<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 000-21771
WEST TELESERVICES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 47-0777362
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9910 Maple Street, Omaha, Nebraska 68134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 571-7700
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
--- ---
At November 11, 1997, 63,330,000 shares of Common Stock, par value $.01 per
share, of the registrant were outstanding.
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INDEX
Page No.
PART I. FINANCIAL INFORMATION....................................... 3
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996......................................... 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1997 and 1996.... 4
Consolidated Statements of Stockholders' Equity............ 5
Consolidated Statement of Cash Flows - Nine Months Ended
September 30, 1997 and 1996............................... 6
Notes to Consolidated Financial Statements................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk.. 13
PART II. OTHER INFORMATION........................................... 14
Item 1. Legal Proceedings.......................................... 14
Item 6. Exhibits and Reports on Form 8-K........................... 14
SIGNATURES........................................................... 15
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WEST TELESERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $26,530 $55,065
Accounts receivable, net of allowance for
doubtful accounts of $360 and $244 59,496 45,982
Notes receivable 2,256 360
Accounts receivable - financing 10,318 11,805
Federal income tax receivable 717 -
Deferred income tax receivable - current 112 88
Other 4,684 3,961
---------------- ----------------
Total current assets 104,113 117,261
PROPERTY AND EQUIPMENT:
Land and improvements 1,132 1,132
Buildings 8,138 8,043
Telephone and computer equipment 85,061 68,483
Office furniture and equipment 16,608 14,383
Leasehold improvements 20,202 18,130
Construction in process 9,204 749
---------------- ----------------
140,345 110,920
Accumulated depreciation and amortization (51,683) (41,895)
---------------- ----------------
88,662 69,025
GOODWILL, NET OF ACCUMULATED AMORTIZATION OF
$1,432 AND $168 49,101 50,365
LAND HELD FOR DEVELOPMENT 1,583 1,583
OTHER ASSETS 144 51
---------------- ----------------
$243,603 $238,285
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 13,492 23,271
Customer deposits and holdbacks 11,846 12,662
Accrued wages and benefits 5,398 5,748
Accrued phone expense 8,415 8,404
Other current liabilities 5,231 2,501
Current obligations under capital leases 3,781 10,915
Current maturities of long-term debt 815 5,894
Income tax payable - current - 1,697
---------------- ----------------
Total current liabilities 48,978 71,092
OBLIGATIONS UNDER CAPITAL LEASES, less current
obligations 2,672 5,714
LONG TERM DEBT, less current obligations 1,311 -
DEFERRED INCOME TAXES 2,898 2,600
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock $0.01 par value, 10,000 shares
authorized, no shares issued and outstanding - -
Common stock $0.01 par value, 200,000 shares
authorized, 63,330 shares issued and outstanding 633 633
Additional paid-in capital 157,647 157,719
Retained earnings 29,464 527
---------------- ----------------
Total stockholders' equity 187,744 158,879
---------------- ----------------
$243,603 $238,285
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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WEST TELESERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
REVENUE $100,493 $80,720 $294,519 $235,188
COST OF SERVICES 56,067 46,707 162,568 134,048
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 30,125 22,773 85,654 63,071
-------------- ------------ -------------- --------------
NET OPERATING INCOME 14,301 11,240 46,297 38,069
OTHER INCOME (EXPENSE):
Interest income 241 102 942 273
Interest income - financing, net of interest
expense of $52, $333, $230 and $954 458 171 1,228 450
Interest expense (179) (666) (588) (1,906)
Minority interest in net income of consolidated
subsidiaries - (335) - (1,149)
Other (expense), net (271) (106) (585) (276)
-------------- ------------ -------------- --------------
Net other income (expense) 249 (834) 997 (2,608)
-------------- ------------ -------------- --------------
NET INCOME BEFORE INCOME TAX EXPENSE 14,550 10,406 47,294 35,461
ACTUAL INCOME TAX EXPENSE:
Current income tax expense 5,487 251 18,083 630
Deferred income tax expense 117 - 274 -
-------------- ------------ -------------- --------------
Actual income tax expense 5,604 251 18,357 630
-------------- ------------ -------------- --------------
NET INCOME AND NET INCOME BEFORE PROFORMA
INCOME TAX EXPENSE 8,946 10,155 28,937 34,831
PROFORMA INFORMATION:
Income tax expense - 3,714 - 12,740
-------------- ------------ -------------- --------------
Net income $8,946 $6,441 $28,937 $22,091
============== ============ ============== ==============
