Form 8-K CSG SYSTEMS INTERNATIONA For: Nov 04

Delaware

�

0-27512

�

47-0783182

(State or other jurisdiction

of incorporation)

�

(Commission

File Number)

�

(IRS Employer

Identification No.)

�

9555 Maroon Circle, Englewood, CO

�

�

80112

(Address of principal executive offices)

�

(Zip Code)

�

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

�

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

�

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

�

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

99.1

��

Press release of CSG Systems International, Inc. dated November 4, 2014

CSG SYSTEMS INTERNATIONAL, INC.

�

By:

�

�

�/s/ Rolland B. Johns�

�

�

Rolland B. Johns,

�

�

Chief Accounting Officer

PRESS RELEASE

"

Third quarter 2014 results:

"

Total revenues were $185.0 million.

"

Non-GAAP operating income was $29.9 million, or 16.2% of total revenues and GAAP operating income was $13.8 million, or 7.5% of total revenues.

"

Non-GAAP earnings per diluted share (EPS) was $0.49. GAAP EPS was $0.15.

"

Cash flows from operations for the quarter were $19.6 million.

"

CSG paid its quarterly cash dividend of $0.1575 per share of common stock, or a total of approximately $5 million, to shareholders on September 25, 2014.

"

During the quarter, CSG repurchased approximately 192,000 shares of its common stock for approximately $5 million (weighted-average price of $27.26 per share) under its stock repurchase program.

�

��

Quarter Ended September�30,

�

�

Nine Months Ended September�30,

�

�

��

2014

�

�

2013

�

�

Percent
Change

�

�

2014

�

�

2013

�

�

Percent
Change

�

Revenues

��

$

185,003

�

�

$

186,180

�

�

�

(1

)%

�

$

557,589

�

�

$

552,919

�

�

�

1

%

Non-GAAP Results:

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Operating Income

��

$

29,941

�

�

$

29,365

�

�

�

2

%

�

$

89,640

�

�

$

87,375

�

�

�

3

%

Operating Income Margin

��

�

16.2

%

�

�

15.8

%

�

�



�

�

�

16.1

%

�

�

15.8

%

�

�



�

EPS

��

$

0.49

�

�

$

0.52

�

�

�

(6

)%

�

$

1.50

�

�

$

1.58

�

�

�

(5

)%

GAAP Results:

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Operating Income

��

$

13,831

�

�

$

20,553

�

�

�

(33

)%

�

$

56,565

�

�

$

60,269

�

�

�

(6

)%

Operating Income Margin

��

�

7.5

%

�

�

11.0

%

�

�



�

�

�

10.1

%

�

�

10.9

%

�

�



�

EPS

��

$

0.15

�

�

$

0.47

�

�

�

(68

)%

�

$

0.72

�

�

$

1.30

�

�

�

(45

)%

�

�

��

September�30,
2014

�

�

June�30,
2014

�

�

December�31,
2013

�

Cash, cash equivalents, and short-term investments

��

$

183,459

�

�

$

189,583

�

�

$

210,837

�

Net billed trade accounts receivable (1)

��

�

191,024

�

�

�

191,615

�

�

�

178,511

�

Total long-term debt:

��

�

�

�

�

�

�

�

�

�

�

�

Par value

��

$

273,750

�

�

$

277,500

�

�

$

285,000

�

Unamortized OID

��

�

(15,656

)

�

�

(17,116

)

�

�

(19,950

)

Net debt carrying amount

��

$

258,094

�

�

$

260,384

�

�

$

265,050

�

(1)

The increases in trade accounts receivable at September 30, 2014 and June�30, 2014, from December�31, 2013, are primarily related to the timing around certain monthly customer payments.

