CSG SYSTEMS INTERNATIONAL INC - 10-K Annual Report

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

FORM 10-K

(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2001

OR

[_]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
(State or other jurisdiction of incorporation or organization)

47-0783182
(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)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share

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 [_]

Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last sales price of such stock, as of
the close of trading on January 31, 2002 was $1,363,740,472.

Shares of common stock outstanding at March 22, 2002: 52,668,841.

DOCUMENTS INCORPORATED BY REFERENCE

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Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be filed on or prior to April 30, 2002, are incorporated by
reference into Part III of the Form 10-K.

CSG SYSTEMS INTERNATIONAL, INC.

2001 FORM 10-K

TABLE OF CONTENTS

Page
----

PART I
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 10
Item 3. Legal Proceedings............................................. 11
Item 4. Submission of Matters to a Vote of Security Holders........... 11

PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters....................................................... 13
Item 6. Selected Financial Data....................................... 14
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of Operations..................................... 16
Item 8. Financial Statements and Supplementary Data................... 32
Changes in and Disagreements With Accountants on Accounting
Item 9. and Financial Disclosure...................................... 54

PART III
Item 10. Directors and Executive Officers of the Registrant............ 54
Item 11. Executive Compensation........................................ 54
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 54
Item 13. Certain Relationships and Related Transactions................ 54

PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
Item 14. K............................................................. 54
Signatures.............................................................. 55

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Item 1. Business

General

CSG Systems International, Inc. (the "Company" or "CSG") was formed in
October 1994 and acquired all of the outstanding stock of CSG Systems, Inc.
(formerly Cable Services Group, Inc.) from First Data Corporation ("FDC") in
November 1994 (the "CSG Acquisition"). CSG Systems, Inc. had been a subsidiary
or division of FDC from 1982 until the CSG Acquisition.

The Company's principal executive offices are located at 7887 East
Belleview, Suite 1000, Englewood, Colorado 80111, and the telephone number at
that address is (303) 796-2850. The Company's common stock is listed on the
Nasdaq National Market under the symbol "CSGS".

Company Overview

The Company provides customer care and billing solutions worldwide for the
converging communications markets, including cable television, direct
broadcast satellite ("DBS"), telephony, on-line services and others. The
Company's products and services enable its clients to focus on their core
businesses, improve customer service, enter new markets and operate more
efficiently. The Company offers its clients a full suite of processing and
related services, and software and professional services that automate
customer care and billing functions. These functions include set-up and
activation of customer accounts, sales support, order processing, invoice
calculation, production and mailing, management reporting, and customer
analysis for target marketing and churn management. The Company generated
revenue of $476.9 million in 2001 compared to $398.9 million in 2000, an
increase of 20%, and revenue grew at a compound annual growth rate of 31% over
the six-year period ended December 31, 2001.

The Company has established a leading presence by developing strategic
relationships with major participants in the cable television and DBS
industries, and derived approximately 82% and 12% of its total revenues in
2001 from U.S. cable television and U.S. and Canadian DBS providers,
respectively. The Company provides customer care and billing to more than 40%
of the homes in the United States. During 2001 and 2000, the Company derived
approximately 71% and 74%, respectively, of its total revenues from processing
and related services. Total domestic customer accounts on the Company's
processing system as of December 31, 2001 were 43.3 million, compared to 35.8
million as of December 31, 2000, an increase of 21%. The Company converted
approximately 6.1 million new customer accounts onto its processing system
during 2001. On an annualized basis, the Company received $8.70 in processing
revenue per video account in the fourth quarter of 2001 compared to $8.45 in
the fourth quarter of 2000, and $3.78 in processing revenue per Internet
account in the fourth quarter of 2001 compared to $4.86 per account in the
year-ago period.

The convergence of communications markets and growing competition are
increasing the complexity and cost of managing the interaction between
communications companies and their customers. Customer care and billing
systems coordinate all aspects of the customer's interaction with a
communications company, from initial set-up and activation, to service
activity monitoring, through billing and accounts receivable management. The
growing complexity of communications services and the manner in which they are
packaged and priced has created increased demand for customer care and billing
systems that deliver enhanced flexibility and functionality. Because of the
significant level of technological expertise and capital resources required to
develop and implement such systems successfully, the majority of cable
television, DBS, and mobile service providers have elected to outsource
customer care and billing.

Acquisition of Lucent Technologies Inc. Billing and Customer Care Assets
Subsequent to December 31, 2001

On December 21, 2001, the Company reached an agreement to acquire the
billing and customer care assets of Lucent Technologies Inc. ("Lucent").
Lucent's billing and customer care business consists primarily of: (i)
software products and related consulting services acquired by Lucent when it
purchased Kenan Systems

3

Corporation in 1999; (ii) BILLDATS Data Manager mediation software; (iii)
software and related technologies developed by Lucent's Bell Laboratories; and
(iv) elements of Lucent's sales and marketing organization (collectively, the
"Kenan Business"). On February 28, 2002, the Company completed the acquisition
(the "Kenan Acquisition"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for additional discussion of
the Kenan Acquisition.

The Kenan Acquisition is expected to have a significant impact on the
Company's business operations in the future. Since the transaction closed
subsequent to December 31, 2001, the Kenan Acquisition has not been considered
in the Company's discussion of its "business" as of and for the year ended
December 31, 2001. However, due to its significance to the Company's business,
a discussion of the Kenan Acquisition and its anticipated impact on the
Company's business operations has been included at the end of Item 1,
"Business".

AT&T Contract and Asset Acquisition

In September 1997, the Company purchased certain software technology assets
that were in development from Tele-Communications, Inc. ("TCI") and entered
into a 15-year exclusive contract with a TCI affiliate to consolidate all TCI
customers onto the Company's customer care and billing system. In March 1999,
AT&T completed its merger with TCI and consolidated the TCI operations into
AT&T Broadband ("AT&T"). In December 2001, AT&T announced its agreement to
merge with Comcast Corporation. The Company continues to service AT&T under
the terms of the 15-year processing contract (the "AT&T Contract"). The
Company generates a significant portion of its total revenues under the AT&T
Contract. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional discussion of the AT&T Contract and the
Company's business relationship with AT&T.

Growth Strategy

The Company's growth strategy is designed to provide revenue and profit
growth. The key elements of the strategy include:

Expand Core Processing Business. The Company will continue to leverage its
investment and expertise in high-volume transaction processing to expand its
processing business. The processing business provides highly predictable
recurring revenues through multi-year contracts with a client base that
includes leading communications service providers in growing markets. The
Company increased the number of customers processed on its systems from 18.0
million as of December 31, 1995 to 43.3 million as of December 31, 2001, a
compound annual growth rate for this period of 16%. The Company provides a
full suite of customer care and billing products and services that combine the
reliability and high volume transaction processing capabilities of a mainframe
platform with the flexibility of client/server architecture.

Introduce New Products and Services. The Company has a significant installed
client base to which it can sell additional value-added products and services.
On an annualized basis, the Company received $8.70 in processing revenue per
video account in the fourth quarter of 2001 compared to $8.45 in the fourth
quarter of 2000, and $3.78 in processing revenue per Internet account in the
fourth quarter of 2001 compared to $4.86 per account in the year-ago period.
The increase in processing revenue per video account relates primarily to: (i)
increased usage of ancillary services by clients; (ii) the introduction of new
products and services; and (iii) price increases included in client contracts.
The decrease in processing revenues per Internet account is due primarily to
the ability of Internet clients to spread their processing costs, some of
which are fixed in nature, across a larger customer base. In addition, the
Company continues to roll out new software applications and provide
professional services to enhance the functionality of its customer care and
billing solution and to support the Company's clients' initiatives for new
revenue opportunities. Software and professional services revenues were $137.7
million in 2001 compared to $104.1 million in 2000. This increase relates
primarily to higher demand for the Company's customer relationship management,
call center, and workforce automation software applications.

4

Enter New Markets. As communications markets converge, the Company's
products and services can facilitate efficient entry into new markets by
existing or new clients. For example, as the cable television providers expand
into on-line services, the Company is offering customer care and billing
solutions necessary to meet their needs. The Company is entering new markets,
such as the mobile and wireline markets, that with new and/or acquired
technology, or modifications to the Company's existing technology, can be
served by the Company's customer care and billing solutions.

Enhance Growth Through Focused Acquisitions. The Company follows a
disciplined approach to acquire assets and businesses which 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 or clients.

Continue Technology Leadership. The Company believes that its technology in
customer care and billing solutions gives communications service providers a
competitive advantage. The Company's continuing investment in research and
development ("R&D") is designed to position the Company to meet the growing
and evolving needs of existing and potential clients.

Pursue International Opportunities. 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 will
significantly increase the level of its international operations as a result
of its recent acquisition of the Kenan Business.

CSG Products and Services

A background in high-volume transaction processing, complemented with world-
class applications software, allows the Company to offer the most
comprehensive, pre-integrated products and services to the communications
market, serving video, data and voice providers and handling all aspects of
the customer lifecycle. Since 1995, the Company has invested an average of 12%
of revenues in R&D. This has allowed the Company to increase its offering from
two products to more than 25. Listed below are several of the key products
offered by the Company.

CSG CCS/BP (formerly known as CCS(R)) is a service-bureau based customer
care transaction processing engine that is the core component of CSG's
outsourced customer care and billing platform.

Advanced Customer Service Representative(R) (ACSR(R)) is the front-end
interface to the Company's customer care and billing platform that provides
user-friendly access to customer information stored in the billing and
customer care engine.

CSG Workforce ExpressSM is a mobile tool that allows dispatchers and field
technicians access to assignments and other service-oriented tasks. Work
orders are delivered through CSG TechNet, a web-enabled cell phone that
enables technicians to perform tasks in the field.

CSG.net(TM) consists of tools to support convergent customers operating
multiple product lines that require IP-based billing capability, such as
video on demand, interactive television and high speed data.

CSG Care Express(R) enables customer self-care, including a solution to
view and pay bills over the Internet.

CSG Vantage(R) allows clients to collect and leverage marketing and
consumer behavior information to offer specific package pricing and
discounts to their customers.

Enhanced Statement Presentation(R) (ESP(R)) lets clients tailor logos,
graphics, and messages on customer invoicesturning a monthly bill into an
easy-to-read communications and marketing tool.

Customer Interaction Tracking(R) (CIT(R)) captures customer-related
interactions, tracking customers by type and subject, and featuring a
planner for scheduling follow-ups and reminders.

ACSR-T is a telephony billing solution that allows providers to offer this
line of business via a single billing platform. Through a flexible
platform, it integrates ordering and provisioning functions, and offers
robust call rating capability.

5

CSG High Speed Data enables providers to offer, enroll and service
customers of this line of business via a single billing platform. Its
specialized functionality helps customer service representatives ("CSRs")
reduce average call times and improve customer service.

Financial Services is a group of financial applications that automates
credit verification, certain accounts receivable functions and payment
methods via the CSR's desktop. The applications include:

Credit Verification Service/Risk Management System automates risk
assessment, reducing financial risk by identifying high-risk customers.

Paybill Advantage(R) lets customers have their bills automatically
debited from their checking accounts.

Credit Card Processing Services uses a one-time or recurring credit
card transaction to automatically collect payments for monthly services
and special circumstances, such as a delinquent customer.

Collections Service automates the accounts receivable and collections
systems for clients, increasing recovery rates and reducing costs.

Cash Register Receipts allows for enhanced handling of front counter
and payment center transactions.

Call Center ExpressSM is a suite of products that promotes customer self-
care and improves CSR efficiency. The following are applications included
in this suite:

CSG Info Express(TM) allows customers to use interactive voice response
technology to complete certain tasks such as checking account balances
or ordering a pay-per-view event. It helps to reduce staffing
requirements and decrease customer wait times.

CSG Screen Express(R) helps to reduce customer call times via instant
messaging directly to call center CSR's desktops. Additionally, this
product delivers real-time call center performance indicators such as
call hold times and number of calls in queue.

CSG Statement Express(R) presents the statement image via an online
viewing system allowing the CSR to save time when assisting customers
with bills. This application electronically stores, retrieves,
distributes and prints a statement exactly as it appears to customers.

CSG Direct SolutionsSM allows access to the Company's state-of-the art
statement presentation solutions regardless of billing system in use. It
provides an attractive cost-saving advantage to in-house statement
printing.

CSG NextGen/BP (formerly known as CSG NextGen(TM)) is the Company's billing
platform designed specifically for international cable broadband providers.
Its flexible architecture enables the platform to run in a service bureau
or in-house environment.

CSG ProfitNow! (TM) provides the tools for companies to predict which
customers may be at risk of flight and identifies proactive steps to keep
them. It also predicts which customers are most likely to buy additional
services.

Clients

In 2001, the majority of the Company's largest clients (listed in alphabetic
order) were video and data providers located in the United States and Canada,
and are listed below.

AOL Time Warner DirecTV
AT&T Broadband (includes former TCI and MediaOne) Echostar Communications Corporation
Adelphia Communications Corporation Mediacom Communications
Charter Communications Prodigy Communications Corporation
Cox Communications

6

During the years ended December 31, 2001, 2000 and 1999: (i) revenues from
AT&T represented approximately 55.8%, 50.4%, and 50.5% of total revenues; (ii)
revenues from Echostar Communications Corporation ("Echostar") represented
approximately 10.0%, 9.3%, and 7.3% of total revenues; and (iii) revenues from
AOL Time Warner Inc. and its affiliated companies ("AOL Time Warner")
represented approximately 7.5%, 8.3%, and 10.2% of total revenues;
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for discussion of the Company's contract with AT&T.

Client and Product Support

The Company's clients typically rely on the Company for ongoing support and
training needs relating to the Company's products. The Company has a multi-
level support environment for its clients. In 2001, the Company established
strategic business units ("SBUs") to support the business, operational and
functional requirements of each client. These dedicated account management
teams help clients resolve strategic and business issues and are supported by
the Company's product support center, which operates 24 hours a day, seven
days a week. Clients call an 800 number and through an automated voice
response unit, direct their calls to the specific product support areas where
the questions are answered. The Company has a full-time training staff and
conducts ongoing training sessions both in the field and at its training
facilities located in Denver, Colorado and Omaha, Nebraska.

Sales and Marketing

The Company has assembled a direct sales and sales support organization. The
Company has organized its sales efforts within the SBUs with senior level
account managers who are responsible for new revenues and renewal of existing
contracts within an account. Account managers are supported by sales support
personnel who are experienced in the various products and services that the
Company provides.

FDC Data Processing Facility

The Company outsources to FDC data processing and related computer services
required for operation of the Company's domestic processing services. The
Company's proprietary software is run in FDC's facility to obtain the
necessary mainframe computer capacity and other computer support services
without making the substantial capital and infrastructure investments that
would be necessary for the Company to provide these services internally. The
Company's clients are connected to the FDC facility through a combination of
private and commercially provided networks. During 2000, the Company
renegotiated its services agreement with FDC. The new agreement is cancelable
only for cause, and expires June 30, 2005.

Research and Development

The Company's product development efforts are focused on developing new
products and improving existing products. The Company believes that the timely
development of new applications and enhancements is essential to maintaining
its competitive position in the marketplace. The Company's development efforts
for 2001 were focused primarily on the development of products to:

. increase the efficiencies and productivity of its clients' operations;

. address the systems needed to support the convergence of the
communications markets;

. support a web-enabled, customer self-care and electronic bill
presentment/payment application;

. allow clients to effectively roll out new products and services to new
and existing markets, such as residential telephony, high-speed data/ISP
and IP markets, and interactive services (e.g., video-on-demand); and

. address the international customer care and billing system market.

7

The Company's total R&D expense was $52.2 million, $42.3 million, and $34.4
million for the years ended December 31, 2001, 2000, and 1999, or 10.9%,
10.6%, and 10.7% of total revenues, respectively. Since 1995, the Company has
invested an average of 12% of its total revenues into R&D. The Company expects
to spend a similar percentage of its total revenues on R&D in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional discussion.

Competition

The market for customer care and billing systems in the converging
communications industries is highly competitive. The Company competes with
both independent providers and in-house developers of customer management
systems. The Company believes its most significant competitors are DST
Systems, Inc., Convergys Corporation, Portal Software, Inc., Amdocs LTD, and
in-house systems. As the Company enters additional market segments, it expects
to encounter additional competitors. Some of the Company's actual and
potential competitors have substantially greater financial, marketing and
technological resources than the Company.

The Company believes that the principal competitive factors in its markets
include time to market, flexibility and architecture of the system, breadth of
product features, product quality, customer service and support, quality of
R&D effort, and price.

Proprietary Rights and Licenses

The Company relies on a combination of trade secrets and copyright laws,
patents, license agreements, non-disclosure and other contractual provisions,
and technical measures to protect its proprietary rights. The Company
distributes its products under service and software license agreements that
typically grant clients non-exclusive licenses to use the products. Use of the
software products is restricted and subject to terms and conditions
prohibiting unauthorized reproduction or transfer of the software products.
The Company also seeks to protect the source code of its software as a trade
secret and as a copyrighted work. Despite these precautions, there can be no
assurance that misappropriation of the Company's software products and
technology will not occur. The Company also incorporates via licenses or
reselling arrangements a variety of third-party technology and software
products that provide specialized functionality within its own products and
services. Although the Company believes that its product and service offerings
conform with such arrangements and do not infringe upon the intellectual
property rights of the other parties to such arrangements or of other third
parties, there can be no assurance that any third parties will not assert
contractual or infringement claims against the Company.

Employees

As of December 31, 2001, the Company had a total of 2,027 employees, an
increase of 204 from December 31, 2000. This total includes 102 employees who
joined the Company through the Company's acquisition of plaNet Consulting,
Inc. on September 18, 2001. The Company's success is dependent upon its
ability to attract and retain qualified employees. None of the Company's
employees are subject to a collective bargaining agreement. The Company
believes that its relations with its employees are good.

Significant Business Acquisition Subsequent to December 31, 2001

On December 21, 2001, the Company reached an agreement to acquire the
billing and customer care assets of Lucent Technologies Inc. ("Lucent").
Lucent's billing and customer care business consists primarily of: (i)
software products and related consulting services acquired by Lucent when it
purchased Kenan Systems Corporation in 1999; (ii) BILLDATS Data Manager
mediation software; (iii) software and related technologies developed by
Lucent's Bell Laboratories; and (iv) elements of Lucent's sales and marketing
organization (collectively, the "Kenan Business"). On February 28, 2002, the
Company completed the acquisition (the "Kenan Acquisition"). Approximately
1,100 employees joined the Company as a result of the Kenan Acquisition, with
the majority of these employees located in the U.S.

8

The Kenan Business is a global provider of convergent billing and customer
care software and services that enable communications service providers to
bill their customers for a wide variety of existing and next-generation
services, including mobile, Internet, wireline telephony, cable, satellite,
and energy and utilities, all on a single invoice. The software supports
multiple languages and currencies. Historically, a significant portion of
Kenan Business revenues have been generated outside the U.S.

The Kenan Acquisition is consistent with the Company's acquisition growth
strategy. As a result of the Kenan Acquisition, the Company has: (i) added
proven products to the Company's product suite; (ii) added international
infrastructure in Europe, Asia Pacific and Latin America; (iii) diversified
its customer base by adding over 230 customers in more than 40 countries; (iv)
diversified its product offerings to encompass all segments of the
communications market, including Internet Protocol, mobile, wireline
telephony, cable, and satellite; (v) acquired solid relationships with leading
systems integrators worldwide; and (vi) gained the opportunity to leverage the
Company's software solutions into the Kenan Business' diverse customer base.

The Company's growth strategy for the Kenan Business will focus primarily on
the following key elements: (i) expand market share by leveraging the
Company's overall product set and competitive position, both domestically and
internationally; (ii) introduce new products and services to the Kenan
Business' installed client base; and (iii) expand its product offerings to
include outsourced processing services for selected clients.

