2003

Page 7

 

Broadband Services Division

 

Total domestic customer accounts processed on CSG’s system are shown in the table below (in thousands). As a result of the arbitration ruling, Comcast customer accounts will now be measured differently beginning in October 2003. This change is primarily the result of combining the video and Internet accounts for the same customer (i.e., a subscriber) into a single CSG customer account, as opposed to two separate CSG customer accounts as was the case prior to the arbitration ruling. As a result, the historical breakout of video, high-speed data and telephony accounts will not be comparable. The following table illustrates this change in measurement of total customer accounts:

 

     September 30, 2003
     
     Prior to
Impact of
Arbitration
Ruling
    Impact of
Arbitration
Ruling
     After
Impact of
Arbitration
Ruling
    June 30,
2003

Video

    43,120    (905 )   42,215    42,417

Internet

    4,248    (2,659 )   1,589    3,943

Telephony

    75    —       75    76
    
  
 
  

Total

    47,443    (3,564 )   43,879    46,436
    
  
 
  

 

Global Software Services Division

 

The GSS Division signed several new and expanded contracts during the quarter, including Beijing Telecom, Saudi Telecom, Sky Italia and British Telecom. In addition, CSG introduced its Kenan FX business framework, which consists of pre-integrated products and modules via a common middle layer. Since its introduction in late September, five customers have signed contracts for upgrades to Kenan FX modules.

 

In addition, primarily as a result of recent cost containment programs, the GSS Division made additional progress in meeting its goal of becoming breakeven from a contribution margin standpoint by the first quarter of 2004. In the third quarter of 2003, the GSS Division had a negative contribution margin of approximately $0.9 million, compared to a negative contribution margin of approximately $2.0 million and $7.0 million for the second and first quarters of 2003, respectively.

 

Financial Condition

 

As of September 30, 2003, CSG had cash and short-term investments of $144.4 million, compared to $128.4 million, as of June 30, 2003. Billed net accounts receivable were $149.1 million as of September 30, 2003, compared to $169.1 million as of June 30, 2003.

 

During the third quarter of 2003, CSG made a $20 million voluntary principal payment, reducing CSG’s long-term debt balance from $248.9 million as of June 30, 2003 to $228.9 million as of September 30, 2003. As a result of this debt prepayment, CSG’s scheduled principal payments within the next 12 months are $8.5 million, with the first payment due on June 30, 2004 in the amount of $1.9 million.

 

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CSG Systems International, Inc.

October 28, 2003

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CSG evaluated the impact of the arbitration ruling on its credit agreement and believes that it is in compliance with the required financial ratios and covenants, and does not believe that the ruling has resulted in a default of the credit agreement, as of September 30, 2003. However, the $65 million payment to Comcast in October 2003 is expected to negatively impact CSG’s calculation of EBITDA (as defined in the credit agreement) in the fourth quarter of 2003 such that CSG will not meet certain financial ratios and covenants, as of December 31, 2003. CSG has begun discussions with its lenders in an effort to receive the necessary waiver and/or amendment to the credit agreement during the fourth quarter of 2003 to avoid this situation. Should CSG be in default of its credit agreement at the end of 2003, and be unable to obtain the necessary waiver and/or amendment, then its lenders would have the right to demand payment of the entire outstanding loan balance.

 

As of October 24, 2003, CSG had approximately $90 million of cash and short-term investments available for operations (after the $65 million payment was made to Comcast). CSG believes that its current cash and short-term investments, together with cash expected to be generated from future operating activities, will be sufficient to meet its anticipated cash requirements through at least 2004. This includes paying the balance of the $119.6 million arbitration award, or approximately $55 million. Consequently, CSG has recently informed its lenders that CSG does not intend to borrow on its revolving credit facility in the near future.

 

Cash flows from operations for the quarter ended September 30, 2003 were $39.4 million, compared to a negative $(5.5) million for the same period in 2002, an increase of $44.9 million. Cash flows from operations for the quarter ended June 30, 2003 were $37.1 million, an increase of $2.3 million sequentially between quarters. The recent quarters’ cash flows from operations have been higher than the estimated $20 million to $25 million per quarter as a result of CSG’s recent success in collecting on its accounts receivables.

 

During the third quarter of 2003, CSG did not repurchase any of its common stock.