�

��

September�30,
2014

�

�

June�30,
2014

�

�

September�30,
2013

�

Cash Flows from Operating Activities:

��

�

�

�

�

�

�

�

�

�

�

�

Operations

��

$

22,452

�

�

$

24,804

�

�

$

29,634

�

Changes in operating assets and liabilities

��

�

(2,815

)

�

�

43

�

�

�

(4,398

)

Net cash provided by operating activities (2)

��

$

19,637

�

�

$

24,847

�

�

$

25,236

�

Cash Flows from Investing Activities:

��

�

�

�

�

�

�

�

�

�

�

�

Purchases of property and equipment

��

$

(10,210

)

�

$

(6,697

)

�

$

(7,861

)

Cash Flows from Financing Activities:

��

�

�

�

�

�

�

�

�

�

�

�

Dividend payments (3)

��

$

(5,139

)

�

$

(5,160

)

�

$

(9,630

)

Repurchase of common stock under stock repurchase program

��

�

(4,727

)

�

�



�

�

�

(128

)

Payments on long-term debt

��

�

(3,750

)

�

�

(3,750

)

�

�

(3,750

)

(2)

Cash flows from operating activities for the quarter ended September 30, 2014 were negatively impacted by: (i) the $8.0 million charge associated with CSGs reorganization of its Content Direct management programs and incentives during the quarter to align its investment across CSGs offerings; and (ii) the timing around certain monthly customer payments, discussed above.

(3)

After initiating a cash dividend in June of 2013, the first two dividend payments to shareholders of $0.15 per share of common stock were made during the third quarter of 2013 for a total of $9.6 million, as reflected in CSGs cash flow results.

�

�

As of November 4, 2014

Previous

Revenues

��

$745�-�$770�million �(maintained)

$745�-�$770�million

Non-GAAP EPS

��

$2.05�-�$2.17���(maintained)

$2.05�-�$2.17

GAAP EPS

��

$1.02�to�$1.12���(maintained)

$1.02�to�$1.12

Non-GAAP Adjusted EBITDA

��

$152�-�$158�million� (maintained)

$152�-�$158�million

Cash flows from operating activities

��

$75�-�$90�million� (revised)

$100 - $110 million

"

CSG derives over forty percent of its revenues from its three largest clients;

"

Continued market acceptance of CSGs products and services;

"

Timing and success of previously announced client customer account migrations to CSGs billing platform;

"

CSGs ability to continuously develop and enhance products in a timely, cost-effective, technically-advanced and competitive manner;

"

CSGs ability to deliver its solutions in a timely fashion within budget, particularly large and complex software implementations;

"

CSGs dependency on the global telecommunications industry, and in particular, the North American telecommunications industry;

"

CSGs ability to meet its financial expectations as a result of increased dependency on software sales, which are subject to greater volatility;

"

Increasing competition in CSGs market from companies of greater size and with broader presence in the communications sector;

"

CSGs ability to successfully integrate and manage acquired businesses or assets to achieve expected strategic, operating and financial goals;

"

CSGs ability to protect its intellectual property rights;

"

CSGs ability to maintain a reliable, secure computing environment;

"

CSGs ability to conduct business in the international marketplace;

"

CSGs ability to comply with applicable U.S. and International laws and regulations; and

"

Fluctuations in credit market conditions, general global economic and political conditions, and foreign currency exchange rates.

�

��

September�30,
2014

�

�

December�31,
2013

�

ASSETS

��

�

�

�

�

�

Current assets:

��

�

�

�

�

�

�

�

Cash and cash equivalents

��

$

75,573

�

�

$

82,686

�

Short-term investments

��

�

107,886

�

�

�

128,151

�

Total cash, cash equivalents, and short-term investments

��

�

183,459

�

�

�

210,837

�

Trade accounts receivable:

��

�

�

�

�

�

�

�

Billed, net of allowance of $2,736 and $2,359

��

�

191,024

�

�

�

178,511

�

Unbilled

��

�

39,513

�

�

�

38,365

�

Deferred income taxes

��

�

8,691

�

�

�

15,085

�

Income taxes receivable

��

�

6,633

�

�

�

3,815

�

Other current assets

��

�

30,514

�

�

�

28,762

�

Total current assets

��

�

459,834

�

�

�

475,375

�

Non-current assets:

��

�

�

�

�

�

�

�

Property and equipment, net of depreciation of $135,483 and $129,522

��

�

36,762

�

�

�

35,061

�

Software, net of amortization of $85,209 and $77,504

��

�

44,861

�

�

�

43,565

�

Goodwill

��

�

230,798

�

�

�

233,599

�

Client contracts, net of amortization of $85,451 and $75,382

��

�

45,699

�

�

�

55,191

�

Deferred income taxes

��

�

9,654

�

�

�

7,447

�

Income taxes receivable

��

�

2,170

�

�

�

1,930

�

Other assets

��

�

17,606

�

�

�

16,812

�

Total non-current assets

��

�

387,550

�

�

�

393,605

�

Total assets

��

$

847,384

�

�

$

868,980

�

LIABILITIES AND STOCKHOLDERS EQUITY

��

�

�

�

�

�

Current liabilities:

��

�

�

�

�

�

�

�

Current maturities of long-term debt

��

$

20,625

�

�

$

15,000

�

Client deposits

��

�

32,952

�

�

�

30,431

�

Trade accounts payable

��

�

31,082

�

�

�

33,376

�

Accrued employee compensation

��

�

40,163

�

�

�

58,434

�

Deferred revenue

��

�

46,899

�

�

�

47,131

�

Income taxes payable

��

�

2,258

�

�

�

2,814

�

Other current liabilities

��

�

21,764

�

�

�

19,620

�

Total current liabilities

��

�

195,743

�

�

�

206,806

�

Non-current liabilities:

��

�

�

�

�

�

�

�

Long-term debt, net of unamortized original issue discount of $15,656 and $19,950

��

�

237,469

�

�

�

250,050

�

Deferred revenue

��

�

9,270

�

�

�

9,221

�

Income taxes payable

��

�

1,613

�

�

�

1,909

�

Deferred income taxes

��

�

15,116

�

�

�

20,274

�

Other non-current liabilities

��

�

14,921

�

�

�

14,616

�

Total non-current liabilities

��

�

278,389

�

�

�

296,070

�

Total liabilities

��

�

474,132

�

�

�

502,876

�

Stockholders equity:

��

�

�

�

�

�

�

�

Preferred stock, par value $.01 per share; 10,000 shares authorized; zero shares issued and outstanding

��

�



�

�

�



�

Common stock, par value $.01 per share; 100,000 shares authorized; 34,527 shares and 33,745 shares outstanding

��

�

667

�

�

�

658

�

Additional paid-in capital

��

�

483,193

�

�

�

473,190

�

Treasury stock, at cost, 32,222 and 32,030 shares

��

�

(743,608

)

�

�

(738,372

)

Accumulated other comprehensive income (loss):

��

�

�

�

�

�

�

�

Unrealized gain on short-term investments, net of tax

��

�

34

�

�

�

41

�

Unrealized loss on change in fair value of interest rate swaps, net of tax

��

�



�

�

�

(98

)

Cumulative foreign currency translation adjustments

��

�

(4,511

)

�

�

1,674

�

Accumulated earnings

��

�

637,477

�

�

�

629,011

�

Total stockholders equity

��

�

373,252

�

�

�

366,104

�

Total liabilities and stockholders equity

��

$

847,384

�

�

$

868,980

�

�

��

Quarter Ended

�

�

Nine Months Ended

�

�

��

September�30,
2014

�

�

September�30,
2013

�

�

September�30,
2014

�

�

September�30,
2013

�

Revenues:

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Processing and related services

��

$

140,981

�

�

$

133,294

�

�

$

419,696

�

�

$

399,112

�

Software and services

��

�

22,079

�

�

�

30,294

�

�

�

72,553

�

�

�

87,049

�

Maintenance

��

�

21,943

�

�

�

22,592

�

�

�

65,340

�

�

�

66,758

�

Total revenues

��

�

185,003

�

�

�

186,180

�

�

�

557,589

�

�

�

552,919

�

Cost of revenues (exclusive of depreciation, shown separately below):

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Processing and related services

��

�

69,225

�

�

�

65,184

�

�

�

205,016

�

�

�

189,725

�

Software and services

��

�

17,508

�

�

�

19,942

�

�

�

60,699

�

�

�

63,887

�

Maintenance

��

�

7,737

�

�

�

9,772

�

�

�

24,541

�

�

�

29,398

�

Total cost of revenues

��

�

94,470

�

�

�

94,898

�

�

�

290,256

�

�

�

283,010

�

Other operating expenses:

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Research and development

��

�

26,329

�

�

�

27,600

�

�

�

77,773

�

�

�

83,693

�

Selling, general and administrative

��

�

39,036

�

�

�

38,444

�

�

�

113,475

�

�

�

110,629

�

Depreciation

��

�

3,553

�

�

�

4,609

�

�

�

10,479

�

�

�

14,379

�

Restructuring and reorganization charges

��

�

7,784

�

�

�

76

�

�

�

9,041

�

�

�

939

�

Total operating expenses

��

�

171,172

�

�

�

165,627

�

�

�

501,024

�

�

�

492,650

�

Operating income

��

�

13,831

�

�

�

20,553

�

�

�

56,565

�

�

�

60,269

�

Other income (expense):

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Interest expense

��

�

(2,582

)

�

�

(2,615

)

�

�

(7,900

)

�

�

(8,724

)

Amortization of original issue discount

��

�

(1,460

)

�

�

(1,351

)

�

�

(4,294

)

�

�

(3,975

)

Interest and investment income, net

��

�

169

�

�

�

174

�

�

�

607

�

�

�

517

�

Other, net

��

�

106

�

�

�

(130

)

�

�

(171

)

�

�

950

�

Total other

��

�

(3,767

)

�

�

(3,922

)

�

�

(11,758

)

�

�

(11,232

)

Income before income taxes

��

�

10,064

�

�

�

16,631

�

�

�

44,807

�

�

�

49,037

�

Income tax provision

��

�

(4,831

)

�

�

(1,331

)

�

�

(20,480

)

�

�

(6,767

)

Net income

��

$

5,233

�

�

$

15,300

�

�

$

24,327

�

�

$

42,270

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Weighted-average shares outstanding:

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Basic

��

�

32,604

�

�

�

32,084

�

�

�

32,514

�

�

�

32,114

�

Diluted

��

�

33,996

�

�

�

32,664

�

�

�

33,858

�

�

�

32,553

�

Earnings per common share:

��

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Basic

��

$

0.16

�

�

$

0.48

�

�

$

0.75

�

�

$

1.32

�

Diluted

��

�

0.15

�

�

�

0.47

�

�

�

0.72

�

�

�

1.30

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

�

Cash dividends declared per common share

��

$

0.1575

�

�

$

0.1500

�

�

$

0.4650

�

�

$

0.3000

�

�

��

Nine Months Ended

�

�

��

September�30,
2014

�

�

September�30,
2013

�

Cash flows from operating activities:

��

�

�

�

�

�

�

�

Net income

��

$

24,327

�

�

$

42,270

�

Adjustments to reconcile net income to net cash provided by operating activities -

��

�

�

�

�

�

�

�

Depreciation

��

�

10,479

�

�

�

14,379

�

Amortization

��

�

25,207

�

�

�

28,413

�

Amortization of original issue discount

��

�

4,294

�

�

�

3,975

�

Loss on short-term investments and other

��

�

973

�

�

�

1,264

�

Gain on disposition of business operations

��

�

(222

)

�

�



�

Deferred income taxes

��

�

(25

)

�

�

1,083

�

Excess tax benefit of stock-based compensation awards

��

�

(2,044

)

�

�

(619

)

Stock-based employee compensation

��

�

12,250

�

�

�

11,497

�

Subtotal

��

�

75,239

�

�

�

102,262

�

Changes in operating assets and liabilities:

��

�

�

�

�

�

�

�

Trade accounts receivable, net

��

�

(15,559

)

�

�

75

�

Other current and non-current assets

��

�

(5,866

)

�

�

(4,641

)

Income taxes payable/receivable

��

�

(1,825

)

�

�

1,359

�

Trade accounts payable and accrued liabilities

��

�

(16,369

)

�

�

(15,724

)

Deferred revenue

��

�

286

�

�

�

3,251

�

Net cash provided by operating activities

��

�

35,906

�

�

�

86,582

�

Cash flows from investing activities:

��

�

�

�

�

�

�

�

Purchases of property and equipment

��

�

(21,406

)

�

�

(18,986

)

Purchases of short-term investments

��

�

(126,982

)

�

�

(129,259

)

Proceeds from sale/maturity of short-term investments

��

�

146,417

�

�

�

62,720

�

Acquisition of and investments in client contracts

��

�

(4,235

)