As a result of the Company's acquisition of the Kenan Business, the Company
expects to generate a larger portion of its revenues from software and
professional services, and increase the amount of its revenues generated
outside the U.S. In connection with the Kenan Acquisition, the Company has
reorganized its business into two segments: the Broadband Services Division
(the "Broadband Division") and the Global Software Services Division (the
"Software Division"). The Broadband Division consists principally of the
historical processing operations and related software products of the Company
(e.g., CSG CCS/BP, ACSR, CSG Workforce Express, etc.), and the Software
Division consists principally of the Kenan Business, and the CSG NextGen/BP
and ProfitNow! software products and related services.

The Kenan Business' primary product offerings include:

CSG Kenan(R)/BP (formerly known as Arbor(R)/BP) is a real-time, web-enabled
billing product that enables customers to launch leading-edge services. An
award-winning solution, CSG Kenan/BP increases revenue by customizing
services for individual customers and extend revenue streams by offering
multiple services on a single invoice.

CSG Kenan(R)/OM (formerly known as Arbor(R)/OM Order Management) is a next-
generation order entry and workflow management product that enables
customer service representatives and provisioning personnel to manage order
negotiation, order entry, order provisioning, order completion, and billing
notification.

CSG Data Mediation (formerly known as BILLDATS Data Manager) collects vital
information about usage, content and transaction data from the network,
then mediates that information and distributes relevant data downstream for
use in management applications.

CSG Kenan(R) Revenue Settlements is a solution that enables providers to
craft, execute and monitor tailored revenue sharing agreements across a
large web of partners.

CSG Kenan(R) Prepaid is an application that combines the award-winning CSG
Kenan/BP solution with new prepaid architecture. This architecture enables
the most advanced services, such as mobile data, and delivers a converged
prepaid and postpaid billing system that enables service providers to
manager their entire customer base.

CSG Kenan(R) IP Services is a comprehensive family of billing, mediation,
Web-enabled self-care, and revenue assurance solutions for next generation
IP services, including Internet access, managed services such as Web
hosting and advanced applications, VoIP, IP VPN, content delivery, storage
and live/on demand streaming.

9

CSG Kenan(R) 3G Mobile is suite of solutions to help service providers
address every customer care and billing aspect of the 3G mobile market,
including billing, order management, activation, payment, mediation and
revenue assurance.

The Company expects to focus its Kenan Business R&D efforts on two key
programs: (i) the integration of the Kenan Business product set with the
Company's existing software products; and (ii) the expansion of the Kenan
Business product set to create an end-to-end solution for the Company's
clients.

Several key clients (listed in alphabetical order) of the Kenan Business are
as follows:

Mobile clients: AT&T Wireless, Belgacom Mobile (Proximus), BellSouth,
Cegetel, Cingular, MobileOne, and Singapore Telecom.

Wireline telephony clients: AT&T, British Telecom, Cable & Wireless,
Embratel (Brazil), France Telecom, NTT, and Singapore Telecom.

Advanced IP clients: AT&T WorldNet, Genuity, Level 3, NTT, and Telefonica
Data (Brazil).

Cable and Satellite: Adelphia, BskyB, Casema, Saturn, Singapore
Cablevision, Stream, UPC, and Videotron.

The Company has a multi-level support environment for its clients. Primary
client support for the Kenan Business is provided in four regions: (i) North
America; (ii) Europe/Middle East/Africa ("EMEA"); (iii) Asia Pacific ("APAC");
and (iv) Central/South America ("CALA"). These regional account management
teams are supported by a centralized customer support organization located in
the U.S. and a product support center, which operates 24 hours a day, seven
days a week.

The Company's primary method of distribution for the Kenan Business is
direct sales by employees assigned to four regions. The four regions and the
principal sales office for each region are as follows: (i) North America
(Denver); (ii) EMEA (London); (iii) APAC (Singapore); and (iv) CALA (Miami).
In addition to the principal sales offices in each region, the Company has
various sales offices located throughout the world. The Company believes its
most significant competitors are Convergys Corporation, Portal Software, Inc.,
Amdocs LTD, and in-house systems. As the Company enters additional market
segments, it expects to encounter additional competitors. The Company believes
that the principal competitive factors in its markets include time to market,
flexibility and architecture of the system, breadth of product features,
product quality, customer service and support, quality of R&D effort, and
price.

Item 2. Properties

The Company leases four facilities, totaling approximately 170,000 square
feet in Denver, Colorado and surrounding communities. The Company utilizes
these facilities primarily for (i) corporate headquarters, (ii) sales and
marketing activities, (iii) product and operations support, and (iv) certain
R&D activities. The leases for these facilities expire in the years 2002
through 2010.

The Company leases six facilities, totaling approximately 317,000 square
feet in Omaha, Nebraska. The Company utilizes these facilities primarily for
(i) client services, training and product support, (ii) systems and
programming activities, (iii) R&D activities, (iv) statement production and
mailing, and (v) general and administrative functions. The leases for these
facilities expire in the years 2004 through 2011.

The Company leases one facility, totaling 63,000 square feet in Wakulla
County, Florida. This facility is used for statement production and mailing
and the lease expires in 2008.

The Company leases office space totaling 13,000 square feet in Slough,
Berkshire, in the United Kingdom for its U. K. operations. The lease for this
facility expires in 2002.

10

The Company believes that its facilities are adequate for its current needs
and that additional suitable space will be available as required. The Company
also believes that it will be able to extend leases as they terminate. See
Note 8 to the Company's Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.

As part of the Kenan Acquisition, the Company assumed six facility leases
from Lucent totaling approximately 291,000 square feet in the following
locations: (i) Denver, Colorado; (ii) Washington, D.C.; (iii) Cambridge,
Massachusetts; (iv) Munich, Germany; (v) London, England; and (vi) Paris,
France. The Company is currently evaluating its longer-term plan for the use
of these or alternate facilities in these and other locations. As part of its
transition services from Lucent, the Company is leasing certain facilities
from Lucent (both in the U.S. and foreign locations) for up to 180 days after
the acquisition closing date during which time the Company will evaluate its
longer-term facilities plan in these locations. The Company believes it has
adequate space to operate the Kenan Business at this time and that it will be
able to successfully migrate its business operations to a longer-term
facilities plan without any significant business interruptions.

Item 3. Legal Proceedings

On March 13, 2002, AT&T Broadband notified the Company that AT&T is
"considering" the initiation of arbitration against the Company relating to
the AT&T Contract. The notice states that AT&T's decision whether to seek
arbitration is subject to the parties exhausting the negotiation process
specified in the AT&T Contract. That dispute resolution portion of the
agreement calls for senior officers from each company to meet promptly and for
a period of not less than 30 days in an effort to resolve the dispute. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional discussions of this matter.

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, after consultation with legal counsel, the
Company is not presently a party to any other material pending or threatened
legal proceedings.

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

None.

***

Executive Officers of the Registrant

As of December 31, 2001, the executive officers of the Company were Neal C.
Hansen (Chairman of the Board and Chief Executive Officer), John P. Pogge
(President and Chief Operating Officer), Peter E. Kalan (Chief Financial
Officer and Senior Vice President Finance), Edward C. Nafus (President,
Broadband Services Division), William Fisher (President, Global Software
Services Division) and J. Richard Abramson (Executive Vice President). The
Company has employment agreements with each of the executive officers.
Information concerning such executive officers appears in the following
paragraphs:

Mr. Hansen, 61, is a co-founder of the Company and has been the Chairman of
the Board and Chief Executive Officer and a director of the Company since its
inception in 1994. From 1991 until founding the Company, Mr. Hansen served as
a consultant to several software companies, including FDC. From 1989 to 1991,
Mr. Hansen was a General Partner of Hansen, Haddix and Associates, a
partnership that provided advisory management services to suppliers of
software products and services. From 1983 to 1989, Mr. Hansen was Chairman and
Chief Executive Officer of US WEST Applied Communications, Inc., and President
of US WEST Data Systems Group.

Mr. Pogge, 48, joined the Company in 1995 and has served as President, Chief
Operating Officer and a director of the Company since September 1997. Prior to
that time, Mr. Pogge was an Executive Vice President of the Company and
General Manager, Business Units. From 1992 to 1995, Mr. Pogge was Vice
President,

11

Corporate Development for US WEST, Inc. From 1987 to 1991, Mr. Pogge served as
Vice President and General Counsel of Applied Communications, Inc. Mr. Pogge
holds a J.D. degree from Creighton University School of Law and a BBA in
Finance from the University of Houston.

Mr. Kalan, 42, joined the Company in January 1997 and was named Chief
Financial Officer in October 2000. Prior to joining the Company, he was Chief
Financial Officer at Bank One, Chicago, and he also held various other
financial management positions with Bank One in Texas and Illinois from 1985
through 1996. Mr. Kalan holds a Bachelor of Arts degree in Business
Administration from the University of Texas at Arlington.

Mr. Nafus, 61, joined the Company in August 1998 as Executive Vice President
and was named President, Broadband Services Division in January 2002. From
1992 to 1998, Mr. Nafus served as Executive Vice President of FDC and
President of First Data International. Mr. Nafus was President of First Data
Resources from 1989 to 1992, Executive Vice President of First Data Resources
from 1984 to 1989 and held various other management positions with that
company since 1984. Mr. Nafus holds a Bachelor of Science degree in
Mathematics from Jamestown College.

Mr. Fisher, 55, joined the Company in September 2001 and was named
President, Global Software Services Division in January 2002. In his role at
the Company, Mr. Fisher leads the software development and product delivery
initiatives of the Company's next generation products and also oversees
international operations and professional services. Previously, Mr. Fisher was
Chairman of plaNet Consulting, an e-business solutions and services group that
the Company acquired in 2001. Prior to plaNet, Mr. Fisher served as Chairman
and Chief Executive Officer for Transaction Systems Architects, Inc. (TSAI),
and served 14 years in numerous roles including President and Chief Executive
Officer of ACI, which was acquired by TSAI. Mr. Fisher also served as
President of First Data Resources' government services division. Mr. Fisher
holds a Bachelor's degree in Management from Indiana State University and a
Master's degree in Business Administration from the University of Nebraska.

Mr. Abramson, 53, joined the Company in March 2000 as Senior Vice President
and was named Executive Vice President in August 2000. From 1998 to 2000, Mr.
Abramson was President, Communications & Media Unit for the Englewood-based
New Era of Networks, Inc. (NEON). He was President and Chief Executive Officer
of Evolving Systems, Inc., a provider of software and professional services to
the telecommunications industry, from 1996 to 1998 and served as Chairman,
President/CEO of Prairie Systems from 1990 to 1996. From 1984 to 1990, Mr.
Abramson served in various executive roles with Applied Communications, Inc.
including Senior Vice President/GM and Director of Sales. Mr. Abramson is a
graduate of the University of Nebraska at Lincoln.

12

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's Common Stock is listed on the Nasdaq National Market
("NASDAQ/NMS") under the symbol "CSGS". The following table sets forth, for
the fiscal quarters indicated, the high and low sale prices of the Company's
Common Stock as reported by NASDAQ/NMS.

High Low
------ ------

2001
First quarter................................................ $51.56 $35.72
Second quarter............................................... 63.30 37.06
Third quarter................................................ 59.01 40.37
Fourth quarter............................................... 42.01 30.76

High Low
------ ------

2000
First quarter................................................ $73.69 $37.81
Second quarter............................................... 60.00 40.88
Third quarter................................................ 60.00 29.00
Fourth quarter............................................... 50.25 27.94

On March 22, 2002, the last sale price of the Company's Common Stock as
reported by NASDAQ/NMS was $30.82 per share. On January 31, 2002, the number
of holders of record of Common Stock was 304.

Dividends

The Company has not declared or paid cash dividends on its Common Stock
since its incorporation. The Company's debt agreement contains certain
restrictions on the payment of dividends. See Notes 5 and 12 to the Company's
Consolidated Financial Statements.

13

Item 6. Selected Financial Data

The following selected financial data have been derived from the audited
financial statements of the Company. The selected financial data presented
below should be read in conjunction with, and is qualified by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements. The
information below is not necessarily indicative of the results of future
operations.

Company(1)
-------------------------------------------------
Year ended December 31,
-------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- ---------
(in thousands, except per share amounts)

Statements of Operations
Data:
Revenues:
Processing and related
services.................. $339,258 $294,809 $255,167 $191,802 $ 131,399
Software and professional
services.................. 137,650 104,086 66,995 44,838 40,405
-------- -------- -------- -------- ---------
Total revenues............ 476,908 398,895 322,162 236,640 171,804
-------- -------- -------- -------- ---------
Expenses:
Cost of processing and
related services(1)....... 121,983 107,022 95,706 82,198 73,148
Cost of software and
professional services..... 54,032 44,515 36,415 25,048 16,834
-------- -------- -------- -------- ---------
Total cost of revenues.... 176,015 151,537 132,121 107,246 89,982
-------- -------- -------- -------- ---------
Gross margin (exclusive of
depreciation).............. 300,893 247,358 190,041 129,394 81,822
-------- -------- -------- -------- ---------
Operating expenses:
Research and development:
Research and development... 52,223 42,338 34,388 27,485 22,586
Charge for purchased
research and
development(3)............ -- -- -- -- 105,484
Impairment of capitalized
software development
costs(4).................. -- -- -- -- 11,737
Selling, general and
administrative:
Selling, general and
administrative............ 51,527 46,970 40,142 34,769 29,583
Amortization of noncompete
agreements and
goodwill(1)............... 622 643 4,889 5,381 6,927
Impairment of intangible
assets(5)................. -- -- -- -- 4,707
Stock-based employee
compensation(1)........... -- 48 280 297 449
Depreciation............... 14,546 12,077 10,190 8,159 6,884
-------- -------- -------- -------- ---------
Total operating expenses.. 118,918 102,076 89,889 76,091 188,357
-------- -------- -------- -------- ---------
Operating income (loss)..... 181,975 145,282 100,152 53,303 (106,535)
-------- -------- -------- -------- ---------
Other income (expense):
Interest expense........... (3,038) (5,808) (7,214) (9,771) (5,324)
Interest and investment
income, net............... 4,466 5,761 2,981 2,484 1,294
Other...................... 39 (32) 10 (21) 349
-------- -------- -------- -------- ---------
Total other............... 1,467 (79) (4,223) (7,308) (3,681)
-------- -------- -------- -------- ---------
Income (loss) before income
taxes, extraordinary item
and discontinued
operations................. 183,442 145,203 95,929 45,995 (110,216)
Income tax (provision)
benefit(6)....... ........ (69,521) (54,734) (36,055) 39,643 --
-------- -------- -------- -------- ---------
Income (loss) before
extraordinary item and
discontinued operations.... 113,921 90,469 59,874 85,638 (110,216)
Extraordinary loss from
early extinguishment of
debt(3)................... -- -- -- -- (577)
-------- -------- -------- -------- ---------
Income (loss) from
continuing operations...... 113,921 90,469 59,874 85,638 (110,793)
Gain from disposition of
discontinued
operations(2)............. -- -- -- -- 7,922
-------- -------- -------- -------- ---------
Net income (loss)........... $113,921 $ 90,469 $ 59,874 $ 85,638 $(102,871)
======== ======== ======== ======== =========
Diluted net income (loss)
per common share(7):
Income (loss) available to
common stockholders....... $ 2.08 $ 1.60 $ 1.10 $ 1.62 $ (2.16)
Extraordinary loss from
early extinguishment of
debt...................... -- -- -- -- (.01)
Gain from discontinued
operations................ -- -- -- -- .15
-------- -------- -------- -------- ---------
Net income (loss) available
to common stockholders.... $ 2.08 $ 1.60 $ 1.10 $ 1.62 $ (2.02)
======== ======== ======== ======== =========
Weighted average diluted
common shares............. 54,639 56,680 54,660 52,991 50,994
======== ======== ======== ======== =========

14

Company(1)
--------------------------------------------
Year ended December 31,
--------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in thousands)

Other Data (at Period End):
Number of clients' customers
processed...................... 43,283 35,808 33,753 29,461 21,146
Balance Sheet Data (at Period
End):
Cash, cash equivalents and
short-term investments......... $ 83,599 $ 43,733 $ 48,676 $ 39,593 $ 20,417
Working capital................. 80,789 81,317 32,092 7,050 3,518
Total assets(3)................. 374,046 332,089 274,968 271,496 179,793
Total debt(3)................... 31,500 58,256 81,000 128,250 135,000
Stockholders' equity
(deficit)(1)(3)(4)(5)(6)....... 250,048 191,169 116,862 60,998 (33,086)

- --------
(1) The Company was formed in October 1994 and acquired all of the outstanding
shares of CSG Systems, Inc., formerly Cable Services Group, Inc., from
First Data Corporation ("FDC") on November 30, 1994 (the "CSG
Acquisition"). The Company did not have any substantive operations prior
to the CSG Acquisition. The CSG Acquisition was accounted for as a
purchase and the Company's Consolidated Financial Statements (the
"Consolidated Financial Statements") since the date of the acquisition are
presented on the new basis of accounting established for the purchased
assets and liabilities. The Company incurred certain acquisition-related
charges as a result of the CSG Acquisition. These acquisition-related
charges included periodic amortization of acquired software, client
contracts and related intangibles, noncompete agreement and goodwill, and
stock-based employee compensation. During 1997, cost of processing and
related services included $10.6 million of amortization expense for
acquired software from the CSG Acquisition. During 1999, 1998, and 1997
cost of processing and related services included $2.8 million, $3.0
million, and $4.0 million, respectively, of amortization expense for
client contracts and related intangibles from the CSG Acquisition.
Amortization expense related to the noncompete agreement from the CSG
Acquisition was $0.4 million per month, and was fully amortized as of
November 30, 1999.

(2) Contemporaneously with the CSG Acquisition, the Company purchased from FDC
all of the outstanding capital stock of Anasazi Inc. ("Anasazi"). On
August 31, 1995, the Company completed a substantial divestiture of
Anasazi, resulting in the Company owning less than 20% of Anasazi. In
September 1997, the Company sold its remaining ownership interest in
Anasazi for $8.6 million in cash and recognized a gain of $7.9 million.
The Company accounted for its ownership in Anasazi as discontinued
operations after its acquisition in 1994.

(3) During 1997, the Company purchased certain software technology assets that
were in development from Tele-Communications, Inc. ("TCI") and entered
into a 15-year processing contract with TCI. In March 1999, AT&T completed
its merger with TCI and has consolidated the TCI operations into AT&T
Broadband ("AT&T"). The Company continues to service AT&T under the terms
of the 15-year processing contract (the "AT&T Contract"). The total
purchase price was approximately $159 million, with approximately $105
million assigned to purchased in-process research and development assets
that were charged to expense at the date of acquisition and the remaining
amount allocated primarily to the AT&T Contract. The Company financed the
asset acquisition with a $150.0 million term credit facility, of which
$27.5 million was used to retire the Company's previously outstanding
debt, resulting in an extraordinary loss of $0.6 million for the write-off
of deferred financing costs attributable to such debt.

(4) During 1997, the Company recorded a non-recurring charge of $11.7 million
to reduce certain software assets to their net realizable value as of
December 31, 1997.

(5) During 1997, the Company recorded a non-recurring charge of $4.7 million
for the impairment of certain intangible assets related to software
systems which the Company decided to no longer market and support.

(6) During 1998, the Company recorded an income tax benefit of $39.6 million
related primarily to the elimination of its valuation allowance against
its deferred tax assets.

(7) On March 5, 1999, the Company completed a two-for-one stock split for
shareholders of record on February 8, 1999. The split was effected as a
stock dividend. Share and per share data for all periods presented herein
have been adjusted to give effect to the split. Diluted net income (loss)
per common share and the shares used in the per share computation have
been computed on the basis described in Note 2 to the Consolidated
Financial Statements.

