CSG SYSTEMS INTERNATIONAL INC - 10-Q Quarterly Report

FORM 10-Q

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

(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2002

	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		(I.R.S. Employer
of incorporation or organization)		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 ______

Shares of common stock outstanding at August 12, 2002: 51,503,223.

CSG SYSTEMS INTERNATIONAL, INC.

FORM 10-Q For the Quarter Ended June 30, 2002

INDEX

			Page No.


Part I	-	FINANCIAL INFORMATION

Item 1.		Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001		3

		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 and 2001		4

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001		5

		Notes to Condensed Consolidated Financial Statements		6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		42


Part II	-	OTHER INFORMATION

Item 1.		Legal Proceedings		46

Item 4.		Submission of Matters to a Vote of Security Holders		47

Item 6.		Exhibits and Reports on Form 8-K		48

		Signatures		49

		Index to Exhibits		50

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

	June 30,			December 31,
	2002			2001

ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	92,059		$	30,165
Short-term investments		1,991			53,434

Total cash, cash equivalents and short-term investments		94,050			83,599
Trade accounts receivable-
Billed, net of allowance of $13,227 and $6,310		128,121			92,418
Unbilled and other		31,368			14,257
Purchased Kenan Business accounts receivable		28,452			-
Deferred income taxes		7,685			5,549
Other current assets		8,963			8,676

Total current assets		298,639			204,499
Property and equipment, net of depreciation of $64,646 and $56,465		49,479			42,912
Software		44,354			3,387
Goodwill, net		215,001			13,461
Client contracts and related intangibles		70,021			67,012
Deferred income taxes		41,449			40,394
Other assets		10,044			2,381

Total assets	$	728,987		$	374,046

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	6,173		$	31,500
Client deposits		15,405			14,565
Trade accounts payable		25,451			11,408
Accrued employee compensation		27,991			19,326
Deferred revenue		57,650			9,850
Accrued income taxes		32,173			17,215
Other current liabilities		17,727			19,846

Total current liabilities		182,570			123,710

Non-current liabilities:
Long-term debt, net of current maturities		263,827			-
Deferred revenue		1,975			288
Other non-current liabilities		6,227			-

Total non-current liabilities		272,029			288

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; 52,712,381 shares and 52,663,852 shares outstanding		576			575
Additional paid-in capital		254,305			252,221
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on short-term investments, net of tax		(5	)		134
Cumulative translation adjustments		1,524			(792	)
Treasury stock, at cost, 4,901,568 shares and 4,850,986 shares		(182,591	)		(180,958	)
Accumulated earnings		200,579			178,868

Total stockholders’ equity		274,388			250,048

Total liabilities and stockholders’ equity	$	728,987		$	374,046

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

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

	Three months ended						Six months ended

	June 30,			June 30,			June 30,			June 30,
	2002			2001			2002			2001

Revenues:	(unaudited)						(unaudited)
Processing and related services	$	91,583		$	83,469		$	182,517		$	162,567
Software		21,878			18,212			44,378			48,890
Maintenance		23,746			3,870			35,965			7,728
Professional services		32,531			14,535			37,253			15,000

Total revenues		169,738			120,086			300,113			234,185


Cost of Revenues:
Cost of processing and related services		35,040			29,862			70,100			58,377
Cost of software and maintenance		16,428			8,533			21,735			18,022
Cost of professional services		17,310			5,560			28,360			9,350

Total cost of revenues		68,778			43,955			120,195			85,749

Gross margin (exclusive of depreciation)		100,960			76,131			179,918			148,436

Operating expenses:
Research and development		21,847			13,566			38,933			25,177
Selling, general and administrative		33,019			13,111			54,212			26,651
Depreciation		4,715			3,518			8,903			6,868
Kenan Business acquisition-related expenses		3,562			-			27,354			-

Total operating expenses		63,143			30,195			129,402			58,696

Operating income		37,817			45,936			50,516			89,740

Other income (expense):
Interest expense		(4,371	)		(813	)		(6,282	)		(1,895	)
Interest and investment income, net		561			887			1,403			1,834
Other		(1,197	)		(4	)		(1,110	)		(23	)

Total other		(5,007	)		70			(5,989	)		(84	)

Income before income taxes		32,810			46,006			44,527			89,656
Income tax provision		(13,562	)		(17,479	)		(22,816	)		(34,063	)

Net income	$	19,248		$	28,527		$	21,711		$	55,593


Basic net income per common share:
Net income available to common stockholders	$	0.37		$	0.54		$	0.41		$	1.06

Weighted average common shares		52,693			52,867			52,686			52,668


Diluted net income per common share:
Net income available to common stockholders	$	0.36		$	0.52		$	0.41		$	1.01

Weighted average common shares		53,084			54,915			53,267			55,025

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

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

	Six Months Ended

	June 30,			June 30,
	2002			2001

Cash flows from operating activities:	(unaudited)
Net income	$	21,711		$	55,593
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation		8,903			6,868
Amortization		9,384			3,931
Charge for in-process purchased research and development		19,300			-
(Gain) loss on short-term investments		(49	)		655
Deferred income taxes		(3,189	)		2,916
Impairment of intangible assets		1,906			-
Changes in operating assets and liabilities:
Trade accounts and other receivables, net		(19,843	)		9,695
Other current and noncurrent assets		(500	)		(470	)
Accounts payable, accrued liabilities, and deferred revenue		8,498			4,313

Net cash provided by operating activities		46,121			83,501

Cash flows from investing activities:
Purchases of property and equipment		(6,191	)		(9,370	)
Purchases of short-term investments		(1,991	)		(33,690	)
Proceeds from sale of short-term investments		53,381			20,494
Acquisition of business		(255,964	)		-
Investment in client contracts		(3,128	)		(1,274	)

Net cash used in investing activities		(213,893	)		(23,840	)

Cash flows from financing activities:
Proceeds from issuance of common stock

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