�

�

(5,349

)

Proceeds from the disposition of business operations

��

�

1,130

�

�

�

1,734

�

Net cash used in investing activities

��

�

(5,076

)

�

�

(89,140

)

Cash flows from financing activities:

��

�

�

�

�

�

�

�

Proceeds from issuance of common stock

��

�

1,053

�

�

�

1,283

�

Payment of cash dividends

��

�

(15,461

)

�

�

(9,630

)

Repurchase of common stock

��

�

(11,456

)

�

�

(15,124

)

Payments on acquired equipment financing

��

�

(1,097

)

�

�

(1,894

)

Payments on long-term debt

��

�

(11,250

)

�

�

(11,250

)

Excess tax benefit of stock-based compensation awards

��

�

2,044

�

�

�

619

�

Net cash used in financing activities

��

�

(36,167

)

�

�

(35,996

)

Effect of exchange rate fluctuations on cash

��

�

(1,776

)

�

�

(2,457

)

Net decrease in cash and cash equivalents

��

�

(7,113

)

�

�

(41,011

)

Cash and cash equivalents, beginning of period

��

�

82,686

�

�

�

133,747

�

Cash and cash equivalents, end of period

��

$

75,573

�

�

$

92,736

�

Supplemental disclosures of cash flow information:

��

�

�

�

�

�

�

�

Net cash paid during the period for -

��

�

�

�

�

�

�

�

Interest

��

$

7,331

�

�

$

8,247

�

Income taxes

��

�

21,718

�

�

�

3,554

�

�

��

Quarter�Ended
September�30,�2014

�

�

Quarter�Ended
June�30,�

2014

�

�

Quarter�Ended
September�30,�2013

�

Americas

��

�

85

%

�

�

85

%

�

�

85

%

Europe, Middle East and Africa

��

�

10

%

�

�

11

%

�

�

11

%

Asia Pacific

��

�

5

%

�

�

4

%

�

�

4

%

Total Revenues

��

�

100

%

�

�

100

%

�

�

100

%

�

��

Quarter�Ended
September�30,�2014

�

�

Quarter�Ended
June�30,

�2014

�

�

Quarter�Ended
September�30,�2013

�

Comcast

��

�

22

%

�

�

21

%

�

�

19

%

DISH

��

�

15

%

�

�

16

%

�

�

15

%

Time Warner

��

�

11

%

�

�

11

%

�

�

11

%

�

��

September�30,
2014

�

��

June�30,
2014

�

��

September�30,
2013

�

Cable/Satellite Customer Accounts

��

�

50,036

�

��

�

49,891

�

��

�

49,151

�

"

Certain internal financial planning, reporting, and analysis;

"

Forecasting and budgeting;

"

Certain management compensation incentives; and

"

Communications with CSGs Board of Directors, stockholders, financial analysts, and investors.

"

A more complete understanding of CSGs underlying operational results, trends, and cash generating capabilities;

"

Consistency and comparability with CSGs historical financial results; and

"

Comparability to similar companies, many of which present similar non-GAAP financial measures to investors.

"

Non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles;

"

The way in which CSG calculates non-GAAP financial measures may differ from the way in which other companies calculate similar non-GAAP financial measures;

"

Non-GAAP financial measures do not include all items of income and expense that affect CSGs operations and that are required by GAAP to be included in financial statements;

"

Certain adjustments to CSGs non-GAAP financial measures result in the exclusion of items that are recurring and will be reflected in CSGs financial statements in future periods; and

"

Certain charges excluded from CSGs non-GAAP financial measures are cash expenses, and therefore do impact CSGs cash position.

Non-GAAP Exclusions

��

Operating
Income

�

��

EPS

�

Restructuring and reorganization charges

��

�

X

�

�

�

X

�

Acquisition-related charges

��

�

X

�

�

�

X

�

Stock-based compensation

��

�

X

�

�

�

X

�

Amortization of acquired intangible assets

��

�

X

�

�

�

X

�

Amortization of original issue discount (OID)

��

�



�

�

�

X

�

Unusual income tax matters

��

�



�

�

�

�X

�

"

Restructuring and reorganization charges are infrequent expenses that result from cost reduction initiatives and/or significant changes to CSGs business, to include such things as involuntary employee terminations, changes in management structure, divestitures of businesses, facility consolidations and abandonments, and fundamental reorganizations impacting operational focus and direction. These charges are not considered reflective of CSGs recurring core business operating results. The exclusion of these items in calculating CSGs non-GAAP financial measures allows management and investors an additional means to compare CSGs current financial results with historical and future periods.