15

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

General

The Company. The Company was formed in October 1994 and acquired all of the
outstanding stock of CSG Systems, Inc. from First Data Corporation ("FDC") in
November 1994 (the "CSG Acquisition"). CSG Systems, Inc. had been a subsidiary
or division of FDC from 1982 until the acquisition.

The Company provides customer care and billing solutions worldwide for the
converging communications markets, including cable television, direct
broadcast satellite, telephony, on-line services and others. The Company
offers its clients a full range of processing services, software and support
services that automate customer management functions, including billing, sales
support and order processing, invoice calculation and production, management
reporting and customer analysis for target marketing. The Company's products
and services combine the reliability and high volume transaction processing
capabilities of a mainframe platform with the flexibility of client/server
architecture. The Company provides its services to more than 40% of the homes
in the United States.

Forward Looking Statements. This report contains a number of forward-looking
statements relative to future plans of the Company and its expectations
concerning the global customer care and billing industry, as well as the
converging telecommunications industry it serves, and similar matters. These
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 of this report. Exhibit 99.01 constitutes an integral part of
this report, and readers are strongly encouraged to review that section
closely in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations.

Business Acquisitions

Acquisition of plaNet Consulting, Inc. On September 18, 2001, the Company
acquired 100% of the common stock of plaNet Consulting, Inc. ("plaNet"), a
Delaware corporation, for $16.7 million in cash. plaNet, with over 100
employees located in Omaha, Nebraska and Denver, Colorado, provides e-business
solutions and services to enable companies to transact business via the
Internet and in real-time. At the date of acquisition, plaNet derived the
majority of its revenues from consulting services. The Company acquired plaNet
primarily to obtain its assembled management and consulting workforce to
expand the Company's professional services capabilities. The results of
operations of plaNet are included in the Company's Consolidated Statements of
Income for the periods subsequent to the acquisition date. See Note 3 to the
Company's Consolidated Financial Statements for additional discussion of the
plaNet acquisition.

Acquisition of Lucent Technologies Inc. Billing and Customer Care Assets
Subsequent to December 31, 2001. On December 21, 2001, the Company reached an
agreement to acquire the billing and customer care assets of Lucent
Technologies Inc. ("Lucent"). Lucent's billing and customer care business
consists primarily of: (i) software products and related consulting services
acquired by Lucent when it purchased Kenan Systems Corporation in 1999; (ii)
BILLDATS Data Manager mediation software; (iii) software and related
technologies developed by Lucent's Bell Laboratories; and (iv) elements of
Lucent's sales and marketing organization (collectively, the "Kenan
Business"). On February 28, 2002, the Company completed the acquisition (the
"Kenan Acquisition").

The Kenan Acquisition is expected to have a significant impact on the
Consolidated Financial Statements. Since the transaction closed subsequent to
December 31, 2001, the Kenan Acquisition has not been considered in the
Company's discussion of its financial condition and results of operations as
of and for the year ended December 31, 2001. However, due to its significance
to the Company's business, a discussion of the Kenan Acquisition and its
anticipated impact on the Consolidated Financial Statements has been included
in the final section of Management's Discussion and Analysis of Financial
Condition and Results of Operations.

16

Critical Accounting Policies

The preparation of the Consolidated Financial Statements in conformity with
generally accepted accounting principles requires the Company to select
appropriate company 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 Consolidated Financial Statements.

In response to the Securities and Exchange Commission's ("SEC") Release No.
33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies," the Company has identified the most critical accounting principles
upon which the Company's financial status depends. The critical 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) software
capitalization; (iii) intangible assets; and (iv) income taxes. These critical
accounting policies and the Company's other significant accounting policies
are disclosed in Notes 2 and 6 to the Company's Consolidated Financial
Statements.

Revenue Recognition. The Company derives its revenues from primarily two
sources: (i) processing and related services and (ii) software and
professional services. The Company has historically generated over 70% of its
revenues from providing processing and related services. The accounting for
these revenues is relatively noncomplex and requires few judgements and
estimates to be made in applying the applicable accounting literature.
Processing and related services revenues are recognized as the services are
performed. Processing fees are typically billed monthly based on the number of
client's customers served, ancillary services are typically billed on a per
transaction basis, and certain customized print and mail services are billed
on a usage basis. Credit losses have historically been highly predictable
because of the concentration of revenues with a small number of large,
established companies.

The remainder of the Company's revenues has historically been earned by
selling software products and performing professional consulting services.
Software revenues consist primarily of software license and maintenance fees.
Professional services revenues consist of a variety of consulting services,
such as product installation and customization, business consulting, project
management and training services. The accounting for software revenues,
especially when software is sold in a multiple-element arrangement, is more
complex and requires judgement in applying the applicable accounting
literature, primarily American Institute of Certified Public Accountants
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", SOP 98-9,
"Software Revenue Recognition, With Respect to Certain Transactions" and
Emerging Issues Task Force ("EITF") Issue No. 00-03, "Application of AICPA
Statement of Position 97-2 to Arrangements that Include the Right to Use
Software Stored on Another Entity's Hardware". Key judgmental matters
considered in accounting for software and related services include: (i) the
identification of the separate elements of the software arrangement and
whether the undelivered elements are essential to the functionality of the
delivered elements; (ii) the assessment of whether the Company's hosted
service transactions meet the requirements of EITF Issue No. 00-03 to be
treated as a separate element to the software arrangement; (iii) the
determination of vendor-specific objective evidence of fair value for each
element of the software arrangement; (iv) the assessment of whether the
software fees are fixed or determinable; and (v) the assessment of whether
services included in the software arrangement represent significant
production, customization or modification of the software. The judgments made
in these areas could have a significant effect on revenues recognized in any
period by either: (i) deferring revenues over the contractual period; or (ii)
recognizing revenues when the software is delivered.

The EITF is currently considering revenue recognition in multi-element
arrangements in EITF Issue No. 00-21, "Accounting for Revenue Arrangements
with Multiple Deliverables" and the Financial Accounting Standards Board is
expected to begin work on a revenue recognition project in the near future.
The conclusions reached in these proceedings, and subsequent interpretations
of those conclusions, may impact the Company's significant revenue recognition
judgements.

17

Software Capitalization. The Company expends substantial amounts on research
and development, particularly for new software products or for enhancements of
existing products. The Company expended $52.2 million, $42.3 million and $34.4
million for software research and development in 2001, 2000 and 1999,
respectively. Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed",
requires that the cost of developing software be expensed prior to
establishing technological feasibility, and those costs be capitalized once
technological feasibility has been established. The determination of whether a
software product has achieved technological feasibility is, by its nature,
highly subjective. This decision could significantly affect earnings during
the development period by either: (i) capitalizing development costs; or (ii)
expensing pre-technological feasibility research costs. Further, once
capitalized, the developed software is amortized based upon the greater of:
(i) straight-line amortization; or (ii) expected product revenues. The
determination of expected product revenues is highly judgmental. Finally, all
long-lived assets (including capitalized software) must be assessed for
impairment if facts and circumstances warrant such a review. Under the current
standard, a long-lived asset is impaired if future undiscounted cash flows,
without consideration of interest, are insufficient to recover the carrying
amount of the long-lived asset. Once deemed impaired, even if by $1, the long-
lived asset is written down to its fair value which could be considerably less
than the carrying amount or future undiscounted cash flows. The determination
of future cash flows and, if required, fair value of a long-lived asset is by
its nature, a highly subjective judgment.

Intangible Assets. The Company frequently obtains intangible assets either
individually (for example, contract acquisition costs) or in connection with a
basket purchase (for example, in a business combination). The assignment of
value to individual intangible assets generally requires the use of
specialist, such as an appraiser. The assumptions used in the appraisal
process are forward-looking, and thus subject to significant interpretation.
Because individual intangible assets: (i) may be expensed immediately upon
acquisition (for example, purchased in-process research and development
assets); (ii) amortized over their estimated useful life (for example,
acquired software); or (iii) not amortized (for example, goodwill), the
assigned values could have a material affect on current and future period
results of operations. Further, intangible assets are subject to the same
judgments when evaluating impairment as discussed above for capitalized
software.

Income Taxes. The Company is required to estimate its income taxes in each
jurisdiction in which it operates. This process requires the Company to
estimate the actual current tax exposure together with assessing temporary
differences resulting from differing treatment of items, such as purchased
research and development costs, for tax and accounting purposes. These
temporary differences result in deferred tax assets and liabilities on the
Company's Consolidated Balance Sheets. The Company must then assess the
likelihood that the deferred tax assets will be recovered from future taxable
income, and to the extent recovery is not likely, must establish a valuation
allowance. As of December 31, 2001, the Company had a net deferred tax asset
of $45.9 million, which represented approximately 12.3% of total assets.
Management believes that sufficient taxable income will be generated in the
future to realize the entire benefit of the Company's deferred tax assets. The
Company's assumptions of future profitable operations are supported by the
Company's strong operating performances over the last several years and the
Company's long-term customer care and billing system processing contracts.

18

Results of Operations

The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated.

Year Ended December 31,
-----------------------------------------------------
2001 2000 1999
----------------- ----------------- -----------------
% of % of % of
Amount Revenue Amount Revenue Amount Revenue
-------- ------- -------- ------- -------- -------
(in thousands)

Revenues:
Processing and related
services.............. $339,258 71.1% $294,809 73.9% $255,167 79.2%
Software and
professional
services.............. 137,650 28.9 104,086 26.1 66,995 20.8
-------- ----- -------- ----- -------- -----
Total revenues........ 476,908 100.0 398,895 100.0 322,162 100.0
-------- ----- -------- ----- -------- -----
Expenses:
Cost of processing and
related services...... 121,983 25.6 107,022 26.8 95,706 29.7
Cost of software and
professional
services.............. 54,032 11.3 44,515 11.2 36,415 11.3
-------- ----- -------- ----- -------- -----
Total cost of
revenues............. 176,015 36.9 151,537 38.0 132,121 41.0
-------- ----- -------- ----- -------- -----
Gross margin (exclusive
of depreciation)....... 300,893 63.1 247,358 62.0 190,041 59.0
-------- ----- -------- ----- -------- -----
Operating expenses:
Research and
development........... 52,223 11.0 42,338 10.6 34,388 10.7
Selling, general and
administrative:
Selling, general and
administrative........ 51,527 10.8 46,970 11.8 40,142 12.4
Amortization of
noncompete agreements
and goodwill.......... 622 .1 643 .2 4,889 1.5
Stock-based employee
compensation.......... -- -- 48 -- 280 .1
Depreciation........... 14,546 3.1 12,077 3.0 10,190 3.2
-------- ----- -------- ----- -------- -----
Total operating
expenses............. 118,918 25.0 102,076 25.6 89,889 27.9
-------- ----- -------- ----- -------- -----
Operating income........ 181,975 38.1 145,282 36.4 100,152 31.1
-------- ----- -------- ----- -------- -----
Other income (expense):
Interest expense....... (3,038) (.6) (5,808) (1.4) (7,214) (2.2)
Interest and investment
income, net........... 4,466 .9 5,761 1.4 2,981 .9
Other.................. (39) -- (32) -- 10 --
-------- ----- -------- ----- -------- -----
Total other........... 1,467 .3 (79) -- (4,233) (1.3)
-------- ----- -------- ----- -------- -----
Income before income
taxes.................. 183,442 38.4 145,203 36.4 95,929 29.8
Income tax provision... (69,521) (14.6) (54,734) (13.7) (36,055) (11.2)
-------- ----- -------- ----- -------- -----
Net income.............. $113,921 23.8% $ 90,469 22.7% $ 59,874 18.6%
======== ===== ======== ===== ======== =====

19

Twelve Months Ended December 31, 2001 Compared to Twelve Months Ended
December 31, 2000.

Revenues. Total revenues increased $78.0 million, or 19.6%, to $476.9
million in 2001, from $398.9 million in 2000.

Revenues from processing and related services increased $44.4 million, or
15.1%, to $339.3 million in 2001, from $294.8 million in 2000. Of the total
increase in revenue, approximately 85% was due to the Company serving a higher
number of customers for its clients and approximately 15% was due to increased
revenue per customer. Customers served were as follows (in thousands):

As of December 31,
--------------------
2001 2000 Change
------ ------ ------

Video................................................ 39,316 33,310 6,006
Internet............................................. 3,835 1,984 1,851
Telephony............................................ 132 514 (382)
------ ------ -----
Total.............................................. 43,283 35,808 7,475
====== ====== =====

The increase in the number of video and Internet customers served was due to
the conversion of additional customers by new and existing clients to the
Company's processing system, and internal customer growth experienced by
existing clients. The decrease in the number of telephony customers served was
due to the deconversion of AT&T's wireline telephony customers in 2001. During
2001, the Company converted and processed approximately 6.1 million new
customers on its systems. As of December 31, 2001, the Company had
approximately 0.3 million customers scheduled to be converted onto its
processing system during the next twelve months.

Total processing revenue per video and Internet account was as follows:

For the years
ended December 31,
------------------
2001 2000 Change
----- ----- ------

Video Account.......................................... $8.68 $8.42 3.1%
Internet Account....................................... 4.40 5.05 (12.9%)

The increase in processing revenue per account relates primarily to: (i)
changes in the usage of ancillary services by clients; (ii) the introduction
of new products and services and the clients use of these products and
services; and (iii) price changes included in client contracts (e.g., price
escalators for inflationary factors, tiered pricing, etc.). The decrease in
processing revenues per Internet account is due primarily to the ability of
Internet clients to spread their processing costs, some of which are fixed in
nature, across a larger customer base.

Revenues from software and professional services increased $33.6 million, or
32.2% to $137.6 million in 2001, from $104.1 million in 2000. The Company
sells its software products and professional services principally to its
existing client base to: (i) enhance the core functionality of its service
bureau processing application; (ii) increase the efficiency and productivity
of its clients' operations; and (iii) allow clients to effectively roll out
new products and services to new and existing markets. The increase in revenue
between years relates to the continued demand for the Company's existing
software products and services to meet the changing needs of the Company's
client base. The Company has been experiencing an increased demand from its
client base to sell its software products on an "expanded" license basis
rather than on a per-seat license basis. Subject to certain and varying
conditions, expanded licenses give the clients the right to use an unlimited
number of seats of the Company's software products.

Cost of Processing and Related Services. Processing costs as a percentage of
related revenues were 36.0% for 2001, compared to 36.3% for 2000. The costs as
a percentage of related revenues remained relatively unchanged between years
as the Company continues to: (i) focus on cost controls and cost reductions
within its core processing business; and (ii) experience better overall
leveraging of its processing costs as a result of the continued growth of the
customer base processed on the Company's systems.

20

Cost of Software and Professional Services. The cost of software and
professional services as a percentage of related revenues was 39.3% for 2001,
compared to 42.8% for 2000. The improvement between periods relates primarily
to better overall leveraging of costs as a result of higher software and
professional services revenues for the year.

Gross Margin. Overall gross margin increased $53.5 million, or 21.6%, to
$300.9 million in 2001, from $247.4 million in 2000, due primarily to revenue
growth. The overall gross margin as a percentage of total revenues increased
to 63.1% in 2001, compared to 62.0% in 2000. The overall increase in the gross
margin percentage is due primarily to the increase in gross margin for
software and professional services as a result of the factors discussed above.

Research and Development Expense. R&D expense increased $9.9 million, or
23.3%, to $52.2 million in 2001, from $42.3 million in 2000. As a percentage
of total revenues, R&D expense increased to 11.0% in 2001, from 10.6% in 2000.
The Company did not capitalize any software development costs during 2001 and
2000.

The overall increase in the R&D expenditures between periods is due
primarily to increased efforts on several products that are in development and
enhancements of the Company's existing products. The Company's development
efforts for 2001 were focused primarily on the development of products to:

. address the international customer care and billing system market;

. increase the efficiencies and productivity of its clients' operations;

. address the systems needed to support the convergence of the
communications markets;

. support a web-enabled, customer self-care and electronic bill
presentment/payment application; and

. allow clients to effectively roll out new products and services to new
and existing markets, such as residential telephony, high-speed data/ISP
and IP markets, and interactive services (e.g., video-on-demand).

The Company expects its development efforts to focus on similar tasks in
2002 and expects to spend a similar percentage of its total revenues on R&D in
the future.

Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense increased $4.5 million, or 9.7%, to $51.5
million in 2001, from $47.0 million in 2000. The increase in SG&A expense
relates primarily to sales and administrative costs to support the Company's
overall growth, its international business expansion and its merger and
acquisition activities. As a percentage of total revenues, SG&A expense
decreased to 10.8% in 2001, from 11.8% in 2000.

Amortization of Noncompete Agreements and Goodwill. Amortization of
noncompete agreements and goodwill remained relatively unchanged between years
and represents amortization expense on goodwill acquired prior to July 1,
2001. Due to a change in accounting rules, the amortization of goodwill
resulting from any acquisitions occurring after June 30, 2001, will cease. See
Note 2 to the Company's Consolidated Financial Statements for additional
discussion of the financial accounting and reporting for acquired goodwill.

Depreciation Expense. Depreciation expense increased $2.5 million, or 20.4%,
to $14.5 million in 2001, from $12.1 million in 2000. The increase in expense
relates to capital expenditures made throughout 2001 and 2000 in support of
the overall growth of the Company. Capital expenditures for 2001 were $20.4
million, compared to $22.2 million in 2000, and consisted principally of: (i)
computer hardware and related equipment for both product and infrastructure
needs, (ii) statement processing equipment; and (iii) facilities and internal
infrastructure expansion. Depreciation expense for all property and equipment
is reflected separately in the aggregate and is not included in the other
components of operating expenses.

Operating Income. Operating income was $182.0 million for 2001, or 38.1% of
total revenues, compared to $145.3 million for 2000, or 36.4% of total
revenues. The increase between years relates to the factors discussed above.

21

Interest Expense. Interest expense decreased $2.8 million, or 47.7%, to $3.0
million in 2001, from $5.8 million in 2000, with the decrease attributable
primarily to scheduled principal payments on the Company's long-term debt and
a decrease in interest rates. The balance of the Company's long-term debt as
of December 31, 2001, was $31.5 million, compared to $58.3 million as of
December 31, 2000, a decrease of $26.8 million.

Interest and Investment Income, Net. Interest and investment income, net,
decreased $1.3 million, or 22.5%, to $4.5 million in 2001, from $5.8 million
in 2000, with the decrease attributable primarily to the Company recording a
charge of $0.7 million for an "other-than-temporary" decline in market value
for a short-term investment and due to a decrease in returns on short-term
investments.

Income Tax Provision. The Company recorded an income tax provision of $69.5
million in 2001, or an effective income tax rate of approximately 38%. The
Company's effective income tax rate for 2000 was also approximately 38%. As of
December 31, 2001, management continues to believe that sufficient taxable
income will be generated to realize the entire benefit of its deferred tax
assets. The Company's assumptions of future profitable operations are
supported by its strong operating performances over the last several years.

Twelve Months Ended December 31, 2000 Compared to Twelve Months Ended
December 31, 1999.

Revenues. Total revenues increased $76.7 million, or 23.8%, to $398.9
million in 2000, from $322.2 million in 1999.

Revenues from processing and related services increased $39.6 million, or
15.5%, to $294.8 million in 2000, from $255.2 million in 1999. Of the total
increase in revenue, approximately 80% was due to the Company serving a higher
number of customers for its clients and approximately 20% was due to increased
revenue per customer. Customers served were as follows (in thousands):

As of December 31,
--------------------
2000 1999 Change
------ ------ ------

Video................................................. 33,310 32,326 984
Internet.............................................. 1,984 1,350 634
Telephony............................................. 514 77 437
------ ------ -----
Total............................................... 35,808 33,753 2,055
====== ====== =====

The increase in the number of customers served was due to the conversion of
additional customers by new and existing clients to the Company's processing
system, and internal customer growth experienced by existing clients. During
2000, the Company converted and processed approximately 1.25 million new
customers on its systems.

