<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K (A)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported)
December 5, 1997 (September 19, 1997)
CSG SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-27512 47-0783182
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number Identification No.)
7887 East Belleview, Suite 1000, Englewood, Colorado 80111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 796-2850
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
FORM 8-K (A)
CSG Systems International, Inc. (the Company) hereby amends Item 7 of its Form
8-K filed on October 6, 1997, to report an event occurring on September 19,
1997, to include the following:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of businesses acquired
None.
(b) Pro forma financial information
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Page
----
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1997......................................... 4
Pro Forma Condensed Consolidated Statements of Operations:
Year ended December 31, 1996............................... 5
Nine months ended September 30, 1997....................... 6
Notes to Pro Forma Condensed Consolidated Financial Statements.. 7
On August 10, 1997, the Company signed a 15-year exclusive contract
with a Tele-Communications, Inc. (TCI) affiliate to consolidate 13
million TCI subscribers onto the Company's customer care and billing
systems (the 15-Year Contract). TCI also purchased certain software
products of the Company under the 15-Year Contract. On August 10, 1997,
the Company also entered into an agreement with TCI affiliates to
acquire certain SUMMITrak assets, a client/server, open systems, in-
house customer care and billing system being developed by TCI. The
SUMMITrak assets purchased consisted primarily of software, hardware,
people and intellectual property. Both the SUMMITrak asset purchase
agreement and the 15-Year Contract closed and became effective
September 19, 1997. The accompanying pro forma financial statements
give effect to the transactions discussed above, as if such
transactions had occurred, in the case of the pro forma balance sheet,
on September 30, 1997; and, in the case of the pro forma statements of
operations for the year ended December 31, 1996, and the nine-month
period ended September 30, 1997, on January 1, 1996.
The unaudited pro forma financial statements presented herein are shown
for illustrative purposes only and are not necessarily indicative of
the future financial position or future results of operations of the
Company, or of the financial position or results of operations of the
Company that would have actually occurred had the transactions been in
effect as of the date or for the periods presented. The unaudited pro
forma financial statements and related notes should be read in
conjunction with the historical financial statements of the Company.
(c) Exhibits
None.
2
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SIGNATURES
Pursuant to the requirements 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.
Dated: December 5, 1997
CSG SYSTEMS INTERNATIONAL, INC.
By: /s/ Randy Wiese
------------------------------
Randy Wiese
Controller
(Principal Accounting Officer)
3
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CSG SYSTEMS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET - UNAUDITED
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments Combined
------------- -------------- ------------
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................................................. $ 25,948 $ - $ 25,948
Accounts receivable-
Trade-
Billed, net of allowance of $893..................................... 41,807 - 41,807
Unbilled............................................................. 3,307 - 3,307
Other.................................................................... 1,900 - 1,900
Deferred income taxes..................................................... 225 - (e) 225
Other current assets...................................................... 3,003 - 3,003
----------- ---------- -----------
Total current assets..................................................... 76,190 - 76,190
----------- ---------- -----------
Property and equipment, net of depreciation of $13,420.................... 15,856 2,699 (a) 18,555
Investment in SUMMITrak assets............................................ 106,226 (106,226)(a) -
Software, net of amortization of $32,004.................................. 14,345 4,641 (a) 18,986
Noncompete agreements and goodwill, net of amortization of $17,742........ 20,304 - 20,304
Client contracts and related intangibles, net of amortization of $11,598.. 6,682 41,723 (a) 48,405
Deferred income taxes..................................................... 4,993 - (e) 4,993
Other assets.............................................................. 4,801 - 4,801
----------- ---------- -----------
Total assets............................................................ $ 249,397 $ (57,163) $ 192,234
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt...................................... $ 5,000 $ - $ 5,000
Customer deposits......................................................... 6,878 - 6,878
Trade accounts payable.................................................... 7,905 - 7,905
Accrued liabilities....................................................... 11,045 174 (a) 11,219
Deferred revenue.......................................................... 4,300 - 4,300
Accrued income taxes...................................................... 2,058 - 2,058
Other current liabilities................................................. 469 - 469
----------- ---------- -----------
Total current liabilities................................................ 37,655 174 37,829
----------- ---------- -----------
Long-term debt, net of current maturities................................. 145,000 - 145,000
Deferred revenue.......................................................... 11,157 - 11,157
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;
25,520,248 shares issued and outstanding................................. 255 - 255
Common stock warrants..................................................... - 33,780 (a) 33,780
Additional paid-in capital................................................ 111,942 - 111,942
Deferred employee compensation............................................ (810) - (810)
Notes receivable from employee stockholders............................... (861) - (861)
Accumulated translation adjustments....................................... (131) - (131)
Accumulated deficit....................................................... (54,810) (91,117)(a)(e) (145,927)
----------- ---------- -----------
Total stockholders' equity............................................... 55,585 (57,337) (1,752)
----------- ---------- -----------
Total liabilities and stockholders' equity............................... $ 249,397 $ (57,163) $ 192,234
=========== ========== ===========
</TABLE>