"

Acquisition-related charges relate to direct and incremental expenses related to business acquisitions, and thus, are not considered reflective of CSGs recurring core business operating results. These charges typically include expenses related to legal, accounting, and other professional services. The exclusion of these charges in calculating CSGs non-GAAP financial measures allows management and investors an additional means to compare CSGs current financial results with historical and future periods.

"

Stock-based compensation results from CSGs issuance of equity awards to its employees under incentive compensation programs. The amount of this incentive compensation in any period is not generally linked to the level of performance by employees or CSG, but instead is more dependent on CSGs stock price at the date the equity award is granted, and the employee service period over which the equity awards vest. The exclusion of these expenses in calculating CSGs non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to compensation included in CSGs results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSGs business.

"

Amortization of acquired intangible assets is the result of business acquisitions. A portion of the purchase price in an acquisition is allocated to acquired intangible assets (e.g., software, client relationships, etc.), which are then amortized to expense over their estimated useful lives. This annual

amortization expense is generally unchanged from the initial estimates, regardless of performance of the acquired business in any one period. Also, the value assigned to acquired intangible assets in a business combination is based on various estimates and valuation techniques, and does not necessarily represent the costs CSG would incur to develop such capabilities internally. Additionally, amortization of acquired intangible assets can be inconsistent in amount and frequency, and can be significantly affected by the timing and size of an acquisition. The exclusion of these expenses in calculating CSGs non-GAAP financial measures allows management and investors an additional means to evaluate the non-cash expense related to acquisitions included in CSGs results of operations, and therefore, the exclusion of this item allows investors to further evaluate the cash generating capabilities of CSGs business.

"

The convertible debt securities OID is the result of allocating a portion of the principal balance of the debt at issuance to the equity component of the instrument, as required under current accounting rules. This OID is then amortized to interest expense over the life of the respective convertible debt instrument. The interest expense related to the amortization of the OID is a non-cash expense, and therefore, the exclusion of this item allows investors to further evaluate the cash interest costs of CSGs convertible debt securities for cash flow, liquidity, and debt service purposes.

"

Unusual items within CSGs quarterly and/or annual income tax expense can occur from such things as income tax accounting timing matters, income taxes related to unusual events, or as a result of different treatment of certain items for book accounting and income tax purposes. Consideration of such items in calculating CSGs non-GAAP financial measures allows management and investors an additional means to compare CSGs current financial results with historical and future periods.

�

��

Quarter�Ended
September�30,�2014

�

�

Quarter�Ended
September�30,�2013

�

�

��

Amounts

�

��

%�of
Revenues

�

�

Amounts

�

�

%�of
Revenues

�

GAAP operating income

��

$

13,831

�

��

�

7.5

%

�

$

20,553

�

�

�

11.0

%

Restructuring and reorganization charges

��

�

7,784

�

��

�

4.2

%

�

�

76

�

�

�

0.1

%

Stock-based compensation

��

�

4,536

�

��

�

2.5

%

�

�

3,979

�

�

�

2.1

%

Amortization of acquired intangible assets

��

�

3,790

�

��

�

2.0

%

�

�

4,757

�

�

�

2.6

%

Non-GAAP operating income

��

$

29,941

�

��

�

16.2

%

�

$

29,365

�

�

�

15.8

%

�

��

Nine�Months�Ended
September�30,�2014

�

�

Nine�Months�Ended
September�30,�2013

�

�

��

Amounts

�

��

%�of
Revenues

�

�

Amounts

�

��

%�of
Revenues

�

GAAP operating income

��

$

56,565

�

��

�

10.1

%

�

$

60,269

�

��

�

10.9

%

Restructuring and reorganization charges

��

�

9,041

�

��

�

1.7

%

�

�

939

�

��

�

0.2

%

Stock-based compensation

��

�

12,250

�

��

�

2.2

%

�

�

11,497

�

��

�

2.1

%

Amortization of acquired intangible assets

��

�

11,784

�

��

�

2.1

%

�

�

14,670

�

��

�

2.6

%

Non-GAAP operating income

��

$

89,640

�

��

�

16.1

%

�

$

87,375

�

��

�

15.8

%

�

��

Quarter�Ended
September�30,�2014

�

��

Quarter�Ended
September�30,�2013

�

�

��

Pretax
Amount�(1)