 

Fourth Quarter and 2004 Financial Guidance

 

“Our financial guidance for the fourth quarter reflects an unusually high full-year effective income tax rate of 46%, as a result of the arbitration ruling,” Peter Kalan, chief financial officer, said. “For the fourth quarter, we are expecting revenues of between $125 million and $132 million, pretax income of between $13 million and $15 million and earnings per diluted share, using the 46 percent effective income tax rate, of between 14 and 16 cents.

 

“In 2004, we are expecting revenues of between $520 million and $535 million,” Kalan added. “In addition, as a result of anticipated cost reduction programs, we expect earnings per diluted share of between 90 cents and $1.00, based on an estimated effective income tax rate of 38 percent, significantly lower than 2003’s effective income tax rate. Both our fourth quarter 2003 and our 2004 financial guidance do not include any restructuring charges that may be incurred during that time as we are not able to estimate them today.”

 

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CSG Systems International, Inc.

October 28, 2003

Page 9

 

Conference Call

 

CSG will host a one-hour conference call on Tuesday, October 28, at 5 p.m. EDT, to discuss CSG’s third quarter results. The call will be carried live and archived on the Internet. A link to the conference call is available at www.csgsystems.com.

 

Additional Information

 

For additional information about CSG, please visit CSG’s web site at www.csgsystems.com. Additional information can be found in the Investor Relations section of the web site.

 

About CSG Systems International

 

Headquartered in Englewood, Colorado, CSG Systems International (NASDAQ: CSGS) and its wholly-owned subsidiaries serve more than 265 service providers in more than 40 countries. CSG is a leader in next-generation billing and customer care solutions for the cable television, direct broadcast satellite, advanced IP services, next generation mobile, and fixed wireline markets. CSG’s unique combination of proven and future-ready solutions, delivered in both outsourced and licensed formats, empowers its clients to deliver unparalleled customer service, improve operational efficiencies and rapidly bring new revenue-generating products to market. CSG is an S&P Midcap 400 company. For more information, visit our Web site at www.csgsystems.com.

 

This news release contains forward-looking statements as defined under the Securities Act of 1933, as amended, that are based on assumptions about a number of important factors and involve risks and uncertainties that could cause actual results to differ materially from what appears in this news release. These factors include, but are not limited to, CSG’s ability to continue to perform satisfactorily under the terms of its existing contract with Comcast, as well as the level of cooperation between CSG and Comcast on the opportunities and obligations presented by the contract. Further, should Comcast terminate the Master Subscriber Agreement unilaterally and only be liable to CSG for contract damages in the amount of $44 million, it would have a material adverse impact on the financial condition of CSG and its overall future operations. Additional risk factors include: 1) the continued acceptance of CSG CCS/BP, CSG Kenan FX and their related products and services; 2) CSG’s ability to enhance current products and develop new technology that will retain existing clients and capture new market share; 3) significant forays into new markets, which may prove costly and unprofitable; 4) the degree to which CSG’s expectations of market penetration and consumer acceptance of broadband, wireline and wireless services prove true — and even if realized, CSG’s ability to meet the billing and customer care needs of that market; 5) client consolidation, which has decreased the number of potential buyers for many of CSG’s products and services; 6) CSG’s ability to expand and effectively operate its business internationally; 7) CSG’s ability to renew software maintenance contracts and sell additional software products and services to existing and new clients, both domestically and internationally; 8) CSG’s ability to successfully deliver on lengthy and/or complex implementation projects, which by their nature, carry much more risk; 9) CSG’s ability to properly manage its international operations, which are much more complex and carry higher collections risk; 10) as discussed above, should CSG’s lenders demand payment of the entire outstanding loan balance as a result of CSG being in default of its credit agreement, and should CSG be unable to secure alternative sources of funding, CSG would be unable to repay the entire outstanding loan balance and fund ongoing operations; and 11) CSG’s ability to implement a cost reduction program, with a risk of material restructuring charges, that achieves the expected savings over the next five quarters while simultaneously not jeopardizing its revenue opportunities. This list is not exhaustive and readers are encouraged to review the additional risks and important factors described in CSG’s reports on Forms 10-K and 10-Q and other filings made with the SEC.