Total processing revenue per video and Internet account was as follows:

For the years
ended December 31,
------------------
2000 1999 Change
----- ----- ------

Video Account........................................... $8.42 $8.03 4.9%
Internet Account........................................ 5.05 4.71 7.2%

The increase in processing revenue per account relates primarily to: (i)
increased usage of ancillary services by clients; (ii) the introduction of new
products and services; and (iii) price increases included in client contracts.

Revenues from software and professional services increased $37.1 million, or
55.4% to $104.1 million in 2000, from $67.0 million in 1999. The increase in
revenue between years relates to the continued strong demand for the Company's
existing software products, primarily its customer relationship management and
call center applications (principally ACSR), and the rollout of additional new
products and services to meet the changing needs of the Company's client base.

22

Cost of Processing and Related Services. Processing costs as a percentage of
related revenues were 36.3% for 2000, compared to 37.5% for 1999. This
decrease in costs as a percentage of related revenues is due primarily to the
decrease in amortization of client contracts and related intangibles by $3.1
million between years. This decrease in amortization expense is due primarily
to the client contracts and related intangibles from the CSG Acquisition
becoming fully amortized as of November 30, 1999 (such amortization was $2.8
million in 1999).

Cost of Software and Professional Services. The cost of software and
professional services as a percentage of related revenues was 42.8% for 2000,
compared to 54.4% for 1999. This decrease in costs as a percentage of related
revenues is due primarily to: (i) better overall leveraging of costs as a
result of higher software and professional services revenues for the year; and
(ii) the timing of the sales cycle for new products and services.

Gross Margin. Overall gross margin increased $57.3 million, or 30.2%, to
$247.4 million in 2000, from $190.0 million in 1999, due primarily to revenue
growth. The overall gross margin as a percentage of total revenues increased
to 62.0% in 2000, compared to 59.0% in 1999. The overall increase in the gross
margin percentage is due primarily to the increase in gross margin for
software and professional services as a result of the factors discussed above,
and to a lesser degree, a decrease in the amortization of client contracts and
related intangibles, as discussed above.

Research and Development Expense. R&D expense increased $8.0 million, or
23.1%, to $42.3 million in 2000, from $34.4 million in 1999. As a percentage
of total revenues, R&D expense decreased to 10.6% in 2000, from 10.7% in 1999.
The Company did not capitalize any software development costs during 2000 and
1999.

The overall increase in the R&D expenditures between periods is due
primarily to increased efforts on several products that are in development and
enhancements of the Company's existing products. The Company's development
efforts for 2000 were focused primarily on the development of products to:

. increase the efficiencies and productivity of its clients' operations;

. address the systems needed to support the convergence of the
communications markets;

. support a web-enabled, customer self-care and electronic bill
presentment/payment application;

. allow clients to effectively roll out new products and services to new
and existing markets, such as residential telephony, high-speed data/ISP
and IP markets, and interactive services (e.g., video-on-demand); and

. address the international customer care and billing system market.

Selling, General and Administrative Expense. SG&A expense increased $6.8
million, or 17.0%, to $47.0 million in 2000, from $40.1 million in 1999. As a
percentage of total revenues, SG&A expense decreased to 11.8% in 2000, from
12.4% in 1999. The increase in SG&A expense relates primarily to the continued
expansion of the Company's sales, management, and administrative staff, and
increases in other sales and administrative costs to support the Company's
overall growth.

Amortization of Noncompete Agreements and Goodwill. Amortization of
noncompete agreements and goodwill decreased $4.2 million, or 86.8%, to $0.6
million in 2000, from $4.9 million in 1999. The decrease in amortization
expense is due entirely to the noncompete agreement from the CSG Acquisition
becoming fully amortized as of November 30, 1999.

Depreciation Expense. Depreciation expense increased $1.9 million, or 18.5%,
to $12.1 million in 2000, from $10.2 million in 1999. The increase in expense
relates to capital expenditures made throughout 2000 and 1999 in support of
the overall growth of the Company. Capital expenditures for 2000 were $22.2
million, compared to $12.0 million in 1999, and consisted principally of: (i)
computer hardware and related equipment for both product and infrastructure
needs; (ii) statement processing equipment; and (iii) facilities and internal
infrastructure expansion. Depreciation expense for all property and equipment
is reflected separately in the aggregate and is not included in the other
components of operating expenses.

23

Operating Income. Operating income was $145.3 million for 2000, or 36.4% of
total revenues, compared to $100.2 million for 1999, or 31.1% of total
revenues. The increase between years relates to the factors discussed above.

Interest Expense. Interest expense decreased $1.4 million, or 19.5%, to $5.8
million in 2000, from $7.2 million in 1999, with the decrease attributable
primarily to: (i) scheduled principal payments on the Company's long-term
debt; and (ii) optional prepayments on long-term debt during 1999. The balance
of the Company's long-term debt as of December 31, 2000, was $58.3 million,
compared to $81.0 million as of December 31, 1999, a decrease of $22.7
million.

Interest and Investment Income, Net. Interest and investment income, net,
increased $2.8 million, or 93.3%, to $5.8 million in 2000, from $3.0 million
in 1999, with the increase attributable primarily to an increase in operating
funds available for investment.

Income Tax Provision. The Company recorded an income tax provision of $54.7
million in 2000, or an effective income tax rate of approximately 38%. The
Company's effective income tax rate for 1999 was also approximately 38%.

Financial Condition, Liquidity and Capital Resources

As of December 31, 2001, the Company's principal sources of liquidity
included cash, cash equivalents, and short-term investments of $83.6 million
and a revolving credit facility with a bank in the amount of $40.0 million, of
which there were no borrowings outstanding as of December 31, 2001. During
2000, the Company began investing its excess cash balances in various short-
term investments (principally commercial paper). See Note 2 to the Company's
Consolidated Financial Statements for additional discussion of the short-term
investments. The Company's ability to borrow under the revolving credit
facility is subject to maintenance of certain levels of eligible receivables.
At December 31, 2001, all of the $40.0 million revolving credit facility was
available to the Company. The revolving credit facility expires in September
2002. The Company's working capital as of December 31, 2001 and 2000 was $80.8
million and $81.3 million, respectively.

As of December 31, 2001 and 2000, the Company had $92.4 million and $128.9
million, respectively, in net billed trade accounts receivable, a decrease of
$36.5 million. The decrease relates primarily to a large receivable from a
software transaction that was outstanding at December 31, 2000. The payment
terms on this transaction were scheduled three weeks across yearend to assist
the client in its capital planning. See Note 2 to the Company's Consolidated
Financial Statements for additional discussion of the Company's yearend
accounts receivable balance and its concentration of credit risk.

The Company's trade accounts receivable balance includes billings for
several non-revenue items (primarily postage, sales tax, and deferred 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.
Accounts receivable reflected DBOs of 52 days for both the quarter and year
ended December 31, 2001 compared to 72 days and 61 days for the quarter and
year ended December 31, 2000, respectively. The decrease in fourth quarter and
annual DBOs between years relates primarily to the large decrease in the
December 31, 2001 net billed accounts receivable, for the reason stated above.

As of December 31, 2001 and 2000, respectively, the Company had $12.5
million and $4.3 million of unbilled trade receivables. The increase in the
unbilled trade receivables between periods relates primarily to the timing of
billings on items for which revenue has been recognized as of December 31,
2001. Approximately $7.7 million of the December 31, 2001 unbilled trade
receivables balance will be billed in the first quarter of 2002, and is
scheduled to be collected early in the second quarter of 2002. The majority of
the remaining unbilled trade receivables balance relates to recurring unbilled
amounts for postage due to monthly billing cutoffs.

24

The Company's net cash flows from operating activities for the years ended
December 31, 2001, 2000 and 1999 were $180.1 million, $66.8 million and $102.1
million, respectively. The increase of $113.3 million, or 169.7%, between 2001
and 2000 relates to an increase in the net changes in operating assets and
liabilities of $76.0 million and a $37.3 million increase in net cash flows
from operations. The increase in the net changes in operating assets and
liabilities relates primarily to the Company's agreement to extend the payment
terms on a large software transaction three weeks across its 2000 yearend.
Factoring out the impact of scheduling this payment across yearend, the net
cash flows from operating activities for the years ended December 31, 2001 and
2000 would have been $142.8 million and $104.1 million, respectively. The
decrease in net cash flows from operating activities of $35.3 million, or
34.6%, between 2000 and 1999 relates to a decrease in the net changes in
operating assets and liabilities of $62.4 million, offset by a $27.1 million
increase in net cash flows from operations.

The Company's net cash flows used in investing activities for the years
ended December 31, 2001, 2000 and 1999 were $87.3 million, $34.8 million and
$36.7 million, respectively. The increase of $52.5 million, or 150.6% between
2001 and 2000 relates primarily to the acquisition of plaNet Consulting for
$16.7 million and an increase in net purchases of short-term investments of
$30.9 million. The decrease of $1.9 million, or 5.1%, between 2000 and 1999
relates primarily to a decrease of $23.6 million in acquisitions of and
investments in client contracts. This decrease is offset by: (i) net purchases
of short-term investments of $11.5 million in 2000; and (ii) an increase in
property and equipment purchases of $10.2 million.

The Company's net cash flows used in financing activities for the years
ended December 31, 2001, 2000 and 1999 were $95.2 million, $47.4 million, and
$56.1 million, respectively. The increase of $47.8 million, or 100.9%, between
2001 and 2000 relates primarily to an increase in stock repurchases of $58.4
million, as discussed below. The increase is offset by an increase in the
proceeds from the exercise of stock options and warrants of $14.7 million. The
decrease between 2000 and 1999 relates primarily to: (i) a decrease in
principal payments on long-term debt of $24.5 million (the Company made
several large optional debt prepayments in 1999); and (ii) an increase of
$15.0 million in proceeds from the exercise of stock options and warrants, and
other equity matters. This decrease is offset by an increase in stock
repurchases of $30.8 million.

Earnings before interest, taxes, depreciation and amortization ("EBITDA")
for 2001 was $203.9 million, or 42.7% of total revenues, compared to $164.0
million, or 41.1% of total revenues, for 2000. EBITDA is presented here as a
measure of the Company's debt service ability and is not intended to represent
cash flows for the periods in accordance with generally accepted accounting
principles.

The balance of the Company's long-term debt as of December 31, 2001 was
$31.5 million, compared to $58.3 million as of December 31, 2000, a decrease
of $26.8 million. Interest rates for the Company's long-term debt and
revolving credit facility are chosen at the option of the Company and are
based on the LIBOR rate or the prime rate, plus an additional percentage
spread, with the spread dependent upon the Company's leverage ratio. As of
December 31, 2001, the spread on the LIBOR rate and prime rate was 0.50% and
0%, respectively. The remaining principal balance of the Company's existing
long-term debt was refinanced subsequent to yearend in conjunction with the
Kenan Acquisition.

In August 1999, the Company's Board of Directors approved a stock repurchase
program which authorized the Company at its discretion to purchase up to a
total of 5.0 million shares of its Common Stock from time-to-time as market
and business conditions warrant. In September 2001, the Board of Directors
amended the program to authorize the Company to purchase up to a total of 10.0
million shares. During 2001 and 2000, the Company repurchased 3.0 million
shares (including the 2.0 million shares repurchased as part of the AT&T
warrant exercise discussed below) and 1.1 million shares for $109.5 million
and $51.1 million, respectively. The repurchased shares are held as treasury
shares. As of December 31, 2001, the shares repurchased under the Company's
stock repurchase program totaled 4.8 million shares at a total cost of $180.8
million (weighted-average price of $37.94 per share). See Note 9 to the
Company's Consolidated Financial Statements for additional discussion of the
stock repurchase program.

25

On February 28, 2001, AT&T exercised its rights under a warrant agreement to
purchase 2.0 million shares of the Company's Common Stock at an exercise price
of $12.00 per share, for a total exercise price of $24.0 million. Immediately
following the exercise, the Company repurchased the 2.0 million shares at
$37.00 per share (approximates the closing price on February 28, 2001) for a
total repurchase price of $74.0 million, pursuant to the Company's stock
repurchase program. As a result, the net cash outlay paid to AT&T for this
transaction was $50.0 million, which was paid by the Company with available
corporate funds on March 28, 2001. After this transaction, AT&T no longer has
any warrants or other rights to purchase the Company's Common Stock.

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 expects to
expand its international business and is continually evaluating potential
business and asset acquisitions. Except for the Company's commitments related
to the Kenan Acquisition as discussed below, the Company had no significant
capital commitments as of December 31, 2001. The Company believes that cash
generated from operating activities, together with its current cash, cash
equivalents, short-term investments, and the amount available under its
revolving credit facility, will be sufficient to meet its anticipated cash
requirements for operations, income taxes, debt service, capital expenditures,
investments in client contracts, and stock repurchases for both its short- and
long-term purposes. The Company also believes it has significant additional
borrowing capacity and could obtain additional cash resources by amending its
current credit facility and/or establishing a new credit facility.

The SEC has recently recommended that registrants present aggregated
information about their contractual obligations and commercial commitments as
of the latest balance sheet date in a single location in Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
Company's material contractual obligations and commercial agreements consist
primarily of long-term debt and operating leases/service agreements, as
discussed in Notes 5 and 8, respectively, to the Company's Consolidated
Financial Statements. The Company believes these disclosures are concisely
presented in these notes, and therefore, separate disclosure in a single table
here is not necessary.

See the section titled "Significant Business Acquisition Subsequent to
December 31, 2001" below for a discussion of the expected impact on the
Company's financial condition, liquidity and capital resources of a material
business acquisition that closed on February 28, 2002.

AT&T Contract

Dependence on AT&T. AT&T completed its merger with Tele-Communications, Inc.
("TCI") in 1999 and completed its merger with MediaOne Group, Inc.
("MediaOne") in 2000. During the years ended December 31, 2001, 2000 and 1999,
revenues from AT&T Broadband and affiliated companies ("AT&T") represented
approximately 55.8%, 50.4% and 50.5% of total Company revenues, respectively.
The increase in the percentage between periods relates primarily to AT&T's
customer growth and the timing and the amount of software and services
purchased by AT&T. There are inherent risks whenever this large of a
percentage of total revenues is concentrated with one client. One such risk is
that, should AT&T's business generally decline, it would have a material
impact on the Company's future results of operations.

AT&T Demand for Arbitration. On September 27, 2000, the Company received a
Demand for Arbitration from AT&T relating to the Master Subscriber Management
System Agreement (the "AT&T Contract") the companies entered into in 1997. In
the arbitration demand, AT&T: (i) claimed that the Company had failed to
fulfill certain of its obligations under the contract with respect to
telephony software and services; (ii) asked for a declaratory judgment that
the exclusivity clause of the AT&T Contract does not apply to customers that
were acquired by AT&T after execution of the AT&T Contract in 1997; and (iii)
claimed that the Company had breached the Most Favored Nation clause of the
agreement.

On October 10, 2000, AT&T agreed to dismiss its Demand for Arbitration with
the Company. In connection with the dismissal, the companies agreed to amend
the AT&T Contract. A copy of the contract amendment was

26

included in the exhibits to the Company's September 30, 2000 Report on Form
10-Q, and some of the contract terms, as amended, are summarized below. See
the Company's 2000 Annual Report on Form 10-K for additional discussion of the
Demand for Arbitration.

AT&T Considering the Initiation of Arbitration. On March 13, 2002, AT&T
Broadband notified the Company that AT&T is "considering" the initiation of
arbitration against the Company relating to the AT&T Contract.

The letter states that AT&T's decision whether to seek arbitration is
subject to the parties exhausting the negotiation process specified in the
AT&T Contract. That dispute resolution portion of the agreement calls for
senior officers from each company to meet promptly and for a period of not
less than 30 days in an effort to resolve the dispute.

AT&T stated that any action to terminate the AT&T Contract would be based
upon the following claims. First, AT&T claims 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 AT&T Contract. Second, the letter states that the Company has not
cooperated with AT&T in utilizing another vendor to provide aggregated billing
services, as well as the Company's improper assertion of its exclusivity
rights. Third, the letter claims that the Company has breached the Most
Favored Nations clause of the AT&T Contract.

The letter further states that should a negotiated resolution not be
achieved, AT&T could elect to seek a declaration that it is entitled to
terminate the AT&T Contract on the fifth anniversary of the contract which is
August 10, 2002.

The Company denies that it is in breach of the AT&T Contract. As of the date
of this filing, discussions were ongoing with AT&T in an effort to resolve the
dispute. It is impossible to predict at this time when or how any resolution
will be forthcoming. Should AT&T be successful in its claims, or in
terminating the AT&T Contract in whole or in part, it would have a material
adverse effect on the financial condition of the Company and its overall
future operations.

While the substance of the negotiations between the Company and AT&T 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 the resolution of the dispute is highly in
flux as of the date of this filing.

Contract Rights and Obligations (as amended). The AT&T Contract expires in
2012. The AT&T Contract has minimum financial commitments (based upon
processing 13 million wireline video customers) over the term of the contract
and includes exclusive rights to provide customer care and billing products
and services for AT&T's offerings of wireline video, all Internet/high-speed
data services, and print and mail services. During the fourth quarter of 2000,
the Company relinquished its exclusive rights to process AT&T's wireline
telephony customers, and those AT&T customers were fully converted to another
service provider by the end of 2001. The Company does not expect the loss of
these customers to have a material impact on the Company's future results of
operations.

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

On December 19, 2001, AT&T and Comcast Corporation ("Comcast") announced
that their board of directors approved a definitive agreement to combine AT&T
Broadband with Comcast. Under the reported terms of the definitive agreement,
AT&T will spin off AT&T Broadband and simultaneously merge it with Comcast,

27

forming a new company to be called AT&T Comcast Corporation. It is premature
at this time to speculate what impact this transaction will have on the
Company's operations, if any. The Company believes the AT&T Contract would
remain in effect in the event there is a change in control of AT&T Broadband.

The AT&T Contract contains certain performance criteria and other
obligations to be met by the Company. 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 AT&T would be 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 AT&T Contract's
technical audit requirements.

The Company expects to continue to perform successfully under the AT&T
Contract, and is hopeful that it can continue to sell products and services to
AT&T that are in excess of the minimum financial commitments and exclusive
rights included in the contract. Should the Company fail to meet its
obligations under the AT&T Contract, and should AT&T be successful in any
action to either terminate the AT&T Contract in whole or in part, or collect
damages caused by an alleged breach, it would have a material adverse impact
on the Company's results of operations.

A copy of the AT&T Contract 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 those documents for further details.

Market Risk

The Company is exposed to various market risks, including changes in
interest rates, foreign currency exchange rates, and fluctuations and changes
in the market value of its short-term investments. 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. The Company had long-term debt of $31.5 million as of
December 31, 2001. Interest rates for the debt are chosen at the option of the
Company and are based on the LIBOR rate or the prime rate, plus an additional
percentage spread, with the spread dependent upon the Company's leverage
ratio. As of December 31, 2001, the spread on the LIBOR rate and prime rate
was 0.50% and 0%, respectively. As of December 31, 2001, the debt was under
two LIBOR contracts, with a weighted average interest rate of 2.73% (i.e.,
LIBOR at 2.23% plus spread of 0.50%). The carrying amount of the Company's
long-term debt approximates fair value due to its variable interest rate
features. See Note 5 to the Consolidated Financial Statements for additional
description of the long-term debt and scheduled principal payments.

The Company utilizes a derivative financial instrument to manage its
interest rate risk from the variable rate features of its long-term debt. In
December 1997, the Company entered into a three-year interest rate collar with
a major bank to manage its risk from its variable rate long-term debt. Upon
expiration of this collar agreement in December 2000, the Company entered into
an interest rate cap agreement with a major bank, which expires at the
maturity date of the long-term debt in September 2002. The cost of the cap
agreement was minimal. The interest rate cap is 9.0% (LIBOR) and the
underlying notional amount covered by the cap agreement was $16.4 million as
of December 31, 2001, and decreases over the term of the agreement in relation
to the scheduled principal payments on the long-term debt. There are no
amounts receivable under this cap agreement as of December 31, 2001, and the
collar and the cap agreements had no effect on the Company's interest expense
for 2001, 2000, or 1999. At December 31, 2001, the fair value of the cap
agreement is insignificant.