See notes to pro forma condensed consolidated financial statements
4
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CSG SYSTEMS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- ------------
(d)
<S> <C> <C> <C>
Total revenues............................................................. $ 132,297 $ - $ 132,297
Expenses:
Cost of revenues:
Direct costs............................................................. 59,150 - 59,150
Amortization of acquired software........................................ 11,003 774 (b) 11,777
Amortization of client contracts and related intangibles................. 4,092 960 (b) 5,052
---------- ---------- ------------
Total cost of revenues.................................................. 74,245 1,734 75,979
---------- ---------- ------------
Gross margin.............................................................. 58,052 (1,734) 56,318
---------- ---------- ------------
Operating expenses:
Research and development................................................. 20,206 - (a) 20,206
Selling and marketing.................................................... 8,213 - 8,213
General and administrative:
General and administrative.............................................. 13,702 - 13,702
Amortization of noncompete agreements and goodwill...................... 6,392 - 6,392
Stock-based employee compensation....................................... 3,570 - 3,570
Depreciation............................................................. 5,121 675 (b) 5,796
---------- ---------- ------------
Total operating expenses................................................ 57,204 675 57,879
---------- ---------- ------------
Operating income (loss).................................................... 848 (2,409) (1,561)
---------- ---------- ------------
Other income (expense):
Interest expense......................................................... (4,168) (8,196)(c) (12,364)
Interest income.......................................................... 844 - (c) 844
---------- ---------- ------------
Total other............................................................. (3,324) (8,196) (11,520)
---------- ---------- ------------
Loss from continuing operations before income taxes........................ (2,476) (10,605) (13,081)
Income tax (provision) benefit............................................ - - (e) -
---------- ---------- ------------
Loss from continuing operations............................................ $ (2,476) $ (10,605) $ (13,081)
========== ========== ============
Pro forma loss from continuing operations per common and
equivalent share:
Primary.................................................................. $ (0.10) $ (0.52)
========== ============
Fully diluted............................................................ $ (0.10) $ (0.52)
========== ============
Shares used in pro forma per share computation:
Primary.................................................................. 24,988,244 - (f) 24,988,244
=========== ========== ============
Fully diluted............................................................. 24,988,244 - (f) 24,988,244
=========== ========== ============
</TABLE>
See notes to pro forma condensed consolidated financial statements
5
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CSG SYSTEMS INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS - UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Adjustments Combined
---------- ----------- ------------
(d)
<S> <C> <C> <C>
Total revenues............................................................. $ 122,890 $ - $ 122,890
Expenses:
Cost of revenues:
Direct costs............................................................. 54,962 - 54,962
Amortization of acquired software........................................ 8,668 580 (b) 9,248
Amortization of client contracts and related intangibles................. 3,069 1,521 (b) 4,590
---------- ---------- ------------
Total cost of revenues.................................................. 66,699 2,101 68,800
---------- ---------- ------------
Gross margin.............................................................. 56,191 (2,101) 54,090
---------- ---------- ------------
Operating expenses:
Research and development................................................. 16,331 - (a) 16,331
Selling and marketing.................................................... 7,877 - 7,877
General and administrative:
General and administrative.............................................. 14,181 - 14,181
Amortization of noncompete agreements and goodwill...................... 5,194 - 5,194
Stock-based employee compensation....................................... 373 - 373
Depreciation............................................................. 5,051 506 (b) 5,557
---------- ---------- ------------
Total operating expenses................................................ 49,007 506 49,513
---------- ---------- ------------
Operating income........................................................... 7,184 (2,607) 4,577
---------- ---------- ------------
Other income (expense):
Interest expense......................................................... (2,195) (6,638)(c) (8,833)
Interest income.......................................................... 667 - (c) 667
Other.................................................................... 352 - 352
---------- ---------- ------------
Total other............................................................. (1,176) (6,638) (7,814)
---------- ---------- ------------
Income (loss) from continuing operations before income taxes............... 6,008 (9,245) (3,237)
Income tax (provision) benefit............................................ - - (e) -
---------- ---------- ------------
Income (loss) from continuing operations................................... $ 6,008 $ (9,245) $ (3,237)
========== ========== ============
Pro forma income (loss) from continuing operations per common and
equivalent share:
Primary.................................................................. $ 0.23 $ (0.13)
========== ===========
Fully diluted............................................................. $ 0.23 $ (0.13)
========== ===========
Shares used in pro forma per share computation:
Primary.................................................................. 25,755,833 - (f) 25,755,833
=========== ========== ===========
Fully diluted............................................................. 25,842,253 - (f) 25,842,253
=========== ========== ===========
</TABLE>
See notes to pro forma condensed consolidated financial statements
6
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CSG SYSTEMS INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying pro forma financial statements give effect to the transactions
discussed in Note 2, as if such transactions had occurred, in the case of the
pro forma balance sheet, on September 30, 1997; and, in the case of the pro
forma statements of operations for the year ended December 31, 1996, and the
nine-month period ended September 30, 1997, on January 1, 1996.