�

��

EPS�(3)

�

��

Pretax
Amount�(1)

�

�

EPS�(4)

�

GAAP income before income taxes

��

$

10,064

�

��

$

0.15

�

��

$

16,631

�

�

$

0.47

�

Restructuring and reorganization charges

��

�

7,784

�

��

�

�

�

��

�

76

�

�

�

�

�

Stock-based compensation

��

�

4,536

�

��

�

�

�

��

�

3,979

�

�

�

�

�

Amortization of acquired intangible assets

��

�

3,790

�

��

�

�

�

��

�

4,757

�

�

�

�

�

Amortization of OID

��

�

1,460

�

��

�

�

�

�

��

�

1,351

�

�

�

�

�

Non-GAAP income before income taxes (2)

��

$

27,634

�

��

$

0.49

�

��

$

26,794

�

�

$

0.52

�

�

��

Nine�Months�Ended
September�30,�2014

�

��

Nine�Months�Ended
September�30,�2013

�

�

��

Pretax
Amount�(1)

�

��

EPS�(3)

�

��

Pretax
Amount�(1)

�

��

EPS�(4)

�

GAAP income before income taxes

��

$

44,807

�

��

$

0.72

�

��

$

49,037

�

��

$

1.30

�

Restructuring and reorganization charges

��

�

9,041

�

��

�

�

�

��

�

939

�

��

�

�

�

Stock-based compensation

��

�

12,250

�

��

�

�

�

��

�

11,497

�

��

�

�

�

Amortization of acquired intangible assets

��

�

11,784

�

��

�

�

�

��

�

14,670

�

��

�

�

�

Amortization of OID

��

�

4,294

�

��

�

��

�

��

�

3,975

�

��

�

�

�

Non-GAAP income before income taxes (2)

��

$

82,176

�

��

$

1.50

�

��

$

80,118

�

��

$

1.58

�

(1)

These items (on a pretax basis) are calculated in accordance with GAAP, and are reflected as part of the results of operations in the accompanying Unaudited Condensed Consolidated Statements of Income.

(2)

Non-GAAP EPS is calculated by taking the non-GAAP income before income taxes and deducting from this amount non-GAAP income taxes calculated by using the non-GAAP effective income tax rate for the period, and then dividing the result of this calculation by the outstanding diluted shares for the period.

(3)

For the third quarter and nine months ended September�30, 2014, the GAAP effective income tax rate was 48% and 46%, respectively, the non-GAAP effective income tax rate was approximately 40% and 38%, respectively, and the outstanding diluted shares were 34.0�million and 33.9�million, respectively. The difference between the GAAP and the non-GAAP effective income tax rates relates primarily to the timing of the 2014 R&D tax credit legislation. The anticipated quarterly benefit of the credits is included for non-GAAP purposes, but cannot be reflected for GAAP purposes until the legislation is actually passed.

(4)

For the third quarter and nine months ended September�30, 2013, the GAAP effective income tax rate was 8% and 14%, respectively, the non-GAAP effective income tax rate was approximately 36% for both periods, and the outstanding diluted shares were 32.7�million and 32.6�million, respectively.

The difference between the GAAP and the non-GAAP effective income tax rates for the three and nine months ended September�30, 2013 is driven in part by incremental R&D income tax credits claimed for development activities from previous years.��The lower tax rates provided a benefit of approximately $0.17 per diluted share for both the quarter and nine months ended September 30, 2013.

In addition to this, the rate for the nine months ended September 30, 2013 also benefited from the recognition of the 2012 R&D tax credits of approximately $0.18 per diluted share, that were recognized for GAAP purposes in the first quarter of 2013 since the credit legislation was passed by Congress in January 2013.��

These unusual tax benefits are excluded from our non-GAAP effective income tax rates for these same periods.