28

Foreign Exchange Rate Risk. The Company does not utilize any derivative
financial instruments for purposes of managing its foreign currency exchange
rate risk. The Company's foreign currency transactions relate almost entirely
to the operations conducted through its United Kingdom ("UK") subsidiary,
CSG International Limited ("CSGI"). CSGI's transactions are executed primarily
within the UK and generally are denominated in British pounds and U.S.
dollars. Exposure to variability in currency exchange rates is mitigated by
the fact that purchases and sales are typically in the same currency with
similar maturity dates and amounts and certain transactions are denominated in
U.S. dollars. A hypothetical adverse change of 10% in yearend exchange rates
would not have a material effect upon the Company's financial condition or
results of operations.

Market Risk Related To Short-term Investments. The Company does not utilize
any derivative financial instruments for purposes of managing its market risks
related to short-term investments. The Company generally invests its excess
cash balance in low-risk, short-term investments to limit its exposure to
market risks. The day-to-day management of the Company's short-term
investments is done by the money management branch of one of the largest
financial institutions in the United States. This financial institution
manages the Company's short-term investments based upon strict and formal
investment guidelines established by the Company. Under these guidelines,
investments are limited to highly liquid, short-term government and corporate
securities that have a credit rating of A-1/P-1 or better.

See the section titled "Significant Business Acquisition Subsequent to
December 31, 2001" below for a discussion of the expected impact on the
Company's market risk of a material business acquisition that closed on
February 28, 2002.

Significant Business Acquisition Subsequent to December 31, 2001

Description of Business. On December 21, 2001, the Company reached an
agreement to acquire the billing and customer care assets of Lucent
Technologies Inc. ("Lucent"). Lucent's billing and customer care business
consists primarily of: (i) software products and related consulting services
acquired by Lucent when it purchased Kenan Systems Corporation in 1999; (ii)
BILLDATS Data Manager mediation software; (iii) software and related
technologies developed by Lucent's Bell Laboratories; and (iv) elements of
Lucent's sales and marketing organization (collectively, the "Kenan
Business"). On February 28, 2002, the Company completed the acquisition (the
"Kenan Acquisition").

The Kenan Business is a global provider of convergent billing and customer
care software and services that enable communications service providers to
bill their customers for a wide variety of existing and next-generation
services, including mobile, Internet, wireline telephony, cable, satellite,
and energy and utilities, all on a single invoice. The software supports
multiple languages and currencies. The Kenan Business' primary product
offerings include: (i) Arbor/BP (a core convergent billing platform); (ii)
Arbor/OM (an order management platform); and (iii) BILLDATS Data Manager (a
billing mediation software product). Historically, a significant portion of
Kenan Business revenues have been generated outside the United States.

As a result of the Kenan Acquisition, the Company has: (i) added proven
products to the Company's product suite; (ii) added international
infrastructure in Europe, Asia Pacific and Latin America; (iii) diversified
its customer base by adding over 230 customers in more than 40 countries; (iv)
diversified its product offerings to encompass all segments of the
communications market, including Internet Protocol, mobile, wireline
telephony, cable, and satellite; (v) acquired solid relationships with leading
systems integrators worldwide; and (vi) gained the opportunity to leverage the
Company's software solutions into the Kenan Business' diverse customer base.
In connection with the Kenan Acquisition, the Company has reorganized its
business into two segments: the Global Software Services Division and the
Broadband Services Division.

The results of Kenan Business' operations will be included in the Company's
Consolidated Financial Statements from March 1, 2002 forward.

29

Acquisition Price. At closing on February 28, 2002, the aggregate purchase
price was approximately $263 million in cash, which may be adjusted based upon
the results of an audit of the Kenan Business' net assets as of closing, plus
estimated transaction costs of approximately $5 million. Based on preliminary
estimates of the unaudited net assets acquired, the Company is currently
estimating the purchase price premium to be in the range of $225 million to
$250 million. The Company is in the process of obtaining third-party
valuations of certain intangible assets, thus the allocation of the purchase
price is subject to refinement. Based on preliminary valuation reports from
the third parties, the Company expects the purchase price premium to be
allocated as follows: (i) acquired software--20% to 22%; (ii) acquired
contracts--2% to 3%; (iii) purchased in-process research and development
assets to be charged to expense at the date of acquisition--8% to 9%; and (iv)
goodwill--66% to 70%.

Credit Facilities. On February 28, 2002, CSG Systems, Inc., a wholly-owned
subsidiary of the Company, closed on a $400 million senior secured credit
facility (the "Senior Facility") with a syndicate of banks, financial
institutions and other entities. The proceeds of the Senior Facility will be
used: (i) to fund the Kenan Acquisition; (ii) pay related fees and expenses;
(iii) refinance existing indebtedness; and (iv) provide financing for general
corporate purposes. The Senior Facility consists of a $100 million, five-year
revolving credit facility (the "Revolver"), a $125 million, five-year Tranche
A Term Loan, and a $175 million, six-year Tranche B Term Loan. Upon closing of
the Kenan Acquisition, the entire amounts of the Tranche A Term Loan and
Tranche B Term Loan were drawn down. The Senior Facility is guaranteed by the
Company and each of the Company's direct and indirect domestic subsidiaries.

The interest rates for the Senior Facility are chosen at the option of the
Company and are based on a base rate or LIBOR rate, plus an applicable margin.
The base rate represents the higher of the floating prime rate for domestic
commercial loans and a floating rate equal to 50 basis points in excess of the
Federal Funds Effective Rate. The applicable margins for the Tranche B Loan is
1.50% for base rate loans and 2.75% for LIBOR loans. As of February 28, 2002,
the applicable margins for the Revolver and the Tranche A Loan were 1.25% for
base rate loans and 2.50% for LIBOR loans. After September 30, 2002, the
applicable margins for the Revolver and the Tranche A Loan will be dependent
upon the Company's leverage ratio and will range from 0.75% to 1.50% for base
rate loans and 2.00% to 2.75% for LIBOR loans. As of February 28, 2002, the
base rate was 4.75%, and the LIBOR rate was 1.87% for one-month and 1.90% for
3-month LIBOR contracts. The Company pays a commitment fee equal to 0.50% per
annum on the average daily unused portion of the Revolver, which rate after
September 30, 2002 is subject to reduction to 0.375% once the Company achieves
a certain leverage ratio.

The Senior Facility is collateralized by substantially all of the Company's
domestic tangible and intangible assets and the stock of the Company's
domestic subsidiaries. The Senior Facility requires maintenance of certain
financial ratios, including: (i) a leverage ratio; (ii) an interest coverage
ratio; and (iii) a fixed charge coverage ratio. The Senior Facility contains
other restrictive covenants, including: (i) restrictions on additional
indebtedness; (ii) cash dividends and other payments related to the Company's
capital stock; and (iii) capital expenditures and investments. The Senior
Facility also requires that CSG Systems, Inc. assets and liabilities remain
separate from the assets and liabilities of the remainder of the Company's
consolidated operations, including the maintenance of separate deposit and
other bank accounts.

The original combined scheduled maturities of the Tranche A Loan and the
Tranche B Loan are: 2002--$15.4 million; 2003--$20.5 million; 2004--$25.2
million; 2005--$31.4 million; 2006--$33.0 million; 2007--$132.9 million; and
2008--$41.6 million. The Senior Facility has no prepayment penalties and
requires mandatory prepayments if certain events occur, including: (i) the
sale or issuance of the Company's common stock; (ii) the incurrence of certain
indebtedness; (iii) the sale of assets except in the ordinary course of
business; (iv) the termination of material processing services contracts; and
(v) the achievement of a certain level of excess cash flows (as defined in the
Senior Facility).

On March 21, 2002, the Company made a $30.0 million prepayment on the Senior
Facility.

In conjunction with the Senior Facility, the Company incurred financing
costs totaling approximately $10 million, which will be amortized to interest
expense over the related term of the Senior Facility.

30

The Kenan Acquisition will result in a significant change to the Company's
Consolidated Financial Statements, to include impacts on liquidity, capital
resources and results of operations. Key items are as follows:

. The acquisition will change the manner in which the Company manages its
business. The Company will now operate using two business segments: the
Global Software Services Division and the Broadband Services Division.

. As a result of the acquisition, the Company expects to incur significant
one-time charges, to include: (i) purchased in-process research and
development costs as discussed above; (ii) costs to integrate the Kenan
Business; and (iii) significant costs to exit current contracts or
activities.

. The Company expects to continue to sell its software products based upon
multiple measures of capacity, using both perpetual and term licensing
arrangements.

. The acquisition is expected to increase the Company's effective income
tax rate, especially in the near term as the Company develops and
implements its international tax structure.

. The acquisition is expected to have a significant impact on the manner in
which the Company manages its exposure to market risks (interest rates
and foreign currency exchange rates). As a result, the Company expects to
implement a formal corporate market risk management program that may
include the use of interest rate and foreign currency hedge instruments.

. The acquisition is expected to change the principal concentration of
credit risk related to accounts receivables, as the Company moves from
having its primary counterparties being large, established companies
located in the United States, to being a wide range of clients located
primarily in North America, Central and South America,
Europe/MiddleEast/Africa and Asia-Pacific. Such changes in the client
base may adversely impact the Company's DBO.

. As discussed above, the acquisition has had a significant impact on the
Company's long-term debt, to include the amount of interest expense
expected to be incurred in the future (estimated to be approximately
$13.0 million in 2002 based upon February 28, 2002 LIBOR rates and
factoring in the $30.0 million debt prepayment made on March 21, 2002),
and the debt covenants the Company must operate under. One debt covenant
under the new credit facilities would restrict the amount of Common Stock
the Company can purchase under its stock repurchase program.

On March 14, 2002, the Company filed a Form 8-K related to the Kenan
Acquisition. On or about May 13, 2002, the Company will file a Form 8-K/A that
will include historical audited financial statements of the acquired net
assets and operations of the Kenan Business and unaudited pro forma financial
information.

31

Item 8. Financial Statements and Supplementary Data

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Report of Independent Public Accountants.................................. 33
Consolidated Balance Sheets as of December 31, 2001 and 2000.............. 34
Consolidated Statements of Income for the Years Ended December 31, 2001,
2000 and 1999............................................................ 35
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999......................................... 36
Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999...................................................... 37
Notes to Consolidated Financial Statements................................ 38

32

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To CSG Systems International, Inc.:

We have audited the accompanying consolidated balance sheets of CSG Systems
International, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CSG Systems International,
Inc. and Subsidiaries as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

Arthur Andersen llp

Omaha, Nebraska,
February 28, 2002

33

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

December 31,
------------------
2001 2000
-------- --------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 30,165 $ 32,751
Short-term investments.................................... 53,434 10,982
-------- --------
Total cash, cash equivalents and short-term investments... 83,599 43,733
Accounts receivable--
Trade--
Billed, net of allowance of $6,310 and $5,001............ 92,418 128,902
Unbilled................................................. 12,541 4,306
Other..................................................... 1,716 1,259
Deferred income taxes..................................... 5,549 3,247
Other current assets...................................... 8,676 7,507
-------- --------
Total current assets...................................... 204,499 188,954
Property and equipment, net................................ 42,912 36,630
Software, net.............................................. 3,387 4,284
Goodwill, net.............................................. 13,461 1,894
Client contracts, net...................................... 67,012 52,368
Deferred income taxes...................................... 40,394 47,331
Other assets............................................... 2,381 628
-------- --------
Total assets.............................................. $374,046 $332,089
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 31,500 $ 25,436
Client deposits........................................... 14,565 12,391
Trade accounts payable.................................... 11,408 14,850
Accrued employee compensation............................. 19,326 19,147
Deferred revenue.......................................... 9,850 8,172
Accrued income taxes...................................... 17,215 15,633
Other current liabilities................................. 19,846 12,008
-------- --------
Total current liabilities................................. 123,710 107,637
-------- --------
Non-current liabilities:
Long-term debt, net of current maturities................. -- 32,820
Deferred revenue.......................................... 288 463
-------- --------
Total non-current liabilities............................. 288 33,283
-------- --------
Commitments and contingencies (Note 8)
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; 9,414,623 and 11,840,333 shares reserved for
common stock warrants, employee stock purchase plan and
stock incentive plans; 52,663,852 and 52,530,203 shares
outstanding.............................................. 575 543
Common stock warrants; zero and 2,000,000 warrants issued
and outstanding.......................................... -- 17,430
Additional paid-in capital................................ 252,221 180,750
Treasury stock, at cost, 4,850,986 and 1,830,986 shares... (180,958) (71,497)
Accumulated other comprehensive income (loss):
Foreign currency translation.............................. (792) (654)
Unrealized gain (losses) on short-term investments, net of
tax...................................................... 134 (350)
Accumulated earnings (deficit)............................ 178,868 64,947
-------- --------
Total stockholders' equity................................ 250,048 191,169
-------- --------
Total liabilities and stockholders' equity................ $374,046 $332,089
======== ========

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

34

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------

Revenues:
Processing and related services................ $339,258 $294,809 $255,167
Software and professional services............. 137,650 104,086 66,995
-------- -------- --------
Total revenues................................ 476,908 398,895 322,162
-------- -------- --------
Expenses:
Cost of processing and related services........ 121,983 107,022 95,706
Cost of software and professional services..... 54,032 44,515 36,415
-------- -------- --------
Total cost of revenues........................ 176,015 151,537 132,121
-------- -------- --------
Gross margin (exclusive of depreciation)........ 300,893 247,358 190,041
-------- -------- --------
Operating expenses:
Research and development....................... 52,223 42,338 34,388
Selling, general and administrative:
Selling, general and administrative............ 51,527 46,970 40,142
Amortization of noncompete agreements and
goodwill...................................... 622 643 4,889
Stock-based employee compensation.............. -- 48 280
Depreciation................................... 14,546 12,077 10,190
-------- -------- --------
Total operating expenses...................... 118,918 102,076 89,889
-------- -------- --------
Operating income................................ 181,975 145,282 100,152
-------- -------- --------
Other income (expense):
Interest expense............................... (3,038) (5,808) (7,214)
Interest and investment income, net............ 4,466 5,761 2,981
Other.......................................... 39 (32) 10
-------- -------- --------
Total other................................... 1,467 (79) (4,223)
-------- -------- --------
Income before income taxes...................... 183,442 145,203 95,929
Income tax provision .......................... (69,521) (54,734) (36,055)
-------- -------- --------
Net income...................................... $113,921 $ 90,469 $ 59,874
======== ======== ========
Basic net income per common share:
Net income available to common stockholders.... $ 2.15 $ 1.73 $ 1.16
======== ======== ========
Weighted average common shares................. 52,891 52,204 51,675
======== ======== ========
Diluted net income per common share:
Net income available to common stockholders.... $ 2.08 $ 1.60 $ 1.10
======== ======== ========
Weighted average diluted common shares......... 54,639 56,680 54,660
======== ======== ========

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

35

CSG SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999
(in thousands)

Notes
Receivable Unrealized
Shares of and Deferred Gains
Common Common Additional Compensation Foreign (Losses) on Accumulated
Stock Common Stock Paid-in Related to Treasury Currency Short-Term Earnings
Outstanding Stock Warrants Capital Employees Stock Translation Investments (Deficit)
----------- ------ -------- ---------- ------------ ---------- ----------- ----------- -----------

BALANCE,
December 31,
1998........... 51,466 $515 $26,145 $120,599 $(806) $ (97) $ 38 $ -- $(85,396)
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 59,874
Foreign currency
translation
adjustments.... -- -- -- -- -- -- (158) -- --
Comprehensive
income......... -- -- -- -- -- -- -- -- --
Amortization of
deferred stock-
based employee
compensation
expense........ -- -- -- -- 280 -- -- -- --
Repurchase of
common stock... (656) -- -- -- -- (20,277) -- -- --
Common stock
swap for option
exercise....... -- -- -- 35 -- -- -- -- --
Exercise of
stock options.. 795 8 -- 10,000 -- -- -- -- --
Payments on
notes
receivable from
employee
stockholders... -- -- -- -- 363 -- -- -- --
Purchase of
common stock
pursuant to
employee stock
purchase plan.. 34 -- -- 926 -- -- -- -- --
Tax benefit of
stock options
exercised...... -- -- -- 4,813 -- -- -- -- --
------- ---- ------- -------- ----- ---------- ------ ----- ---------
BALANCE,
December 31,
1999........... 51,639 523 26,145 136,373 (163) (20,374) (120) -- (25,522)
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 90,469
Unrealized
losses on
short-term
investments
(net of tax
benefit of
$211).......... -- -- -- -- -- -- -- (350) --
Foreign currency
translation
adjustments.... -- -- -- -- -- -- (534) -- --
Comprehensive
income......... -- -- -- -- -- -- -- -- --
Amortization of
deferred stock-
based employee
compensation
expense........ -- -- -- -- 48 -- -- -- --
Repurchase of
common stock... (1,110) -- -- -- -- (51,123) -- -- --
Exercise of
stock options.. 971 10 -- 13,178 -- -- -- -- --
Exercise of
stock
warrants....... 1000 10 (8,715) 20,705 -- -- -- -- --
Payments on
notes
receivable from
employee
stockholders... -- -- -- -- 115 -- -- -- --
Purchase of
common stock
pursuant to
employee stock
purchase plan.. 30 -- -- 1,136 -- -- -- -- --
Tax benefit of
stock options
exercised...... -- -- -- 9,358 -- -- -- -- --
------- ---- ------- -------- ----- ---------- ------ ----- ---------
BALANCE,
December 31,
2000........... 52,530 543 17,430 180,750 -- (71,497) (654) (350) 64,947
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 113,921
Reclassification
adjustment for
loss included
in net income
(net of tax
benefit of
$199).......... -- -- -- -- -- -- -- 335 --
Unrealized gains
on short-term
investments
(net of tax
provision of
$19)........... -- -- -- -- -- -- -- 149 --
Foreign currency
translation
adjustments.... -- -- -- -- -- -- (138) -- --
Comprehensive
income......... -- -- -- -- -- -- -- -- --
Repurchase of
common stock... (3,020) -- -- -- -- (109,461) -- -- --
Exercise of
stock options.. 1,118 12 -- 15,704 -- -- -- -- --
Exercise of
stock
warrants....... 2,000 20 (17,430) 41,410 -- -- -- -- --
Purchase of
common stock
pursuant to
employee stock
purchase plan.. 36 -- -- 1,276 -- -- -- -- --
Tax benefit of
stock options
exercised...... -- -- -- 13,081 -- -- -- -- --
------- ---- ------- -------- ----- ---------- ------ ----- ---------
BALANCE,
December 31,
2001........... 52,664 $575 $ -- $252,221 $ -- $(180,958) $(792) $ 134 $ 178,868
======= ==== ======= ======== ===== ========== ====== ===== =========