Primary and fully diluted earnings per common
and common equivalent share $ 0.14 $ 0.12 $0.46 $0.41
============== ============ ============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 63,330 53,968 63,352 53,968
============== ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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WEST TELESERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 $568 $4,743 $32,918 $38,229
Distributions to stockholders - - (30,401) (30,401)
Net income - - 34,831 34,831
--------------- --------------- --------------- ---------------
BALANCE, September 30, 1996 $568 $4,743 $37,348 $42,659
=============== =============== =============== ===============
BALANCE, December 31, 1996 $633 $157,719 $527 $158,879
Payments for stock registration costs - (72) - (72)
Net income - - 28,937 28,937
--------------- --------------- --------------- ---------------
BALANCE, September 30, 1997 $633 $157,647 $29,464 $187,744
=============== =============== =============== ===============
</TABLE>
5
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WEST TELESERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
---------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $28,937 $34,831
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 14,589 9,387
(Gain) Loss on sale of equipment 166 (151)
Deferred income tax expense 274 -
Minority Interest - 1,149
Changes in operating assets and liabilities:
Accounts receivable (14,628) (5,870)
Other assets and vendor receivables (816) (4,272)
Accounts payable (9,779) 659
Other current liabilities and accrued expenses 2,391 957
Income tax payable (2,414) (696)
---------------- --------------
Net cash flows from operating activities 18,720 35,994
---------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (33,480) (16,721)
Proceeds from disposal of property and equipment 352 640
Issuance of notes receivable (1,838) (1,150)
Proceeds from payments of notes receivable 1,056 1,004
---------------- --------------
Net cash flows from investing activities (33,910) (16,227)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 2,499 10,321
Payments of debt (6,267) (9,384)
Payments of capital lease obligations (10,176) (4,717)
Net change in line of credit agreement - (500)
Distribution to stockholders - (30,401)
Net change in accounts receivable financing and notes
payable financing 1,487 (614)
Payments for stock registration costs (72) -
Increase (decrease) in customer deposits and holdbacks (816) 6,747
---------------- --------------
Net cash flows from financing activities (13,345) (28,548)
---------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (28,535) (8,781)
CASH AND CASH EQUIVALENTS, Beginning of period 55,065 21,861
---------------- --------------
CASH AND CASH EQUIVALENTS, End of period 26,530 13,080
================ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest 920 2,889
================ ==============
Cash paid during the period for income taxes 20,178 701
================ ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Acquisition of equipment through assumption of capital
lease obligations - 9,975
================ ==============
Reduction of accounts receivable through issuance of
notes receivable 1,114 61
================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
WEST TELESERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF CONSOLIDATION AND PRESENTATION
West TeleServices Corporation and its direct and indirect subsidiaries (West
Telemarketing Corporation, West Interactive Corporation, West Telemarketing
Corporation Outbound, Interactive Billing Services, Inc. and West Interactive
Canada, Inc.) (collectively, the "Company") provide a full range of customized
telecommunications-based services to business clients on an outsourced basis.
The Company is a leading provider in each of inbound operator services,
automated voice response services and outbound direct teleservices through its
call centers throughout the United States. The Company's inbound operator
services consist of live operator call-processing applications such as order
capture, customer service and product support. The Company's automated voice
response services consist of computerized call-processing applications such as
automated product information requests, computerized surveys and polling and
secure automated credit card activation. The Company's outbound direct
teleservices consist of live operator direct marketing applications such as
product sales and customer acquisition and retention campaigns. All significant
intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements reflect all normal
and recurring adjustments which are, in the opinion of management, necessary for
a fair presentation of the financial position, operating results, and cash flows
for the interim periods. The consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Form 10-K for the year ended
December 31, 1996.
Certain amounts in prior fiscal periods have been reclassified for comparative
purposes.
2. COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits and claims which arise out of the normal
course of its business. The Company and certain of its subsidiaries are
defendants in various litigation matters in the ordinary course of business,
some of which involve claims for damages that are substantial in amount. In the
opinion of Management, except for the items listed below for which Management is
currently unable to predict the outcome, the disposition of claims currently
pending will not have a material adverse effect on the Company's financial
position or results of operations.
On July 28, 1997, Schurman, Bowers, et al, individually and on behalf of a
class of all other persons similarly situated, v. Horry Telephone Cooperative,
Inc., AT&T Corp., AT&T Communications, Inc., AT&T Communications of the Southern
States, Inc, and West Telemarketing Outbound Corporation (Civil Action No. 4:97-
2635-12) was filed in the Court of Common Pleas in Horry, South Carolina and
then removed by the defendants to the United States District Court for the
District of South Carolina. Plaintiffs allege, among other things, claims of
negligent misrepresentation, fraud, breach of contract and statutory violations
in connection with offers of rate programs and long distance services to the
plaintiffs. Plaintiffs seek monetary damages, punitive damages, attorney's
fees, costs and injunctive relief. The defendants jointly filed a motion to
dismiss on September 29, 1997.
7
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WEST TELESERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Gilchrist, individually and on behalf of a class of all other persons
similarly situated, v. Direct American Marketers, Inc., Anthony Brown,
Integretel, Inc., Troy Eaden, Gary West, West Interactive Corporation and
Bellsouth Corporation (Civil Action File No. 197-233) was filed on August 19,
1997 in the Superior Court of Richmond County, Georgia and subsequently removed
by the defendants to the United States District Court for the Southern District
of Georgia. Troy Eaden, Chief Executive Officer and director of the Company,
and Gary West, Chairman of the Board of the Company, and West Interactive
Corporation are named defendants in the action. Plaintiff alleges claims under
the Georgia Racketeer Influenced and Corrupt Organizations Act in connection
with certain "900" number sweepstakes programs that were promoted by Direct
American Marketers, Inc. Plaintiff seeks to recover monetary damages, together
with expenses, attorney's fees and injunctive relief. West Interactive
Corporation is a defendant in other similar actions as previously described in
the Company's Form 10-K for the year ended December 31, 1996 and the Company's
Form 10-Q for the quarter ended June 30, 1997.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share which specifies the computation, presentation and disclosure
requirements for earnings per share. The objective of the statement is to
simplify the computation of earnings per share. The impact on the Company's
earnings per share is not materially different than earnings per share
determined in accordance with current guidance. SFAS No. 128 is applicable for
fiscal years ending after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information which
established presentation of financial data based on the "management approach".
SFAS No. 131 is applicable for fiscal years beginning after December 15, 1997.
The Company is currently in the process of reviewing this presentation
requirement.
4. STOCK INCENTIVE PLAN AND STOCK PURCHASE PLAN
During September 1996, the Company and its stockholders adopted the 1996 Stock
Incentive Plan (the "1996 Plan"). The 1996 Plan authorized granting to officers
and directors the right to purchase common shares of Common Stock of the Company
("Common Shares") at the fair market value determined on the date of grant.
Options to purchase a maximum of 9,499,500 Common Shares may be granted under
the 1996 Plan. There were options for 3,601,000 Common Shares issued during
November 1996 under such plan. During May of 1997, the Company and its board of
directors amended the options granted during November 1996. The options to
purchase the 3,601,000 Common Shares were surrendered by option holders in June
of 1997 and new options were issued. At September 30, 1997, options to purchase
4,601,000 Common Shares were issued and outstanding relating to the new options
granted. Ten percent of the options vest on the first and second anniversaries
of the grant date. An additional fifteen percent of the options vest on each of
the third, fourth, fifth and sixth anniversaries of the grant date. The final
twenty percent of the options vest on the seventh anniversary of the grant date.
No options were exercisable at September 30, 1997.