2. SUMMITRAK ASSET PURCHASE
On August 10, 1997, the Company signed a 15-year exclusive contract with a Tele-
Communications, Inc. (TCI) affiliate to consolidate 13 million TCI subscribers
onto the Company's customer care and billing systems (the 15-Year Contract).
TCI also purchased certain software products of the Company under the 15-Year
Contract. On August 10, 1997, the Company also entered into an agreement with
TCI affiliates to acquire certain SUMMITrak assets, a client/server, open
systems, in-house customer care and billing system being developed by TCI. The
SUMMITrak assets purchased consisted primarily of software, hardware, people and
intellectual property. Both the SUMMITrak asset purchase agreement and the 15-
Year Contract closed and became effective September 19, 1997.
The purchase price for the SUMMITrak assets was $106.0 million in cash at
closing, up to $26.0 million in various contingent payments, and warrants to
purchase up to 1.5 million shares of the Company's common stock, with the
contingent payments and the right to exercise the warrants based upon the
achievement of certain milestones by TCI specified in the SUMMITrak asset
purchase agreement. The milestones are based principally upon the timing of
conversions and the number of TCI subscribers processed on the Company's
customer care and billing systems.
3. PRELIMINARY PURCHASE PRICE
The purchase price as reflected in the Company's historical financial statements
at September 30, 1997, included only the $106.0 million cash payment and related
transaction costs on a preliminary basis as the total purchase price and
allocation of the purchase price had not yet been finalized. The Company is
currently evaluating the components and the amounts to be included in the total
purchase price. In conjunction with this evaluation, the Company has engaged an
independent party to assist in the allocation of the purchase price to the
assets acquired. The Company's internal analysis and the independent valuation
are expected to be completed in the fourth quarter of 1997, at which time the
total purchase price and the appropriate allocation of the purchase price will
be reflected in the Company's financial statements. The adjustments to reflect
the total purchase price (the Preliminary Purchase Price) and allocation of the
purchase price in the accompanying pro forma financial statements are
preliminary, and are based upon the Company's best estimates at this time. The
final purchase price and the allocation of the purchase price may vary from
these estimates.
The Company has estimated the Preliminary Purchase Price to be approximately
$140.2 million, which includes the following: i) $106.0 million cash payment
made as of the closing, ii) $0.4 million of related transaction costs, and iii)
$33.8 million for the estimated fair value of the warrants granted to TCI as of
the closing.
7
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As discussed above, the rights to exercise the warrants and the payment of $26.0
million contingent payments are dependent principally upon the timing of
conversions and the number of TCI subscribers processed on the Company's
customer care and billing systems. The Company has included the 1.5 million
warrants in the Preliminary Purchase Price as this represents the Company's best
available estimate of the number of warrants that are expected to be issued,
based principally on the current status and schedule of expected conversions to
the Company's CCS(TM) customer care and billing system. The fair value of the
1.5 million warrants was estimated as of the date of grant at $22.52 per warrant
using the Black-Scholes pricing model. The Preliminary Purchase Price excludes
the $26.0 million contingent payments as the Company is not assured beyond a
reasonable doubt as to the total amounts expected to be paid to TCI at this
time. The amounts are expected to be capitalized as the future payments are made
to TCI and will be amortized ratably over the remaining term of the 15-Year
Contract. As a result, the pro forma statements of operations do not include any
amortization for the contingent payments.
4. ALLOCATION OF PRELIMINARY PURCHASE PRICE
The allocation of the Preliminary Purchase Price included in the pro forma
financial statements is estimated as follows (in millions):
Asset Life
Amount (in years)
------ ----------
In-process research and development............... $ 91.1 -
Client contract................................... 41.8 15
Fixed assets...................................... 2.7 4
Acquired software and other intangible assets..... 4.6 6
------
Total............................................. $140.2
======
In-process research and development (R&D) represents research and development of
software technologies which had not reached technological feasibility and have
no alternative future use as of the acquisition date. In-process R&D will be
charged to operations in the fourth quarter of 1997. The value assigned to the
client contract will be amortized proportionately to the committed revenue under
the 15-Year Contract. The fixed assets and acquired software and other
intangible assets will be amortized on a straight-line basis. The total
purchase price and the allocation of the purchase price are preliminary, and are
based upon the Company's best estimates at this time. The final purchase price
and the allocation of the purchase price may vary from these estimates.