Total
Stockholders'
Equity
-------------

BALANCE,
December 31,
1998........... $ 60,998
Comprehensive
income:
Net income...... --
Foreign currency
translation
adjustments.... --
Comprehensive
income......... 59,716
Amortization of
deferred stock-
based employee
compensation
expense........ 280
Repurchase of
common stock... (20,277)
Common stock
swap for option
exercise....... 35
Exercise of
stock options.. 10,008
Payments on
notes
receivable from
employee
stockholders... 363
Purchase of
common stock
pursuant to
employee stock
purchase plan.. 926
Tax benefit of
stock options
exercised...... 4,813
-------------
BALANCE,
December 31,
1999........... 116,862
Comprehensive
income:
Net income...... --
Unrealized
losses on
short-term
investments
(net of tax
benefit of
$211).......... --
Foreign currency
translation
adjustments.... --
Comprehensive
income......... 89,585
Amortization of
deferred stock-
based employee
compensation
expense........ 48
Repurchase of
common stock... (51,123)
Exercise of
stock options.. 13,188
Exercise of
stock
warrants....... 12,000
Payments on
notes
receivable from
employee
stockholders... 115
Purchase of
common stock
pursuant to
employee stock
purchase plan.. 1,136
Tax benefit of
stock options
exercised...... 9,358
-------------
BALANCE,
December 31,
2000........... 191,169
Comprehensive
income:
Net income...... --
Reclassification
adjustment for
loss included
in net income
(net of tax
benefit of
$199).......... --
Unrealized gains
on short-term
investments
(net of tax
provision of
$19)........... --
Foreign currency
translation
adjustments.... --
Comprehensive
income......... 114,267
Repurchase of
common stock... (109,461)
Exercise of
stock options.. 15,716
Exercise of
stock
warrants....... 24,000
Purchase of
common stock
pursuant to
employee stock
purchase plan.. 1,276
Tax benefit of
stock options
exercised...... 13,081
-------------
BALANCE,
December 31,
2001........... $250,048
=============

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

36

CSG SYSTEMS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Year Ended December 31,
---------------------------
2001 2000 1999
-------- -------- -------

Cash flows from operating activities:
Net income....................................... $113,921 $ 90,469 $59,874
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation..................................... 14,546 12,077 10,190
Amortization..................................... 10,000 7,313 15,026
Loss on short-term investments................... 724 -- --
Deferred income taxes............................ 8,576 4,450 6,373
Tax benefit of stock options exercised........... 13,081 9,358 4,831
Stock-based employee compensation................ -- 48 280
Changes in operating assets and liabilities:
Trade accounts and other receivables, net....... 29,249 (57,809) (12,255)
Other current and noncurrent assets............. (3,408) (4,709) (633)
Accounts payable and accrued liabilities........ (6,778) 5,567 18,365
-------- -------- -------
Net cash provided by operating activities...... 180,091 66,764 102,051
-------- -------- -------
Cash flows from investing activities:
Purchases of property and equipment.............. (20,417) (22,173) (12,003)
Purchase of short-term investments............... (106,337) (11,543) --
Proceeds from sale of short-term investments..... 63,861 -- --
Acquisition of assets and business, net of cash
acquired........................................ (17,750) -- --
Acquisitions of and investments in client
contracts....................................... (6,623) (1,100) (24,692)
-------- -------- -------
Net cash used in investing activities.......... (87,266) (34,816) (36,695)
-------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock........... 16,991 14,324 10,934
Proceeds from exercise of stock warrants......... 24,000 12,000 --
Repurchase of common stock....................... (109,461) (51,081) (20,242)
Payments on notes receivable from employee
stockholders.................................... -- 110 454
Payments on long-term debt....................... (26,756) (22,744) (47,250)
-------- -------- -------
Net cash used in financing activities.......... (95,226) (47,391) (56,104)
-------- -------- -------
Effect of exchange rate fluctuations on cash...... (185) (482) (169)
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents...................................... (2,586) (15,925) 9,083
Cash and cash equivalents, beginning of period.... 32,751 48,676 39,593
-------- -------- -------
Cash and cash equivalents, end of period.......... $ 30,165 $ 32,751 $48,676
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for--
Interest......................................... $ 2,460 $ 5,608 $ 6,386
Income taxes..................................... $ 45,981 $ 36,963 $19,905

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

37

CSG SYSTEMS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

CSG Systems International, Inc. (the "Company" or "CSG"), a Delaware
corporation, was formed in October 1994. Based in Denver, Colorado, the
Company provides customer care and billing solutions worldwide for the
converging communications markets, including cable television, direct
broadcast satellite, telephony, on-line services and others. The Company
offers its clients a full range of processing services, software and support
services that automate customer management functions, including billing, sales
support and order processing, invoice calculation and production, management
reporting and customer analysis for target marketing. The Company's products
and services combine the reliability and high volume transaction processing
capabilities of a mainframe platform with the flexibility of client/server
architecture. The Company provides customer care and billing to more than 40%
of the homes in the United States.

On March 5, 1999, the Company completed a two-for-one stock split, effected
as a stock dividend, for shareholders of record on February 8, 1999. Share and
per share data for all periods presented herein have been adjusted to give
effect to the split.

2. Summary of Significant Accounting Policies

Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
material intercompany accounts and transactions have been eliminated.

Translation of Foreign Currency. The Company's foreign subsidiaries use as
their functional currency the local currency of the countries in which they
operate. Their assets and liabilities are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date. Revenues and expenses are
translated at the average rates of exchange prevailing during the period.
Translation gains and losses are included in total comprehensive income in
stockholders' equity. Transaction gains and losses related to intercompany
accounts are not material and are included in the determination of net income.

Use of Estimates in Preparation of Consolidated Financial Statements. The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Revenue Recognition. The Company generates its revenues from three primary
sources: processing and related services, software transactions, and
professional services. Processing and related services revenues consist
primarily of monthly processing fees generated from the Company's core service
bureau customer care and billing application called CSG CCS/BP (formerly known
as CCS), and services ancillary to CCS (collectively, "CCS"). Software
revenues consist primarily of software license and maintenance fees.
Professional services revenues consist of a variety of consulting services,
such as product installation and customization, business consulting, project
management and training services. For multiple-element arrangements which
include two or more of these revenue sources, the Company generally accounts
for each of the individual revenue sources as a separate and discrete earnings
process considering, among other things, whether any undelivered element(s) is
essential to the functionality of the delivered element(s). For such multiple-
element arrangements, total revenue is allocated to the various elements based
upon objective and reliable evidence of the relative fair values specific to
the Company's products and services.

Processing and related services revenues are recognized as the services are
performed. Processing fees are typically billed monthly based on the number of
client's customers served, ancillary services are typically billed on a per
transaction basis, and certain customized print and mail services are billed
on a usage basis.

38

Software-related revenues are recognized using the guidelines of American
Institute of Certified Public Accountants Statement of Position ("SOP") 97-2,
"Software Revenue Recognition", as amended. The primary revenue recognition
criteria outlined in SOP 97-2 include: evidence of an arrangement; delivery;
fixed or determinable fees; and collectibility. For the majority of software
transactions that have multiple elements, such as software and services, the
Company allocates the contract value to the respective elements based on
vendor-specific objective evidence of their individual fair values, determined
in accordance with SOP 97-2. For certain software transactions that have
multiple elements, the Company allocates the contract value to the respective
elements based upon the residual method in accordance with SOP 98-9, "Software
Revenue Recognition, With Respect to Certain Transactions". Under the residual
method, the fair value of the undelivered elements is deferred and
subsequently recognized as they are delivered. Arrangements for software
license fees consist principally of one-time perpetual licenses, sold on a per
seat or other per unit basis. Perpetual license fees are typically recognized
upon delivery, depending upon the nature and extent of the installation and/or
customization services, if any, to be provided by the Company, and assuming
all other revenue recognition criteria have been met. Term license fees with
multiple payments that extend over several periods, and maintenance fees are
recognized ratably over the contract term.

For certain software transactions, the Company has agreed to "host" the
software on Company-owned hardware. In accordance with Emerging Issues Task
Force Issue No. 00-03, "Application of AICPA Statement of Position 97-2 to
Arrangements That Include the Right to Use Software Stored on Another Entity's
Hardware", these hosting arrangements are treated as a separate element of the
software arrangement when the client has a contractual right to take
possession of the software at any time during the hosting period without
incurring a significant penalty and it is feasible for the client to either
run the software on its own hardware or contract with another party unrelated
to the Company to host the software.

Professional services revenues typically are recognized as the related
services are performed.

Payments received for revenues not yet recognized are reflected as deferred
revenue in the accompanying consolidated balance sheets. Revenue recognized
prior to the scheduled billing date of an item is reflected as unbilled trade
accounts receivable.

Postage. The Company passes through to its clients the cost of postage that
is incurred on behalf of those clients. The Company requires postage deposits
from its clients based on contractual arrangements prior to the mailing of
customer statements. These amounts are included in "client deposits" in the
accompanying 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 total cost of postage incurred
on behalf of clients that has been netted against processing and related
services revenues for the years ended December 31, 2001, 2000 and 1999 was
$131.3 million, $106.8 million and $92.2 million, respectively.

Realizability of Long-Lived Assets. The Company continually evaluates
whether events and circumstances have occurred that indicate the remaining
estimated useful life of long-lived assets may warrant revision, or that the
remaining balance of these assets may not be recoverable. The Company
evaluates the recoverability of its long-lived assets by comparing the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. If such evaluations indicate that the future
undiscounted cash flows of long-lived assets are not sufficient to recover the
carrying value of such assets, the assets are adjusted to their estimated fair
values.

Cash and Cash Equivalents. The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.

Short-term Investments and Other Financial Instruments. The Company's short-
term investments at December 31, 2001 consist of commercial paper, with a
market value and an original cost of approximately $53.4 million. The
Company's short-term investments at December 31, 2000 consist of commercial
paper, with a market value and an original cost of approximately $10.8
million, and common stock, with a market value and original cost of
approximately $0.2 million and $0.8 million, respectively.

39

The Company classifies all of its short-term investments as "available-for-
sale" in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
Short-term investments are stated at market value, with unrealized gains and
losses on such securities included, net of the related income tax effect, in
stockholders' equity. For all short-term investments, unrealized losses that
are considered "other than temporary" are recognized immediately in earnings.
Realized gains and losses on short-term investments are included in earnings
and are derived using the specific identification method for determining the
cost of the securities.

The Company's other balance sheet financial instruments as of December 31,
2001 and 2000 include cash and cash equivalents, accounts receivable, accounts
payable, and long-term debt. Because of their short maturities, the carrying
amounts of cash equivalents, accounts receivable, and accounts payable
approximate their fair value. The carrying amount of the Company's long-term
debt approximates fair value due to its variable interest rates.

As of December 31, 2001 and 2000, the Company's only off-balance sheet
financial instrument consisted of an interest rate cap agreement that was
entered into during December 2000. The fair value of the interest rate cap
agreement at December 31, 2001 and 2000, respectively, was insignificant.

Concentrations of Credit Risk. In the normal course of business, the Company
is exposed to credit risk. The principal concentrations of credit risk are
cash deposits, short-term investments and accounts receivable. The Company
regularly monitors credit risk exposures and takes steps to mitigate the
likelihood of these exposures resulting in a loss. The Company places cash
deposits with financial institutions it believes to be of sound financial
condition. It is the Company's intent to maintain a low-risk, liquid portfolio
of short-term investments. The primary counterparties to the Company's
accounts receivable and sources of the Company's revenues consist of cable
television and direct broadcast satellite providers throughout the United
States and Canada.

The Company generally does not require collateral or other security to
support accounts receivable. The Company maintains an allowance for doubtful
accounts receivable based upon factors surrounding the credit risk of specific
clients, historical trends and other information. The activity in the
Company's allowance for uncollectible accounts receivable for the years ended
December 31 is as follows (in thousands):

2001 2000 1999
------ ------ ------

Balance, beginning of period......................... $5,001 $2,975 $2,051
Additions charged to expense......................... 2,277 2,791 2,021
Reductions for receivables written off............... (968) (765) (1,097)
------ ------ ------
Balance, end of period............................... $6,310 $5,001 $2,975
====== ====== ======

Property and Equipment. Property and equipment are recorded at cost and are
depreciated over their estimated useful lives ranging from three to ten years.
Depreciation is computed using the straight-line method for financial
reporting purposes. 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. Depreciation for
income tax purposes is computed using accelerated methods.

Property and equipment at December 31 consists of the following (in
thousands):

Useful
Lives
(years) 2001 2000
------ ------- -------

Computer equipment................................. 3 $46,313 $37,798
Leasehold improvements............................. 5-10 6,613 4,740
Operating equipment................................ 3-5 31,681 24,836
Furniture and equipment............................ 8 12,204 8,723
Construction in process............................ -- 2,566 2,990
------- -------
99,377 79,087
Less--accumulated depreciation..................... (56,465) (42,457)
------- -------
Property and equipment, net...................... $42,912 $36,630
======= =======

40

Software. Software at December 31 consists of the following (in thousands):

2001 2000
------- -------

Acquired software.......................................... $38,876 $40,849
Internally developed software.............................. 2,133 2,547
------- -------
41,009 43,396
Less--accumulated amortization............................. (37,622) (39,112)
------- -------
Software, net............................................ $ 3,387 $ 4,284
======= =======

Acquired software resulted from acquisitions and is being amortized over
five years. Amortization expense related to acquired software for the years
ended December 31, 2001, 2000 and 1999 was $1.5 million each year.

The Company's research and development ("R&D") efforts consist of developing
new products and services as well as enhancements to existing products and
services. The Company capitalizes certain software development costs when the
resulting products reach technological feasibility. The Company did not
capitalize any costs in 2001, 2000, or 1999.

Amortization of internally developed software and acquired software costs
begins when the products are available for general release to clients and is
computed separately for each product as the greater of: (i) the ratio of
current gross revenue for a product to the total of current and anticipated
gross revenue for the product; or (ii) the straight-line method over the
remaining estimated economic life of the product. An estimated life of five
years is used in the calculation of amortization. Amortization expense related
to internally developed software for the years ended December 31, 2001, 2000
and 1999 was $0.4 million each year.

Noncompete Agreements and Goodwill. Noncompete agreements resulted from
acquisitions and were amortized on a straight-line basis over the terms of the
agreements, ranging from three to five years. Amortization expense for
noncompete agreements for 1999 was $4.2 million. The noncompete agreements
were fully amortized as of November 30, 1999.

Goodwill at December 31 consists of the following (in thousands):

2001 2000
------- ------

Goodwill.................................................... $17,475 $6,777
Less--accumulated amortization.............................. (4,014) (4,883)
------- ------
Goodwill, net............................................. $13,461 $1,894
======= ======

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supercedes APB Opinion No. 17, "Intangible Assets". Of
the December 31, 2001 goodwill balance, approximately $5.3 million resulted
from acquisitions prior to July 1, 2001, and is being amortized to expense
over seven to ten years on a straight-line basis. Amortization expense related
to this goodwill for the years ended December 31, 2001, 2000 and 1999, was
approximately $0.6 million, $0.7 million, $0.7 million, respectively.
Beginning January 1, 2002 amortization of this goodwill will cease and all of
the Company's goodwill will be subject to the impairment testing requirements
of SFAS 142. Goodwill of $12.2 million acquired on September 18, 2001 as part
of the plaNet Consulting acquisition has not been amortized in accordance with
SFAS 142.

Client Contracts. Client contracts which resulted from the CSG Acquisition
were amortized over their estimated lives of five years, and were fully
amortized as of November 30, 1999. During 2001, the Company acquired contract
rights valued at approximately $15.0 million in exchange for the performance
of services. The remaining client contracts represent cash payments and Common
Stock Warrants issued to clients based upon the number of client customers
converted to and processed on the Company's customer care and billing system.

41

These client contracts are being amortized ratably over the lives of the
respective contracts. Amortization related to client contracts and related
intangibles for the years ended December 31, 2001, 2000, and 1999, was
$5.4 million, $4.1 million, and $7.2 million, respectively. As of December 31,
2001 and 2000, accumulated amortization for client contracts was $31.3 million
and $28.9 million, respectively.

Earnings Per Common Share. The Company follows SFAS No. 128 in calculating
earnings per share ("EPS"). Basic EPS is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS is consistent with the calculation
of basic EPS while giving effect to any dilutive potential common shares
outstanding during the period. Basic and diluted EPS are presented on the face
of the accompanying consolidated statements of income. No reconciliation of
the EPS numerators is necessary as net income is used as the numerator for all
periods presented. The reconciliation of the EPS denominators is as follows
(in thousands):

Year Ended December
31
--------------------
2001 2000 1999
------ ------ ------

Basic weighted average common shares.................... 52,891 52,204 51,675
Dilutive shares from common stock warrants............ 235 2,136 838
Dilutive shares from common stock options............. 1,513 2,340 2,147
------ ------ ------
Weighted average diluted common shares.................. 54,639 56,680 54,660
====== ====== ======

Common stock options of 1.7 million, 0.3 million, and 0.6 million shares for
2001, 2000, and 1999, respectively, were 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.

The diluted potential common shares related to the warrants were excluded
from the computation of diluted EPS for all quarters the warrants were not
considered exercisable. As of December 31, 2000, all of the warrants were
considered exercisable. As of February 2001, all warrants had been exercised.

Stock-Based Compensation. The Company accounts for its stock-based
compensation plans 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 SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). See Note 10 for the
required disclosures under SFAS 123.

Comprehensive Income. The Company has adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display
of comprehensive income and its components. The components of comprehensive
income are reflected in the accompanying consolidated statement of
stockholders' equity. Foreign currency translation adjustments are not
generally adjusted for income taxes as they relate to indefinite investments
in non-U.S. subsidiaries.

Reclassification. Certain December 31, 2000 and 1999 amounts have been
reclassified to conform to the December 31, 2001 presentation.

Accounting Pronouncements Issued But Not Yet Effective. In June 2001, the
FASB issued SFAS No. 141, "Business Combinations" ("SFAS 141"). SFAS 141
addresses financial accounting and reporting for business combinations and
supersedes APB Opinion No. 16, "Business Combinations". SFAS 141 introduces a
single-method approach to accounting for business combinations, requiring the
use of the purchase method and eliminating the use of the pooling-of-interests
approach. In addition, SFAS 141 changes the criteria for the separate
recognition of intangible assets in a business combination. SFAS 141 is
effective for all business combinations initiated after June 30, 2001, and for
all business combinations accounted for using the purchase method for which
the date of acquisition is July 1, 2001 or later.

In June 2001, the FASB issued SFAS 142. SFAS 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
supercedes APB Opinion No. 17, "Intangible Assets". SFAS 142 addresses how
intangible assets that are acquired individually or with a group of other
assets (but not those acquired in a business combination) should be accounted
for in the financial statements upon their

42

acquisition. SFAS 142 also addresses how goodwill and other intangibles should
be accounted for after they have been initially recognized in the financial
statements. SFAS 142 is required to be applied by the Company beginning
January 1, 2002 to all goodwill and other intangible assets recognized in the
financial statements at that date. Goodwill acquired after June 30, 2001 will
not be amortized pursuant to SFAS 142, but will be subject to at least annual
tests for impairment based on a methodology prescribed by the new standard.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). SFAS 144 was issued to resolve certain
implementation issues related to SFAS 121, and to establish a single
accounting model for long-lived assets to be disposed of by sale, to include
the accounting for a segment of a business accounted for as a discontinued
operation under Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations-- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions."

The Company is required to adopt SFAS 144 and the remaining provisions of
SFAS 142 on January 1, 2002. The adoption of SFAS 144 is not expected to have
a significant effect on the Company's consolidated financial statements. Based
upon the amount of previously amortizable goodwill on its consolidated balance
sheet as of December 31, 2001, the adoption of SFAS 142 will reduce
amortization by approximately $0.6 million in 2002. The adoption of SFAS 142
is expected to have a more significant impact on the Company as the result of
a large business acquisition completed subsequent to December 31, 2001 (See
Note 12).

3. Business Acquisition

On September 18, 2001, the Company acquired 100% of the common stock of
plaNet Consulting, Inc. ("plaNet"), a Delaware corporation, for $16.7 million
in cash. plaNet, with over 100 employees located in Omaha, Nebraska and
Denver, Colorado, provides e-business solutions and services to enable
companies to transact business via the Internet and in real-time. At the date
of acquisition, plaNet derived the majority of its revenues from consulting
services. The Company acquired plaNet primarily to obtain its assembled
management and consulting workforce to expand the Company's professional
services capabilities. The results of operations of plaNet are included in the
Company's Consolidated Statements of Income for the periods subsequent to the
acquisition date.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets...................................................... $ 1,456
Property and equipment, net......................................... 422
Deferred income tax assets.......................................... 4,337
Goodwill............................................................ 12,200
-------
Total assets acquired.............................................. 18,415
Current liabilities................................................. 1,661
-------
Net assets acquired................................................ $16,754
=======

The deferred income tax assets represent: (i) a net operating loss
carryforward of approximately $7.9 million which the Company believes is more
likely than not to be realized over approximately 10 years; and (ii) the
difference between the tax basis and the assigned value of certain plaNet
assets that existed on the date of acquisition. The $12.2 million of goodwill
is not deductible for tax purposes.