8
<PAGE>
WEST TELESERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During May 1997, the Company and its stockholders, adopted the 1997 Employees
Stock Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase Plan
provides employees an opportunity to purchase Common Shares through annual
offerings to be made during the five year period commencing July 1, 1997. Each
employee participating in any offering is granted an option to purchase as many
full or fractional Common Shares as the participating employee may elect so long
as the purchase price for such Common Shares does not exceed 10% of the
compensation received by such employee from the Company during the offering
period. The purchase price is to be paid through payroll deductions. The
purchase price for each Common Share is equal to 100% of the fair market value
of the Common Share on the date of the grant, determined by the average of the
high and low NASDAQ quoted market price. On the last day of the offering
period, the option to purchase Common Shares becomes exercisable. If at the end
of the offering the fair market value of the Common Shares is less than 100% of
the fair market value at the date of grant, then the options will not be deemed
exercised and the payroll deductions made with respect to the options will be
applied to the next offering unless the employee elects to have the payroll
deductions withdrawn from the Plan. The maximum number of shares which may be
purchased by a participant during any purchase period is 1,000 Common Shares.
The maximum number of Common Shares available for sale under the Stock Purchase
Plan is 2,000,000 shares. No options were exercisable at September 30, 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto. Certain statements under this
caption constitute forward-looking statements which involve risks and
uncertainties. The Company's actual results in the future could differ
significantly from the results discussed or implied in such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, the effect on financial performance of increased
competition in the teleservices industry, potential future competition,
competitive pricing for services, potential future competing technologies and
trends, dependence on technology and phone service, dependence on the Company's
labor force, reliance on major clients, the success of new product innovations,
legal proceedings and government regulation.
RESULTS OF OPERATIONS
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUE: For the three months ended September 30, 1997, revenues
increased $19.8 million, or 24.5%, to $100.5 million up from $80.7 million
for the three months ended September 30, 1996. For the nine months ended
September 30, 1997, revenues increased $59.3 million, or 25.2%, to $294.5
million up from $235.2 million for the nine months ended September 30, 1996.
For the nine months ending September 30, 1997, inbound operator teleservices
accounts for $83.3 million of revenue, interactive teleservices accounts for
$115.6 million, and outbound direct teleservices accounts for $95.6 million.
Revenue from inbound operator teleservices increased approximately $12.8 million
to $83.3 million primarily due to entry into customer operator services (or
dedicated live operator). Customer operator services began in the second
quarter of 1996 and during the entire year of 1996 accounted for $7.0 million.
In the first three quarters of 1997, customer operator services accounted for
approximately $12.6 million of revenue compared to $5.3 million in the first
three quarters of 1996. Revenue from interactive teleservices increased
approximately $16.9 million to $115.6 million. Revenue from outbound direct
teleservices increased approximately $29.6 million to $95.6 million. The
increases are primarily the result of servicing the growing needs of the
Company's clients.
COST OF SERVICES: Cost of services represents direct labor, telephone
expense and other costs directly related to teleservices activities. Costs of
services increased $9.4 million, or 20.1%, in the third quarter of 1997 to $56.1
million up from $46.7 million for the comparable period of 1996. Cost of
services increased $28.6 million, or 21.3%, to $162.6 million for the nine
months ended September 30, 1997 up from $134.0 million for the comparable period
of 1996. As a percentage of revenue, cost of services decreased to 55.8% for
the third quarter of 1997 and 55.2% for the nine months ended September 30, 1997
compared to 57.9% and 57.0%, respectively, for the comparable periods in 1996.
The decreases are partially due to the addition of call centers in new markets
that had available, cost-effective quality labor.
10
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"): SG&A expenses
increased by $7.3 million, or 32.0%, to $30.1 million for the third quarter of
1997 up from $22.8 million for the comparable period of 1996. For the nine
months ended September 30, 1997, SG&A expenses increased by $22.6 million, or
35.8%, to $85.7 million, up from $63.1 million for the comparable period of
1996. As a percentage of revenue, SG&A expenses increased to 30% for the third
quarter of 1997 and 29.1% for the nine months ended September 30, 1997 compared
to approximately 28.3% and 26.8%, respectively, for the comparable periods of
1996. The increases are primarily due to the increase in depreciation expense
and other costs associated with call center expansion and the amortization of
goodwill recorded to account for the exchange of stock of minority shareholders
in connection with the initial public offering.