 

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October 28, 2003

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CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED

(in thousands, except share and per share amounts)

 

     September 30,
2003
     December 31,
2002
  

ASSETS

                 

Current assets:

                 

Cash and cash equivalents

    $ 135,663     $ 94,424  

Short-term investments

      8,795       1,013  
    
 

Total cash, cash equivalents and short-term investments

      144,458       95,437  

Trade accounts receivable-

                 

Billed, net of allowance of $13,728 and $12,079

      149,082       160,417  

Unbilled and other

      25,498       28,856  

Purchased Kenan Business accounts receivable

      —         603  

Deferred income taxes

      8,780       8,355  

Income tax receivable

      40,634       —    

Other current assets

      9,475       10,568  
    
 

Total current assets

      377,927       304,236  

Property and equipment, net of depreciation of $86,619 and $74,023

      39,798       46,442  

Software, net of amortization of $59,499 and $48,582

      40,501       50,478  

Goodwill

      218,656       220,065  

Client contracts, net of amortization of $49,040 and $42,954

      59,077       63,805  

Deferred income taxes

      36,141       37,163  

Other assets

      8,002       9,128  
    
 

Total assets

    $ 780,102     $ 731,317  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Current liabilities:

                 

Current maturities of long-term debt

    $ 8,515     $ 16,370  

Client deposits

      17,321       16,350  

Trade accounts payable

      17,180       24,810  

Accrued employee compensation

      24,060       26,707  

Deferred revenue

      55,590       45,411  

Accrued income taxes payable

      26,413       30,469  

Arbitration charge payable

      119,601       —    

Other current liabilities

      25,074       24,337  
    
 

Total current liabilities

      293,754       184,454  
    
 

Non-current liabilities:

                 

Long-term debt, net of current maturities

      220,410       253,630  

Deferred revenue

      1,967       2,090  

Other non-current liabilities

      7,298       9,038  
    
 

Total non-current liabilities

      229,675       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;52,325,052 shares and 51,726,528 shares outstanding

      578       577  

Additional paid-in capital

      256,569       255,452  

Deferred employee compensation

      (7,024 )     (3,904 )

Accumulated other comprehensive income (loss):

                 

Unrealized gain (loss) on short-term investments, net of tax

      1       (6 )

Cumulative translation adjustments

      3,955       1,060  

Treasury stock, at cost, 5,499,796 shares and 5,979,796 shares

      (171,111 )     (186,045 )

Accumulated earnings

      173,705       214,971  
    
 

Total stockholders’ equity

      256,673       282,105  
    
 

Total liabilities and stockholders’ equity

    $ 780,102     $ 731,317  
    
 

 

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CSG Systems International, Inc.

October 28, 2003

Page 11

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED

(in thousands, except per share amounts)

 

     Three Months Ended
     Nine Months Ended
  
     September 30,
2003
     September 30,
2002
     September 30,
2003
     September 30,
2002
  

Revenues:

                                 

Processing and related services

    $ 92,841     $ 93,587     $ 275,058     $ 276,104  

Software

      10,600       11,633       32,912       56,011  

Maintenance

      24,126       25,649       69,357       61,614  

Professional services

      17,544       24,745       52,077       61,998  
    
 
 
 

Subtotal – revenues, gross

      145,111       155,614       429,404       455,727  
    
 
 
 

Charge for arbitration ruling:

                                 

Attributable to current quarter

      (13,922 )     —         (13,922 )     —    

Attributable to prior quarters

      (105,679 )     —         (105,679 )     —    
    
 
 
 

Subtotal – arbitration ruling

      (119,601 )     —         (119,601 )     —    
    
 
 
 

Total revenues, net

      25,510       155,614       309,803       455,727  
    
 
 
 

Cost of revenues:

                                 

Cost of processing and related services

      36,503       35,364       106,163       105,464  

Cost of software and maintenance

      18,540       17,477       54,240       39,212  

Cost of professional services

      16,770       17,748       49,991       46,108  
    
 
 
 

Total cost of revenues

      71,813       70,589       210,394       190,784  
    
 
 
 

Gross margin (exclusive of depreciation)

      (46,303 )     85,025       99,409       264,943  
    
 
 
 

Operating expenses:

                                 

Research and development

      14,309       19,217       46,715       58,150  

Selling, general and administrative

      25,200       29,429       86,913       83,641  

Depreciation

      4,529       5,007       13,462       13,910  

Restructuring charges

      3,451       12,027       7,603       12,027  

Kenan Business acquisition-related expenses

      —         2,104       —         29,458  
    
 
 