Pro forma information on the Company's results of operations for the three
and nine month periods ended September 30, 2001 and 2000, to reflect the
acquisition of plaNet, is not presented as plaNet's results of operations
during those periods are not material to the Company's results of operations.

The Company followed the provisions of SFAS 141 in accounting for the
acquisition of plaNet.

43

4. Segment Reporting and Significant Concentrations

Segment information has been prepared in accordance with SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires disclosures of selected information about operating
segments and related disclosures about products and services, geographic
areas, and major customers. SFAS 131 requires operating segments to be
determined based on the way management organizes a company for purposes of
making operating decisions and assessing performance. Based on the guidelines
of SFAS 131, the Company has determined that as of December 31, 2001, it has
only one reportable segment: customer care and billing solutions for the
worldwide converging communications markets.

Products and Services. The Company provides customer care and billing
solutions worldwide for the converging communications markets, including cable
television, direct broadcast satellite, telephony, on-line services and
others. The Company generates a significant portion of its revenues from its
core service bureau processing product, CCS. The Company sells its software
products and professional services principally to its existing base of
processing clients to (i) enhance the core functionality of its service bureau
processing application, (ii) increase the efficiency and productivity of the
clients' operations, and (iii) allow clients to effectively roll out new
products and services to new and existing markets, such as residential
telephony, high-speed data/ISP and IP markets.

The Company derived approximately 74.2%, 75.8%, 78.3%, of its total revenues
in the years ended December 31, 2001, 2000, and 1999, respectively, from CCS
processing and related products and services. The Company generated 82.3%,
77.7%, and 75.8%, of its total revenues from U.S. cable television providers,
and 11.7%, 16.0%, and 15.5%, of its total revenues from U.S. and Canadian
direct broadcast satellite providers during the years ended December 31, 2001,
2000, and 1999, respectively.

Geographic Regions. The Company uses the location of the customer as the
basis of attributing revenues to individual countries. Financial information
relating to the Company's operations by geographic areas is as follows (in
thousands):

Year Ended December 31,
--------------------------
2001 2000 1999
-------- -------- --------

Total Revenue:
United States................................. $467,764 $391,897 $308,266
All other (principally U.K., Germany and
Canada)...................................... 9,144 6,998 13,896
-------- -------- --------
$476,908 $398,895 $322,162
======== ======== ========

As of December 31,
--------------------------
2001 2000 1999
-------- -------- --------

Long-Lived Assets (excludes intangible assets):
United States................................. $ 42,591 $ 36,299 $ 25,903
All Other..................................... 321 331 604
-------- -------- --------
$ 42,912 $ 36,630 $ 26,507
======== ======== ========

Significant Clients. During the years ended December 31, 2001, 2000 and
1999: (i) revenues from AT&T represented approximately 55.8%, 50.4%, and 50.5%
of total revenues; (ii) revenues from Echostar Communications Corporation
represented approximately 10.0%, 9.3%, and 7.3% of total revenues; and (iii)
revenues from AOL Time Warner Inc. and its affiliated companies ("AOL Time
Warner") represented approximately 7.5%, 8.3%, and 10.2% of total revenues;
respectively. The Company has separate processing agreements with multiple
affiliates of AOL Time Warner and provides products and services to them under
separately negotiated and executed contracts.

44

As of December 31, 2001 and 2000, net billed accounts receivable
attributable to significant clients was: (i) 34% and 51%, respectively,
attributable to AT&T Broadband ("AT&T"); and (ii) 16% and 11%, respectively,
attributable to Echostar Communications Corporation.

The Company generates a significant portion of its total revenues under its
contract with AT&T (the "AT&T Contract"), as amended. There are inherent risks
whenever this large of a percentage of total revenues is concentrated with one
client. The AT&T Contract expires in 2012. The AT&T Contract has minimum
financial commitments over the term of the contract and includes exclusive
rights to provide customer care and billing products and services for AT&T's
offerings of wireline video, all Internet/high-speed data services, and print
and mail services. The AT&T Contract contains certain performance criteria and
other obligations to be met by the Company. 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 also is
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.

5. Debt

The Company's debt at December 31 consists of the following (in thousands):

2001 2000
------- -------

Term credit facility, due September 2002, quarterly payments
beginning June 30, 1998, ranging from $6.3 million to $12.6
million, interest at adjusted LIBOR plus 0.50% (weighted
average rate of 2.73% and 7.14% at December 31, 2001 and
2000, respectively)......................................... $31,500 $58,256
$40 million revolving credit facility, due September 2002,
interest at adjusted LIBOR plus 0.50%....................... -- --
------- -------
31,500 58,256
Less-current portion......................................... (31,500) (25,436)
------- -------
Long-term debt, net of current maturities.................... $ -- $32,820
======= =======

The term and revolving credit facilities are included in the same debt
agreement with a major bank (the "Debt Agreement"). Interest rates for both
the term and revolving credit facilities are chosen at the option of the
Company and are based on the LIBOR rate or the prime rate, plus an additional
percentage spread, with the spread dependent upon the Company's leverage
ratio. As of December 31, 2001 and 2000, the spread on the LIBOR rate and
prime rate was 0.50% and 0%, respectively. The Debt Agreement is
collateralized by all of the Company's assets and the stock of its
subsidiaries.

In December 1997, the Company entered into a three-year interest rate collar
with a major bank to manage its risk from its variable rate long-term debt.
Upon expiration of this collar agreement in December 2000, the Company entered
into an interest rate cap agreement with a major bank, which expires at the
maturity date of the long-term debt in September 2002. The cost of the cap
agreement was minimal. The interest rate cap is 9.0% (LIBOR) and the
underlying notional amount covered by the cap agreement was $16.4 million as
of December 31, 2001, and decreases over the term of the agreement in relation
to the scheduled principal payments on the long-term debt. There are no
amounts receivable under this cap agreement as of December 31, 2001, and the
collar and the cap agreements had no effect on the Company's interest expense
for 2001, 2000, or 1999. The fair value of the interest rate cap is not
significant.

The Debt Agreement requires maintenance of certain financial ratios and
contains other restrictive covenants, including restrictions on payment of
dividends, maintenance of a fixed charge coverage ratio and leverage ratio,
and restrictions on capital expenditures. As of December 31, 2001, the Company
was in compliance with these covenants. The payment of cash dividends or other
types of distributions on any class of the Company's stock is restricted
unless the Company's leverage ratio, as defined in the Debt Agreement, is
under 1.50. As of December 31, 2001, the leverage ratio was 0.14.

45

There were no borrowings made on the revolving credit facility during the
years ended December 31, 2001, 2000, and 1999. Under the Debt Agreement, the
Company pays an annual commitment fee on the unused portion of the revolving
credit facility, based upon the Company's leverage ratio. As of December 31,
2001, the fee was 0.25%. The Company's ability to borrow under the current
revolving credit facility is subject to maintenance of certain levels of
eligible receivables. At December 31, 2001, all of the $40.0 million revolving
credit facility was available to the Company.

As of December 31, 2001 and 2000, unamortized deferred financing costs were
$0.1 million and $0.5 million, respectively. Deferred financing costs are
amortized to interest expense over the related term of the debt agreement
using a method that approximates the effective interest rate method. Interest
expense for the years ended December 31, 2001, 2000, and 1999 includes
amortization of deferred financing costs of approximately $0.4 million, $0.6
million, and $0.9 million, respectively.

On February 28, 2002, the Company refinanced the Debt Agreement in
conjunction with the acquisition of a business (see Note 12).

6. Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in the Company's consolidated financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactment of or changes in the tax law or rates.

Income tax provision consists of the following (in thousands):

Year Ended December 31,
------------------------
2001 2000 1999
------- ------- -------

Current:
Federal.......................................... $53,662 $45,720 $25,442
State............................................ 7,023 5,443 3,029
Foreign.......................................... 44 (820) 1,160
------- ------- -------
60,729 50,343 29,631
------- ------- -------
Deferred:
Federal.......................................... 7,775 3,924 5,792
State............................................ 1,017 467 690
Foreign.......................................... -- -- (58)
------- ------- -------
8,792 4,391 6,424
------- ------- -------
Change in valuation allowance...................... -- -- --
------- ------- -------
Net income tax provision........................... $69,521 $54,734 $36,055
======= ======= =======

Income tax benefits associated with nonqualified stock options and
disqualifying dispositions of incentive stock options reduced accrued income
taxes by $13.1 million, $9.4 million, and $4.8 million for the years ended
December 31, 2001, 2000, and 1999, respectively. Such benefits were recorded
as an increase to additional paid-in capital and are included in net cash
provided by operating activities in the accompanying consolidated statements
of cash flows.

46

The difference between the income tax provision computed at the statutory
federal income tax rate and the financial statement provision for income taxes
is summarized as follows (in thousands):

Year Ended December 31,
-------------------------
2001 2000 1999
------- ------- -------

Provision at federal rate of 35%.................. $64,198 $50,821 $33,575
Effective state income taxes...................... 5,272 3,872 2,415
Amortization of nondeductible goodwill............ 217 225 235
Other............................................. (166) (184) (170)
------- ------- -------
$69,521 $54,734 $36,055
======= ======= =======

The deferred tax assets and liabilities result from differences in the
timing of the recognition of certain income and expense items for tax and
financial reporting purposes, and from tax and financial reporting basis
differences recognized in purchase accounting. The sources of these
differences at December 31 are as follows (in thousands):

2001 2000
------- -------

Current deferred tax assets:
Accrued expenses and reserves............................... $ 5,549 $ 3,192
Deferred revenue............................................ -- 55
------- -------
$ 5,549 $ 3,247
======= =======
Noncurrent deferred tax assets (liabilities):
Purchased research and development.......................... $36,002 $39,373
Software.................................................... 7,153 7,289
Client contracts and related intangibles.................... (9,851) (2,748)
Noncompete agreements....................................... 5,706 5,432
Acquired net operating loss................................. 2,900 --
Property and equipment...................................... (1,510) (902)
Other....................................................... (6) (1,113)
------- -------
$40,394 $47,331
======= =======

As of December 31, 2001, management continues to believe that sufficient
taxable income will be generated in the future to realize the entire benefit
of the Company's deferred tax assets. The Company's assumptions of future
profitable operations are supported by the Company's strong operating
performances over the last several years and the Company's long-term customer
care and billing system processing contracts.

7. Employee Retirement Benefit Plans

Incentive Savings Plan. The Company sponsors a defined contribution plan
covering substantially all employees of the Company. Participants may
contribute up to 15% of their annual wages, subject to certain limitations, as
pretax, salary deferral contributions. The Company makes certain matching and
service-related contributions to the plan. The Company's matching and service-
related contributions for the years ended December 31, 2001, 2000, and 1999,
were approximately $5.6 million, $4.3 million, and $3.4 million, respectively.

Deferred Compensation Plan. The Company has a non-qualified deferred
compensation plan for certain key executives which allows the participants to
defer a portion of their annual compensation. The Company provides a 25%
matching contribution of the participant's deferral, up to a maximum
contribution of $6,250 per year, plus a return on the deferred account balance
attributable to the individual participants. As of December 31, 2001 and 2000,
the Company has recorded a liability for this obligation of $1.9 million and
$1.4 million, respectively. The Company's expense for this plan for the years
ended December 31, 2001, 2000, and 1999, was $0.6 million, $0.5 million, and
$0.4 million, respectively. The plan is unfunded.

47

8. Commitments and Contingencies

Operating Leases. The Company leases certain office and production
facilities and other equipment under operating leases that run through 2011.
The leases generally are renewable and provide for the payment of real estate
taxes and certain other occupancy expenses. Future aggregate minimum lease
payments under these agreements for the years ending December 31 are as
follows: 2002--$9.1 million, 2003--$9.1 million, 2004--$7.7 million, 2005--
$6.5 million, 2006--$6.3 million, thereafter--$17.5 million.

Total rent expense for the years ended December 31, 2001, 2000, and 1999,
was approximately $10.6 million, $7.6 million, and $5.2 million, respectively.

Service Agreements. The Company has service agreements with FDC and its
subsidiaries for data processing services, communication charges and other
related computer services. FDC provides data processing and related computer
services required for the operation of the Company's CCS system and other
products.

During 2000, the Company renegotiated its data processing services agreement
with First Data Corporation ("FDC") and its subsidiaries. The new agreement is
cancelable only for cause, and expires June 30, 2005. The previous agreement
was scheduled to expire December 31, 2001. Under the new agreement, the
Company is charged a fixed fee plus a variable fee based on usage and/or
actual costs. The total amount paid under the service agreements for the years
ended December 31, 2001, 2000, and 1999, was approximately $28.1 million,
$23.7 million, and $27.1 million. respectively. The Company believes it could
obtain data processing and related computer services from alternative sources,
if necessary.

Legal Proceedings. 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, after consultation with
legal counsel, the ultimate dispositions of such matters will not have a
materially adverse effect on the Company's consolidated financial position or
results of operations.

9. Stockholders' Equity

Common Stock Warrants. As of December 31, 1999, the Company had 3.0 million
Common Stock Warrants (the "Warrants") outstanding to AT&T. During the fourth
quarter of 2000, AT&T exercised its right under the Warrants to purchase 1.0
million shares of the Company's Common Stock at an exercise price of $12.00
per share, for a total exercise price of $12.0 million. Immediately following
the exercise of the Warrants, the Company repurchased the 1.0 million shares
at $47.42 per share (an average of the closing price for the five-day trading
period ended October 26, 2000) for a total repurchase price of $47.4 million,
pursuant to the Company's stock repurchase program. As a result, the net cash
outlay paid to AT&T for this transaction was $35.4 million, which was paid by
the Company with available corporate funds. After this transaction, AT&T still
had Warrants to purchase up to 2.0 million additional shares of the Company's
Common Stock, with an exercise price of $12.00 per share.

On February 28, 2001, AT&T exercised its rights under the Warrants to
purchase the remaining 2.0 million shares of the Company's Common Stock at an
exercise price of $12.00 per share, for a total exercise price of $24.0
million. Immediately following the exercise of the Warrants, the Company
repurchased the 2.0 million shares at $37.00 per share (approximates the
closing price on February 28, 2001) for a total repurchase price of $74.0
million, pursuant to the Company's stock repurchase program. As a result, the
net cash outlay paid to AT&T for this transaction was $50.0 million, which was
paid by the Company in March 2001 with available corporate funds. After this
transaction, AT&T no longer has any warrants or other rights to purchase the
Company's Common Stock.

48

Stock Repurchase Program. In August 1999, the Company's Board of Directors
approved a stock repurchase program which authorized the Company to purchase
up to a total of 5.0 million shares of its Common Stock from time-to-time as
market and business conditions warrant. In September 2001, the Board of
Directors amended the program to authorize the Company to purchase up to a
total of 10.0 million shares. The repurchased shares are held as treasury
shares. The shares repurchased under the program (including the shares
repurchased in conjunction with the Warrant exercise discussed above) are as
follows (in thousands, except per share amounts):

2001 2000 1999 Total
-------- ------- ------- --------

Shares repurchased........................ 3,020 1,090 656 4,766
Total amount paid......................... $109,460 $51,088 $20,242 $180,790
Weighted-average price per share.......... $ 36.25 $ 46.87 $ 30.88 $ 37.94

10. Stock-Based Compensation Plans

Stock Incentive Plans. During 1995, the Company adopted the Incentive Stock
Plan (the "1995 Plan") whereby 514,000 shares of the Company's Common Stock
have been reserved for issuance to eligible employees of the Company in the
form of stock options. The 53,250 options outstanding under the 1995 Plan as
of December 31, 2001, were fully vested.

During 1996, the Company adopted the 1996 Stock Incentive Plan (the "1996
Plan") whereby 4,800,000 shares of the Company's Common Stock have been
reserved for issuance to eligible employees of the Company in the form of
stock options, stock appreciation rights, performance unit awards, restricted
stock awards, or stock bonus awards. In December 1997, upon shareholder
approval, the number of shares authorized for issuance under the 1996 Plan was
increased to 8,000,000. In May 1999, upon shareholder approval, the number of
shares authorized for issuance under the 1996 Plan was increased to
11,000,000. The 5,947,081 options outstanding under the 1996 Plan as of
December 31, 2001, vest over four to five years. Certain options become fully
vested upon a change in control of the Company.

During 1997, the Company adopted the Stock Option Plan for Non-Employee
Directors (the "Director Plan") whereby 200,000 shares of the Company's Common
Stock have been reserved for issuance to non-employee Directors of the Company
in the form of stock options. In May 2000, upon shareholder approval, the
number of shares authorized for issuance under the Director Plan was increased
to 450,000. The 232,000 options outstanding under the Director Plan at
December 31, 2001, vest annually over two to three years.

During 2001, the Company adopted the 2001 Stock Incentive Plan (the "2001
Plan") whereby 750,000 shares of the Company's Common Stock have been reserved
for issuance to eligible employees of the Company in the form of nonqualified
stock options, stock appreciation rights, stock bonus awards, restricted stock
awards, or performance unit awards. In January 2002, the Board of Directors
approved an increase of shares reserved for issuance under the 2001 Plan to
2,500,000. Awards and options under the 2001 Plan may be granted to key
employees of the Company or its subsidiaries that are not: (i) officers or
directors of the Company; (ii) "covered employees" of the Company for purposes
of Section 162(m) of the Internal Revenue Code; or (iii) persons subject to
Section 16 of the Securities Exchange Act of 1934. The 650,079 options
outstanding under the 2001 Plan at December 31, 2001, vest annually over four
years.

49

Stock options are granted with an exercise price equal to the fair market
value of the Company's Common Stock as of the date of the grant. All
outstanding options have a 10-year term. A summary of the stock options issued
under the 1995 Plan, the 1996 Plan, the Director Plan and the 2001 Plan, and
changes during the years ending December 31 are as follows:

Year Ended December 31,
------------------------------------------------------------------------------
2001 2000 1999
-------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
---------- -------------- --------- -------------- --------- --------------

Outstanding, beginning
of year................ 5,745,113 $26.58 5,604,822 $20.05 6,229,464 $17.23
Granted............... 2,735,279 41.73 1,609,900 41.56 732,050 33.85
Exercised............. (1,194,328) 16.41 (971,494) 13.64 (795,117) 12.63
Forfeited............. (403,654) 32.41 (498,115) 26.73 (560,575) 17.23
---------- ------ --------- ------ --------- ------
Outstanding, end of
year................... 6,882,410 $34.02 5,745,113 $26.58 5,604,822 $20.05
========== ====== ========= ====== ========= ======
Options exercisable at
year end............... 1,426,155 $22.45 1,410,440 $14.99 1,297,072 $12.52
========== ====== ========= ====== ========= ======
Weighted average fair
value of options
granted during the
year................... $21.02 $19.14 $13.04
====== ====== ======
Options available for
grant.................. 2,173,265 3,741,890 4,603,675
========== ========= =========

The following table summarizes information about the Company's outstanding
stock options as of December 31, 2001:

Options Outstanding Options Exercisable
----------------------------------- ------------------

Weighted Average Weighted Weighted
Range Of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------

$ 0.63 -
$11.06 436,625 4.8 $ 8.29 436,625 $ 8.29
$11.75 -
$23.44 798,615 6.2 20.22 538,540 19.82
$23.59 -
$29.94 1,311,623 6.9 26.73 51,673 25.83
$30.25 -
$39.81 2,267,847 8.8 35.96 264,392 37.29
$40.13 -
$49.75 1,847,300 8.8 46.27 109,175 46.95
$50.25 -
$62.33 220,400 8.8 55.84 25,750 54.67
- -------- --------- --- ------ --------- ------
$ 0.63 -
$62.33 6,882,410 7.9 $34.02 1,426,155 $22.45
======== ========= === ====== ========= ======

In January 2002, the Company granted 575,000, 507,971, and 31,500 options
under the 1996 Plan, 2001 Plan, and Director Plan, respectively, at prices
that range from $34.95 to $38.59 per share, with such options vesting over
four years, with the exception of 24,000 shares which vest over three years
and 7,500 shares that vest immediately. These options are not reflected in the
above tables as they were granted subsequent to December 31, 2001.