NET OPERATING INCOME: Net operating income increased by $3.1 million, or
27.7%, to $14.3 million in the third quarter of 1997 up from $11.2 million in
the third quarter of 1996. For the nine months ended September 30, 1997, net
operating income increased by $8.2 million, or 21.5%, to $46.3 million up from
$38.1 million for the comparable period of 1996. As a percentage of revenue,
net operating income increased to approximately 14.2% for the third quarter of
1997 and decreased to 15.7% for the nine months ended September 30, 1997,
compared to 13.9% and 16.2%, respectively, for the corresponding periods of 1996
due to the factors discussed above for Revenue, Cost of services and SG&A
expenses.
NET OTHER INCOME (EXPENSE): Net other income (expense) includes interest
income from short-term investments, interest income from an accounts receivable
financing program (net of the related interest expense to fund the program),
interest expense from short-term and long-term borrowings under credit
facilities and capital leases, and minority interest in net income. Other income
(expense) for the third quarter of 1997 totaled $0.2 million compared to ($0.8)
million for the third quarter of 1996. Other income (expense) for the nine
months ended September 30, 1997, totaled $1.0 million compared to ($2.6) million
for the comparable period of 1996. The reduction in interest expense is
primarily due to the repayment of outstanding long term debt in December 1996
and January 1997 with the proceeds of the Company's initial public offering.
NET INCOME AND PROFORMA NET INCOME: Net income increased by $2.5 million,
or 39.1%, for the third quarter of 1997, to $8.9 million from proforma net
income of $6.4 million for the third quarter of 1996. Net income increased by
$6.8 million, or 30.8%, for the nine months ended September 30, 1997, to $28.9
million up from proforma net income of $22.1 million for the comparable period
of 1996. Net income and proforma net income include a provision for actual
income tax expense and proforma income tax expense, respectively, at a combined
effective rate of approximately 38.8% for the nine months ended September 30,
1997 and approximately 36.6% for the comparable period of 1996. The 1996 rate
reflects the combined federal and state income tax rate of the Company as if it
had been treated as a C Corporation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flow from
operations, supplemented by borrowings under its revolving bank lines of credit.
11
<PAGE>
The Company previously had revolving credit facilities for $8.0 million and
$4.5 million. These revolving credit facilities expired on June 30, 1997 and
July 1, 1997, respectively. These credit facilities were replaced on September
30, 1997 with a $10 million unsecured revolving credit facility. Advances under
the new revolving credit facility bear interest at the prime rate less 1.0%.
The new revolving credit facility expires on July 31, 1999. At September 30,
1997, the Company had no term loans with banks. The Company's credit facilities
contain certain financial covenants and restrictions, which were met at
September 30, 1997.
The Company also has a $20.0 million revolving bank line used to fund an
accounts receivable financing program offered to certain customers in the pay
per call industry. Borrowings under the facility are limited to a borrowing base
of pledged accounts receivable from certain of the Company's qualified customers
which were assigned by the Company to the bank. There were no outstanding
borrowings under this facility at September 30, 1997. The credit facility
expires on June 30, 1998.
Net cash flow from operating activities decreased $17.3 million, or 48.1%,
to $18.7 million for the nine months ended September 30, 1997, compared to a net
cash flow from operating activities of $36.0 million for the nine months ended
September 30, 1996. The decrease was due principally to cash used for accounts
receivable resulting from growth in revenue, accounts payable paid and income
taxes paid; partially offset by higher net income and depreciation and
amortization.
Net cash flow used in investing activities was $33.9 million for the nine
months ended September 30, 1997, compared to $16.2 million, for the comparable
period of 1996. The increase was primarily due to investments in call centers
to support the growth of the business.
Net cash flow used in financing activities was $13.3 million for the nine
months ended September 30, 1997 compared to $28.6 million, for the comparable
period of 1996. The net cash flow used in financing activities for the nine
months ended September 30, 1997, was used primarily to pay off $16.4 million in
debt and capital lease obligations. The cash used was offset by $2.5 million of
proceeds from a vendor loan. In the nine months ended September 30, 1996, net
cash flow from financing activities was used primarily for distributions made to
the existing stockholders to cover their tax liabilities as S Corporation
stockholders and to provide a return of capital, offsetting borrowings under the
Company's credit facilities, net of repayments.