�

��

Quarter�Ended
September�30,

�

�

Nine�Months�Ended
September�30,

�

�

��

2014

�

�

2013

�

�

2014

�

�

2013

�

GAAP operating income

��

$

13,831

�

�

$

20,553

�

�

$

56,565

�

�

$

60,269

�

Restructuring and reorganization charges

��

�

7,784

�

�

�

76

�

�

�

9,041

�

�

�

939

�

Depreciation

��

�

3,553

�

�

�

4,609

�

�

�

10,479

�

�

�

14,379

�

Amortization of acquired intangible assets (5)

��

�

3,790

�

�

�

4,757

�

�

�

11,784

�

�

�

14,670

�

Amortization of other intangible assets (5)

��

�

3,916

�

�

�

4,303

�

�

�

11,668

�

�

�

11,917

�

Stock-based compensation

��

�

4,536

�

�

�

3,979

�

�

�

12,250

�

�

�

11,497

�

Adjusted EBITDA

��

$

37,410

�

�

$

38,277

�

�

$

111,787

�

�

$

113,671

�

Adjusted EBITDA as a percentage of revenues

��

�

20

%

�

�

21

%

�

�

20

%

�

�

21

%

�

��

Quarter�Ended
September�30,

�

�

Nine�Months�Ended
September�30,

�

�

��

2014

�

��

2013

�

�

2014

�

�

2013

�

Net income

��

$

5,233

�

��

$

15,300

�

�

$

24,327

�

�

$

42,270

�

Interest expense (6)

��

�

2,582

�

��

�

2,615

�

�

�

7,900

�

�

�

8,724

�

Amortization of OID

��

�

1,460

�

��

�

1,351

�

�

�

4,294

�

�

�

3,975

�

Interest and investment income and other, net

��

�

�

(275

)

��

�

(44

)

�

�

(436

)

�

�

(1,467

)

Income tax provision

��

�

4,831

�

��

�

1,331

�

�

�

20,480

�

�

�

6,767

�

Depreciation

��

�

3,553

�

��

�

4,609

�

�

�

10,479

�

�

�

14,379

�

Amortization of acquired intangible assets (5)

��

�

3,790

�

��

�

4,757

�

�

�

11,784

�

�

�

14,670

�

Amortization of other intangible assets (5)

��

�

3,916

�

��

�

4,303

�

�

�

11,668

�

�

�

11,917

�

Stock-based compensation

��

�

4,536

�

��

�

3,979

�

�

�

12,250

�

�

�

11,497

�

Restructuring and reorganization charges

��

�

7,784

�

��

�

76

�

�

�

9,041

�

�

�

939

�

Adjusted EBITDA

�

$

37,410

�

�

$

38,277

�

�

$

111,787

�

�

$

113,671

�

�

��

Quarter�Ended
September�30,

�

�

Nine�Months�Ended
September�30,

�

�

��

2014

�

�

2013

�

�

2014

�

�

2013

�

Cash flows from operating activities

��

$

19,637

�

�

$

25,236

�

�

$

35,906

�

�

$

86,582

�

Income tax provision

��

�

4,831

�

�

�

1,331

�

�

�

20,480

�

�

�

6,767

�

Changes in operating assets and liabilities and deferred taxes

��

�

3,606

�

�

�

9,848

�

�

�

39,358

�

�

�

14,597

�

Interest expense (6)

��

�

2,582

�

�

�

2,615

�

�

�

7,900

�

�

�

8,724

�

Interest and investment income and other, net

��

�

(275

)

�

�

(44

)

�

�

(436

)

�

�

(1,467

)

Restructuring and reorganization charges

��

�

7,784

�

�

�

76

�

�

�

9,041

�

�

�

57

�

Other

��

�

(755

)

�

�

(785

)

�

�

(462

)

�

�

(1,589

)

Adjusted EBITDA

��

$

37,410

�

�

$

38,277

�

�

$

111,787

�

�

$

113,671

�

(5)

Amortization on the statement of cash flows is made up of the following items for the indicated periods (in thousands):

�

��

Quarter Ended
September�30,

�

��

Nine Months Ended
September�30,

�

�

��

2014

�

��

2013

�

��

2014