1996 Employee Stock Purchase Plan. During 1996, the Company adopted the 1996
Employee Stock Purchase Plan whereby 500,000 shares of the Company's Common
Stock have been reserved for sale to employees of the Company and its
subsidiaries through payroll deductions. The price for shares purchased under
the plan is 85% of market value on the last day of the purchase period.
Purchases are made at the end of each month. During 2001, 2000, and 1999,
respectively, 35,481, 30,120, and 34,352 shares have been purchased under the
plan for $1.3 million ($26.31 to $51.23 per share), $1.1 million ($24.65 to
$47.65 per share) and $0.9 million ($18.91 to $37.08 per share).

50

Stock-Based Compensation Plans. At December 31, 2001, the Company had five
stock-based compensation plans, as described above. The Company accounts for
these plans in accordance with APB Opinion No. 25, under which no compensation
expense has been recognized in 2001, 2000 and 1999.

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 2001, 2000 and
1999 would approximate the pro forma amounts as follows (in thousands, except
per share amounts):

Year Ended December 31,
------------------------
2001 2000 1999
-------- ------- -------

Net income:
As reported...................................... $113,921 $90,469 $59,874
Pro forma........................................ 101,594 78,664 52,498
Diluted net income per common share:
As reported...................................... 2.08 1.60 1.10
Pro forma........................................ 1.86 1.39 0.96

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 2001, 2000, and 1999, respectively: risk-
free interest rates of 4.8%, 6.3%, and 5.0%; dividend yield of zero percent
for all years; expected lives of 5.3 years, 4.0 years, and 4.1 years; and
volatility of 50.0%, 50.0% and 40.0%.

11. Unaudited Quarterly Financial Data

Quarter Ended
--------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(in thousands, except per share amounts)

2001:
Total revenues.................. $114,099 $120,086 $124,379 $118,344
Gross margin (exclusive of
depreciation).................. 72,305 76,131 79,534 72,923
Operating income................ 43,804 45,936 46,571 45,664
Income before income taxes...... 43,650 46,006 47,248 46,538
Income tax provision............ (16,584) (17,479) (17,618) (17,840)
Net income available to common
stockholders................... 27,066 28,527 29,630 28,698
Net income available to common
stockholders per share:
Basic.......................... 0.52 0.54 0.56 0.54
Diluted........................ 0.49 0.52 0.54 0.53
2000:
Total revenues.................. $ 92,063 $ 96,062 $102,070 $108,700
Gross margin (exclusive of
depreciation).................. 55,777 59,844 63,712 68,025
Operating income................ 32,989 35,432 37,331 39,530
Income before income taxes...... 32,718 35,281 37,546 39,658
Income tax provision............ (12,409) (13,295) (14,118) (14,912)
Net income available to common
stockholders................... 20,309 21,986 23,428 24,746
Net income available to common
stockholders per share:
Basic.......................... 0.39 0.42 0.45 0.47
Diluted........................ 0.36 0.39 0.41 0.44

51

12. Subsequent Event--Business Acquisition

Description of Business. On December 21, 2001, the Company reached an
agreement to acquire the billing and customer care assets of Lucent
Technologies Inc. ("Lucent"). Lucent's billing and customer care business
consists primarily of: (i) software products and related consulting services
acquired by Lucent when it purchased Kenan Systems Corporation in 1999; (ii)
BILLDATS Data Manager mediation software; (iii) software and related
technologies developed by Lucent's Bell Laboratories; and (iv) elements of
Lucent's sales and marketing organization (collectively, the "Kenan
Business"). On February 28, 2002, the Company completed the acquisition (the
"Kenan Acquisition").

The Kenan Business is a global provider of convergent billing and customer
care software and services that enable communications service providers to
bill their customers for a wide variety of existing and next-generation
services, including mobile, Internet, wireline telephony, cable, satellite,
and energy and utilities, all on a single invoice. The software supports
multiple languages and currencies. The Kenan Business' primary product
offerings include: (i) Arbor/BP (a core convergent billing platform); (ii)
Arbor/OM (an order management platform); and (iii) BILLDATS Data Manager (a
billing mediation software product). Historically, a significant portion of
Kenan Business revenues have been generated outside the United States.

As a result of the Kenan Acquisition, the Company has: (i) added proven
products to the Company's product suite; (ii) added international
infrastructure in Europe, Asia Pacific and Latin America; (iii) diversified
its customer base by adding over 230 customers in more than 40 countries; (iv)
diversified its product offerings to encompass all segments of the
communications market, including Internet Protocol, mobile, wireline
telephony, cable, and satellite; (v) acquired solid relationships with leading
systems integrators worldwide; and (vi) gained the opportunity to leverage the
Company's software solutions into the Kenan Business' diverse customer base.
In connection with the Kenan Acquisition, the Company has reorganized its
business into two segments: the Global Software Services Division and the
Broadband Services Division.

The results of Kenan Business' operations will be included in the Company's
consolidated financial statements from March 1, 2002 forward.

Acquisition Price. At closing on February 28, 2002, the aggregate purchase
price was approximately $263 million in cash, which may be adjusted based upon
the results of an audit of the Kenan Business' net assets as of closing, plus
estimated transaction costs of approximately $5 million. Based on preliminary
estimates of the unaudited net assets acquired, the Company is currently
estimating the purchase price premium to be in the range of $225 million to
$250 million. The Company is in the process of obtaining third-party
valuations of certain intangible assets, thus the allocation of the purchase
price is subject to refinement. Based on preliminary valuation reports from
the third parties, the Company expects the purchase price premium to be
allocated as follows: (i) acquired software--20% to 22%; (ii) acquired
contracts--2% to 3%; (iii) purchased in-process research and development
assets to be charged to expense at the date of acquisition--8% to 9%; and (iv)
goodwill--66% to 70%.

Credit Facilities. On February 28, 2002, CSG Systems, Inc., a wholly-owned
subsidiary of the Company, closed on a $400 million senior secured credit
facility (the "Senior Facility") with a syndicate of banks, financial
institutions and other entities. The proceeds of the Senior Facility will be
used: (i) to fund the Kenan Acquisition; (ii) pay related fees and expenses;
(iii) refinance existing indebtedness; and (iv) provide financing for general
corporate purposes. The Senior Facility consists of a $100 million, five-year
revolving credit facility (the "Revolver"), a $125 million, five-year Tranche
A Term Loan, and a $175 million, six-year Tranche B Term Loan. Upon closing of
the Kenan Acquisition, the entire amounts of the Tranche A Term Loan and
Tranche B Term Loan were drawn down. The Senior Facility is guaranteed by the
Company and each of the Company's direct and indirect domestic subsidiaries.

52

The interest rates for the Senior Facility are chosen at the option of the
Company and are based on a base rate or LIBOR rate, plus an applicable margin.
The base rate represents the higher of the floating prime rate for domestic
commercial loans and a floating rate equal to 50 basis points in excess of the
Federal Funds Effective Rate. The applicable margins for the Tranche B Loan is
1.50% for base rate loans and 2.75% for LIBOR loans. As of February 28, 2002,
the applicable margins for the Revolver and the Tranche A Loan were 1.25% for
base rate loans and 2.50% for LIBOR loans. After September 30, 2002, the
applicable margins for the Revolver and the Tranche A Loan will be dependent
upon the Company's leverage ratio and will range from 0.75% to 1.50% for base
rate loans and 2.00% to 2.75% for LIBOR loans. As of February 28, 2002, the
base rate was 4.75%, and the LIBOR rate was 1.87% for one-month and 1.90% for
3-month LIBOR contracts. The Company pays a commitment fee equal to 0.50% per
annum on the average daily unused portion of the Revolver, which rate after
September 30, 2002 is subject to reduction to 0.375% once the Company achieves
a certain leverage ratio.

The Senior Facility is collateralized by substantially all of the Company's
domestic tangible and intangible assets and the stock of the Company's
domestic subsidiaries. The Senior Facility requires maintenance of certain
financial ratios, including: (i) a leverage ratio; (ii) an interest coverage
ratio; and (iii) a fixed charge coverage ratio. The Senior Facility contains
other restrictive covenants, including: (i) restrictions on additional
indebtedness; (ii) cash dividends and other payments related to the Company's
capital stock; and (iii) capital expenditures and investments. The Senior
Facility also requires that CSG Systems, Inc. assets and liabilities remain
separate from the assets and liabilities of the remainder of the Company's
consolidated operations, including the maintenance of separate deposit and
other bank accounts.

The original combined scheduled maturities of the Tranche A Loan and the
Tranche B Loan are: 2002--$15.4 million; 2003--$20.5 million; 2004--$25.2
million; 2005--$31.4 million; 2006--$33.0 million; 2007--$132.9 million; and
2008--$41.6 million. The Senior Facility has no prepayment penalties and
requires mandatory prepayments if certain events occur, including: (i) the
sale or issuance of the Company's common stock; (ii) the incurrence of certain
indebtedness; (iii) the sale of assets except in the ordinary course of
business; (iv) the termination of material processing services contracts; and
(v) the achievement of a certain level of excess cash flows (as defined in the
Senior Facility).

In conjunction with the Senior Facility, the Company incurred financing
costs totaling approximately $10 million, which will be amortized to interest
expense over the related term of the Senior Facility.

53

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

None.

Item 10. Directors and Executive Officers of the Registrant

See the Proxy Statement for the Company's Annual Meeting of Stockholders,
from which information regarding directors is incorporated herein by
reference. Information regarding the Company's executive officers will be
omitted from such proxy statement and is furnished in a separate item
captioned "Executive Officers of the Registrant" included in Part I of this
Form 10-K.

Item 11. Executive Compensation

See the Proxy Statement for the Company's Annual Meeting of Stockholders,
from which information in response to this Item is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

See the Proxy Statement for the Company's Annual Meeting of Stockholders,
from which information in response to this Item is incorporated herein by
reference.

Item 13. Certain Relationships and Related Transactions

See the Proxy Statement for the Company's Annual Meeting of Stockholders,
from which information in response to this Item is incorporated herein by
reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Financial Statements, Financial Statement Schedules, and Exhibits:

(1) Financial Statements

The financial statements filed as part of this report are listed on
the Index to Consolidated Financial Statements on page 32.

(2) Financial Statement Schedules:

None. Any information required in the financial statement schedules
is provided in sufficient detail in the Consolidated Financial
Statements and notes thereto.

(3) Exhibits

Exhibits are listed in the Exhibit Index on page 56.

The Exhibits include management contracts, compensatory plans and
arrangements required to be filed as exhibits to the Form 10-K by Item
601(10)(iii) of Regulation S-K.

(b) Reports on Form 8-K

Form 8-K dated December 22, 2001, under Item 5, Other Events, was filed
with the Securities and Exchange Commission which included a press release
dated December 22, 2001. The press release announced the Company had
reached an agreement to acquire the billing and customer care assets of
Lucent Technologies.

54

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

CSG SYSTEMS INTERNATIONAL, INC.

/s/ Neal C. Hansen
By: _________________________________
Neal C. Hansen
Chief Executive Officer
(Principal Executive Officer)

Date: March 29, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ Neal C. Hansen Chairman of the Board of March 29, 2002
______________________________________ Directors and Chief
Neal C. Hansen Executive Officer
(Principal Executive
Officer)

/s/ John P. Pogge President, Chief Operating March 29, 2002
______________________________________ Officer and Director
John P. Pogge

/s/ Peter E. Kalan Vice President and Chief March 29, 2002
______________________________________ Financial Officer
Peter E. Kalan (Principal Financial
Officer)

/s/ Randy R. Wiese Vice President and March 29, 2002
______________________________________ Controller (Principal
Randy R. Wiese Accounting Officer)

/s/ George F. Haddix Director March 29, 2002
______________________________________
George F. Haddix

/s/ Royce J. Holland Director March 29, 2002
______________________________________
Royce J. Holland

/s/ Janice I. Obuchowski Director March 29, 2002
______________________________________
Janice I. Obuchowski

/s/ Bernard W. Reznicek Director March 29, 2002
______________________________________
Bernard W. Reznicek

/s/ Donald V. Smith Director March 29, 2002
______________________________________
Donald V. Smith

/s/ Frank V. Sica Director March 29, 2002
______________________________________
Frank V. Sica

55

EXHIBIT INDEX

Exhibit
Number Description
------- -----------

2.19(3)* Restated and Amended CSG Master Subscriber Management System
Agreement between CSG Systems, Inc. and TCI Cable Management
Corporation dated August 10, 1997

2.19A(5)* Second Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated January 9, 1998

2.19B(6)* First Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated June 29, 1998

2.19C(7) Sixth Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated July 22, 1998

2.19D(7)* Seventh Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated September 8, 1998

2.19E(7) Eighth Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated September 25, 1998

2.19F(7)* Eleventh Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated September 30, 1998

2.19G(8)* Fifth, Ninth, Tenth, Thirteenth, Fourteenth, Seventeenth and
Nineteenth Amendments to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation

2.19H(9)* Fourth and Twenty-Second Amendments and Schedule L to Restated and
Amended CSG Master Subscriber Management System Agreement between
CSG Systems, Inc. and TCI Cable Management Corporation

2.19I(10)* Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Seventh, Twenty-
Eighth, Thirtieth, Thirty-Fourth Amendments and Schedule Q to
Restated and Amended CSG Master Subscriber Management System
Agreement between CSG Systems, Inc. and TCI Cable Management
Corporation

2.19J(11)* Thirty-Sixth and Thirty-Eighth Amendments to Restated and Amended
CSG Master Subscriber Management System Agreement between CSG
Systems, Inc. and TCI Cable Management Corporation

2.19K(12)* Fifteenth, Twenty-Ninth, Forty-First and Forty-Third Amendments and
Schedules I and X to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation

2.19L(13)* Thirty-Seventh, Fortieth, Forty-Fourth and Forty-Fifth Amendments
to Restated and Amended CSG Master Subscriber Management System
Agreement between CSG Systems, Inc. and TCI Cable Management
Corporation

2.19M(15)* Forty-Ninth Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and AT&T
Broadband Management Corporation dated October 10, 2000

2.19N(16)* Forty-Sixth, Forty-Eighth, Fiftieth and Fifty-Second Amendments to
Restated and Amended CSG Master Subscriber Management System
Agreement between CSG Systems, Inc. and AT&T Broadband Management
Corporation

56

Exhibit
Number Description
------- -----------

2.19O(19)* Fifty-Third, Fifty-Fourth and Fifty-Fifth Amendments to Restated
and Amended CSG Master Subscriber Management System Agreement
between CSG Systems, Inc. and AT&T Broadband Management
Corporation

2.19P* Fifty-Sixth Amendment to Restated and Amended CSG Master
Subscriber Management System Agreement between CSG Systems, Inc.
and AT&T Broadband Management Corporation

2.20(3) Asset Purchase Agreement between CSG Systems International, Inc.
and TCI SUMMITrak of Texas, Inc., TCI SUMMITrak, L.L.C., and TCI
Technology Ventures, Inc., dated August 10, 1997

2.21(3) Contingent Warrant to Purchase Common Stock between CSG Systems
International, Inc. and TCI Technology Ventures, Inc., dated
September 19, 1997

2.22(3) Royalty Warrant to Purchase Common Stock between CSG Systems
International, Inc. and TCI Technology Ventures, Inc., dated
September 19, 1997

2.23(3) Registration Rights Agreement between CSG Systems International,
Inc. and TCI Technology Ventures, Inc., dated September 19, 1997

2.24(3) Loan Agreement among CSG Systems, Inc. and CSG Systems
International, Inc. as co-borrowers, and certain lenders and
Banque Paribas, as Agent, dated September 18, 1997

2.25(4) First Amendment to Loan Agreement among CSG Systems, Inc. and CSG
Systems International, Inc. as co-borrowers, and certain lenders
and Banque Paribas, as Agent, dated November 21, 1997

2.26(8) Second Amendment to Loan Agreement among CSG Systems, Inc. and CSG
Systems International, Inc. as co-borrowers, and certain lenders
and Banque Paribas, as Agent, dated November 16, 1998

2.27(13) Third Amendment to Loan Agreement among CSG Systems, Inc. and CSG
Systems International, Inc. as co-borrowers, and certain lenders
and Paribas, as Agent, dated January 24, 2000

3.01(1) Restated Certificate of Incorporation of the Company

3.02(2) Restated Bylaws of CSG Systems International, Inc.

3.03(2) Certificate of Amendment of Restated Certificate of Incorporation
of CSG Systems International, Inc.

4.01(1) Form of Common Stock Certificate

10.01(1) CSG Systems International, Inc. 1995 Incentive Stock Plan

10.02(16) CSG Employee Stock Purchase Plan

10.03(17) CSG Systems International, Inc. 1996 Stock Incentive Plan

10.14(8) Employment Agreement with Neal C. Hansen, dated November 17, 1998

First Amendment to Employment Agreement with Neal C. Hansen, dated
10.14A(15) June 30, 2000

10.15 Form of Indemnification Agreement between CSG Systems
International, Inc. and Directors and Executive Officers

10.39(12) CSG Systems, Inc. Wealth Accumulation Plan, as amended November
16, 1999

10.40(14)* Second Amended and Restated Services Agreement between First Data
Technologies, Inc. and CSG Systems, Inc., dated April 1, 2000

10.44(18) CSG Systems International, Inc. Stock Option Plan for Non-Employee
Directors

10.45(8) Employment Agreement with John P. Pogge, dated November 17, 1998.

10.46(8) Employment Agreement with Edward Nafus, dated November 17, 1998

10.47(15) Employment Agreement with J. Richard Abramson, dated
August 17, 2000

57

Exhibit
Number Description
------- -----------

10.48(17) Employment Agreement with Peter Kalan, dated January 18, 2001

10.49(19) Employment Agreement with William E. Fisher, dated September 18,
2001

10.50 CSG Systems International, Inc. 2001 Stock Incentive Plan

21.01 Subsidiaries of the Company

23.01 Consent of Arthur Andersen LLP

99.01 Safe Harbor for Forward-Looking Statements Under the Private
Securities Litigation Reform Act of 1995--Certain Cautionary
Statements and Risk Factors

99.02 Letter to the Commission Pursuant to Temporary Note 3T

- --------
(1) Incorporated by reference to the exhibit of the same number to the
Registration Statement No. 333-244 on Form S-1.
(2) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1997.
(3) Incorporated by reference to the exhibit of the same number to the
Registrant's Current Report on Form 8-K dated October 6, 1997.
(4) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K, as amended for the year ended
December 31, 1997.
(5) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1998.
(6) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1998.
(7) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1998.
(8) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K, as amended for the year ended
December 31, 1998.
(9) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 1999.
(10) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1999.
(11) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 1999.
(12) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K, as amended, for the year ended
December 31, 1999.
(13) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 2000.
(14) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
2000.
(15) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 2000.
(16) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
2000.
(17) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended March
31, 2001.
(18) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
2001.
(19) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended
September 30, 2001.

*Portions of the exhibit have been omitted pursuant to an application for
confidential treatment, and the omitted portions have been filed
separately with the Commission.

58