 

Total operating expenses

      47,489       67,784       154,693       197,186  
    
 
 
 

Operating income (loss)

      (93,792 )     17,241       (55,284 )     67,757  
    
 
 
 

Other income (expense):

                                 

Interest expense

      (3,291 )     (4,076 )     (10,647 )     (10,358 )

Interest and investment income, net

      381       221       1,112       1,624  

Other

      753       (546 )     3,582       (1,656 )
    
 
 
 

Total other

      (2,157 )     (4,401 )     (5,953 )     (10,390 )
    
 
 
 

Income (loss) before income taxes

      (95,949 )     12,840       (61,237 )     57,367  

Income tax (provision) benefit

      42,377       (6,990 )     28,353       (29,806 )
    
 
 
 

Net income (loss)

    $ (53,572 )   $ 5,850     $ (32,884 )   $ 27,561  
    
 
 
 

Basic net income (loss) per common share:

                                 

Net income (loss) available to common stockholders

    $ (1.04 )   $ 0.11     $ (0.64 )   $ 0.53  
    
 
 
 

Weighted average common shares

      51,456       51,836       51,372       52,403  
    
 
 
 

Diluted net income (loss) per common share:

                                 

Net income (loss) available to common stockholders

    $ (1.04 )   $ 0.11     $ (0.64 )   $ 0.52  
    
 
 
 

Weighted average common shares

      51,456       52,005       51,372       52,847  
    
 
 
 

 

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CSG Systems International, Inc.

October 28, 2003

Page 12

 

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED

(in thousands)

 

     Nine Months Ended
  
     September 30,
2003
     September 30,
2002
  

Cash flows from operating activities:

                 

Net income (loss)

    $ (32,884 )   $ 27,561  

Adjustments to reconcile net income (loss) to net cash provided by operating activities –  

                 

Charge for arbitration ruling

      119,601       —    

Depreciation

      13,462       13,910  

Amortization

      18,684       15,690  

Charge for in-process purchased research and development

      —         19,300  

Restructuring charge for abandonment of facilities

      3,234       6,797  

Gain on short-term investments

      —         (49 )

Deferred income taxes

      632       (10,116 )

Tax benefit of stock options exercised

      15       491  

Stock-based employee compensation

      3,432       322  

Impairment of intangible assets

      —         1,906  

Changes in operating assets and liabilities:

                 

Trade accounts and other receivables, net

      18,048       (26,046 )

Other current and non-current assets

      829       (3,344 )

Income taxes payable/receivable

      (44,774 )     12,404  

Accounts payable and accrued liabilities

      (12,284 )     6,535  

Deferred revenues

      10,814       (24,748 )
    
 

Net cash provided by operating activities

      98,809       40,613  
    
 

Cash flows from investing activities:

                 

Purchases of property and equipment

      (6,706 )     (10,143 )

Purchases of short-term investments

      (7,782 )     (3,401 )

Proceeds from sale of short-term investments

      —         53,380  

Acquisition of businesses and assets, net of cash acquired

      (2,380 )     (266,720 )

Acquisition of and investments in client contracts

      (1,584 )     (3,387 )
    
 

Net cash used in investing activities

      (18,452 )     (230,271 )
    
 

Cash flows from financing activities:

                 

Proceeds from issuance of common stock

      1,310       2,369  

Repurchase/cancellation of common stock

      (207 )     (18,919 )

Proceeds from long-term debt

      —         300,000  

Payments on long-term debt

      (41,075 )     (61,500 )

Proceeds from revolving credit facility

      —         5,000  

Payments on revolving credit facility

      —         (5,000 )

Payments of deferred financing costs

      (87 )     8,365 )
    
 

Net cash provided by (used in) financing activities

      (40,059 )     213,585  
    
 

Effect of exchange rate fluctuations on cash

      941       (2,649 )
    
 

Net increase in cash and cash equivalents

      41,239       21,278  

Cash and cash equivalents, beginning of period

      94,424       30,165  
    
 

Cash and cash equivalents, end of period

    $ 135,663     $ 51,443  
    
 

Supplemental disclosures of cash flow information:

                 

Cash paid during the period for –  

                 

Interest

    $ 8,321     $ 8,711  

Income taxes

    $ 12,177     $ 25,468  

 

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