5. DEBT
The SUMMITrak asset acquisition was funded with a $190.0 million debt facility
with a bank, which consists of a $150.0 million term facility and a $40.0
million revolving facility. The proceeds from the term facility were used to
pay the $106.0 million purchase price at closing, retire the Company's existing
debt of $27.5 million, and pay transaction costs of $3.4 million. The remaining
proceeds will be used for general corporate purposes. No amounts were drawn on
the revolving facility for the period ended September 30, 1997.
8
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Transaction costs include $3.2 million of financing costs, which will be
amortized over the life of the loan using a method which approximates the
effective interest rate method. Interest payments under the new agreement 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 defined in the
loan agreement. The scheduled maturities of the new loan agreement for each of
the years ending December 31 are as follows (in thousands):
1997 .................................. $ -
1998 ................................... 7,500
1999 ................................... 21,250
2000 ................................... 32,500
2001 ................................... 38,750
2002 ................................... 50,000
--------
$150,000
========
The Company has the right to make optional principal payments on the debt.
6. PRO FORMA ADJUSTMENTS
The unaudited pro forma financial statements reflect the following adjustments.
The adjustments are based upon currently available information and certain
assumptions, and therefore the actual adjustments will likely differ from the
pro forma adjustments. As discussed above, the purchase price and allocation of
the purchase price are preliminary. However, the Company's management believes
that the preliminary purchase price allocation and other assumptions provide a
reasonable basis for presenting the effects of the SUMMITrak asset purchase as
contemplated.
(a) Adjustment to reflect the allocation of the Preliminary Purchase Price
as discussed in Notes 3 and 4. The portion allocated to in-process R&D
has not been included in the pro forma statements of operations as the
amount is considered a material, nonrecurring charge which will be
included in the Company's results of operations within 12 months
following the closing of the transactions discussed above.
Accordingly, the adjustment to accumulated deficit represents the
estimated amount of in-process R&D to be expensed by the Company in
the fourth quarter of 1997. See additional discussion in Note 4.
(b) Adjustment to reflect the depreciation of property and equipment and
the amortization of intangible assets acquired. The depreciation and
amortization periods and methods are discussed in Note 4.
(c) Adjustment to reflect interest expense under the new debt agreement,
as discussed in Note 5. The base interest rate on the debt is
variable, dependent upon LIBOR or the prime interest rate, plus the
additional spread which is dependent on the Company's leverage ratio.
The interest rate (including the percentage spread) used for
calculating interest expense for the periods presented is assumed to
be consistent with the fourth quarter 1997 interest rate. A 1/8
percent variance in the base interest rate in the accompanying pro
forma financial statements equates to a variance in interest expense
of $0.2 million and $0.1 million for the year and nine months ended
December 31, 1996, and September 30, 1997, respectively. It is assumed
the principal amount of the debt is reduced by the scheduled principal
payments, as reflected in Note 5. The accompanying pro forma financial
statements do not assume any optional prepayments of principal. No
interest income is assumed from any excess proceeds from the debt. It
is assumed no amounts are drawn on the revolving credit facility for
the periods presented.
9
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(d) The accompanying pro forma financial statements do not reflect any
additional revenues which are expected to be generated or costs which
are expected to be incurred as a result of the 15-Year Contract or
SUMMITrak asset acquisition. TCI has certain financial commitments
under the 15-Year Contract which are not reflected in the accompanying
pro forma financial statements. TCI's minimum financial commitments
under the 15-Year Contract are subject to certain performance criteria
by the Company.
(e) As of September 30, 1997, the Company had net deferred tax assets of
approximately $24.2 million, with a valuation allowance of $19.0
million recorded against this amount, resulting in a net deferred tax
asset of $5.2 million recorded in the historical financial statements.
The in-process R&D to be expensed for book purposes in the fourth
quarter of 1997 will be deductible for tax purposes over a 15-year
period, resulting in a deferred tax asset of approximately $34.6
million as of the acquisition date. The additional expense reflected
in the pro forma statements of operations will create additional
deferred tax assets for the Company. As a result of the significant
increase in the deferred tax assets from these items, considered with
the historical deferred tax assets, it is assumed in the accompanying
pro forma financial statements that any additional deferred tax assets
from these transactions would not likely be realized. As a result, no
deferred tax benefit for the pro forma adjustments is recorded. This
treatment is consistent with the Company's accounting for income taxes
as of September 30, 1997. The Company evaluates the liklihood of
realization of its net deferred tax assets on a quarterly basis. Such
analysis for the quarter ended December 31, 1997 may indicate it is
appropriate to realize all or a portion of the deferred tax assets
resulting from the transactions discussed above, as well as the
historical deferred tax assets.
(f) The 1.5 million common stock warrants discussed in Note 2 above are
excluded from common equivalent shares as the events necessary to
allow the exercise of the warrants had not been satisfied as of
September 30, 1997.
10