CAPITAL EXPENDITURES
The Company's operations will continue to require significant capital
expenditures for capacity expansion and upgrades. Capital expenditures, which
include the acquisition of equipment, were $10.2 million in the third quarter of
1997 and $33.5 million for the nine months ended September 30, 1997. The
Company projects its capital expenditures for the balance of 1997 to be
approximately $7 million, primarily for capacity expansion and upgrades at
existing facilities and the addition of two new call centers.
12
<PAGE>
The Company believes that the cash flow from operations, together with
existing cash and cash equivalents and available borrowings under its credit
facilities will be adequate to meet its capital requirements for the foreseeable
future. The Company may pledge additional property or assets of the Company or
any of its subsidiaries, which are not already pledged as collateral securing
the new and existing credit facilities. The Company or its affiliates may be
required to guarantee any existing or additional credit facilities.
INFLATION
The Company does not believe that inflation has had a material effect on
its results of operations. However, there can be no assurance that the Company's
business will not be affected by inflation in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are defendants in various
litigation matters in the ordinary course of business, some of which involve
claims for damages that are substantial in amount.
On July 28, 1997, Schurman, Bowers, et al, individually and on behalf of a
class of all other persons similarly situated, v. Horry Telephone Cooperative,
Inc., AT&T Corp., AT&T Communications, Inc., AT&T Communications of the Southern
States, Inc, and West Telemarketing Outbound Corporation (Civil Action No. 4:97-
2635-12) was filed in the Court of Common Pleas in Horry, South Carolina and
then removed by the defendants to the United States District Court for the
District of South Carolina. Plaintiffs allege, among other things, claims of
negligent misrepresentation, fraud, breach of contract and statutory violations
in connection with offers of rate programs and long distance services to the
plaintiffs. Plaintiffs seek monetary damages, punitive damages, attorney's
fees, costs and injunctive relief. The defendants jointly filed a motion to
dismiss on September 29, 1997.
Gilchrist, individually and on behalf of a class of all other persons
similarly situated, v. Direct American Marketers, Inc., Anthony Brown,
Integretel, Inc., Troy Eaden, Gary West, West Interactive Corporation and
Bellsouth Corporation (Civil Action File No. 197-233) was filed on August 19,
1997 in the Superior Court of Richmond County, Georgia and subsequently removed
by the defendants to the United States District Court for the Southern District
of Georgia. Troy Eaden, Chief Executive Officer and director of the Company,
and Gary West, Chairman of the Board of the Company, and West Interactive
Corporation are named defendants in the action. Plaintiff alleges claims under
the Georgia Racketeer Influenced and Corrupt Organizations Act in connection
with certain "900" number sweepstakes programs that were promoted by Direct
American Marketers, Inc. Plaintiff seeks to recover monetary damages, together
with expenses, attorney's fees and injunctive relief. West Interactive
Corporation is a defendant in other similar actions as previously described in
the Company's Form 10-K for the year ended December 31, 1996 and the Company's
Form 10-Q for the quarter ended June 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE>
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.
Date: November 12, 1997
WEST TELESERVICES CORPORATION
By: /s/ Troy L. Eaden
------------------
Troy L. Eaden
Chief Executive Officer
By: /s/ Michael A. Micek
---------------------
Michael A. Micek
Chief Financial Officer
Vice President Finance and Treasurer
15
<PAGE>
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
27.01 Financial Data Schedule
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
THIRD QUARTER 1997 FORM 10-Q OF WEST TELESERVICES CORPORATION, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FINANCIAL STATEMENTS
CONTAINED THEREIN.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 26,530
<SECURITIES> 0
<RECEIVABLES> 59,856
<ALLOWANCES> 360
<INVENTORY> 0
<CURRENT-ASSETS> 104,113
<PP&E> 140,345
<DEPRECIATION> 51,683
<TOTAL-ASSETS> 243,603
<CURRENT-LIABILITIES> 48,978
<BONDS> 0
0
0
<COMMON> 633
<OTHER-SE> 187,111
<TOTAL-LIABILITY-AND-EQUITY> 243,603
<SALES> 100,493
<TOTAL-REVENUES> 100,493
<CGS> 56,067
<TOTAL-COSTS> 86,192
<OTHER-EXPENSES> 450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> 14,550
<INCOME-TAX> 5,604
<INCOME-CONTINUING> 8,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,946
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
