<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 June 30, 1999
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)
11808 Miracle Hills Drive, Omaha, Nebraska 68154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 963-1500
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 August 7, 1999, 63,330,000 shares of Common Stock, par value $.01 per share,
of the registrant were outstanding.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION....................................................................3
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 and December 31, 1998...............3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1999 and 1998..........................4
Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999
and 1998...................................................................5
Notes to Consolidated Financial Statements......................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................7
Item 3. Quantitative and Qualitative Disclosure About Market Risk......................11
PART II. OTHER INFORMATION......................................................................12
Item 1. Legal Proceedings..............................................................12
Item 4. Submission of Matters to a Vote of Security Holders............................12
Item 6. Exhibits and Reports on Form 8-K...............................................13
SIGNATURES ......................................................................................14
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WEST TELESERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 3l,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,193 $ 6,928
Accounts receivable, net of allowance for doubtful accounts of $235
and $1,870 112,291 98,300
Notes receivable 5,711 3,462
Accounts receivable - financing 228 2,637
Other 19,241 14,798
--------- ---------
Total current assets 160,664 126,125
PROPERTY AND EQUIPMENT
Land and improvements 5,349 5,183
Buildings 28,717 27,746
Telephone and computer equipment 149,677 124,950
Office furniture and equipment 30,688 25,982
Leasehold improvements 40,074 34,703
Construction in process 2,410 7,117
--------- ---------
Total property and equipment 256,915 225,681
Accumulated depreciation and amortization (94,578) (81,542)
--------- ---------
Total property and equipment, net 162,337 144,139
GOODWILL, net of accumulated amortization of $4,379 and $3,537 46,154 46,996
NOTES RECEIVABLE AND OTIIER ASSETS 9,827 8,879
--------- ---------
TOTAL ASSETS $ 378,982 $ 326,139
========= =========
LIABILITIES AND STOCKHOLDERS'EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ -- $ 2,000
Notes payable - financing -- 344
Accounts payable 22,227 12,857
Customer deposits and holdbacks 17,163 13,476
Accrued wages and benefits 12,403 5,305
Accrued phone expense 7,487 9,052
Other current liabilities 4,094 4,146
Current maturities of long-term obligations 12,214 8,246
--------- ---------
Total current liabilities 75,588 55,426
LONG TERM OBLIGATIONS, less current maturities 30,682 22,706
DEFERRED INCOME TAXES 5,529 5,799
COMMITMENTS AND CONTINGENCIES (Note 2) -- --
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 157,647 157,647
Retained earnings 108,903 83,928
--------- ---------
Total stockholders' equity 267,183 242,208
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 378,982 $ 326,139
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE $ 138,085 $ 118,004 $ 276,077 $ 234,079
COST OF SERVICES 71,452 64,250 143,181 126,984
SELLING, GENERAL AND ADMINISTRATTVE EXPENSES 49,021 36,184 93,482 69,540
--------- --------- --------- ---------
NET OPERATING INCOME 17,612 17,570 39,414 37,555
OTHER INCOME (EXPENSE):
Interest income 934 886 1,982 1,656
Interest expense - including interest expense -
financing of $141, S240, $313 and $394. (886) (356) (1,665) (634)
Other income (expense), net 275 (184) 384 (438)
--------- --------- --------- ---------
Net other income 323 346 701 584
--------- --------- --------- ---------
NET INCOME BEFORE INCOME TAX EXPENSE 17,935 17,916 40,115 38,139
INCOME TAX EXPENSE:
Current income tax expense 5,991 6,847 14,781 14,569
Deferred income tax expense 878 53 359 142
--------- --------- --------- ---------
Total income tax expense 6,869 6,900 15,140 14,711
--------- --------- --------- ---------
NET INCOME $ 11,066 $ 11,016 $ 24,975 $ 23,428
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Basic $ 0.17 $ 0.17 $ 0.39 $ 0.37
========= ========= ========= =========
Diluted $ 0.17 $ 0.17 $ 0.39 $ 0.37
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic common shares 63,330 63,330 63,330 63,330
Dilutive impact of potential common shares
from stock options -- -- 229 --
--------- --------- --------- ---------
Diluted common shares 63,330 63,330 63,559 63,330
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,975 $ 23,428
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 17,585 12,817
Loss on sale of equipment 97 23
Deferred income tax expense 359 142
Changes in operating assets and liabilities:
Accounts receivable (13,991) (34,531)
Other assets and vendor receivables (4,708) (11,118)
Accounts payable 9,370 22,326
Other liabilities and accrued expenses 5,481 1,936
Customer deposits and holdbacks 3,687 (4,979)
Income tax payable (523) 1,382
-------- --------
Net cash flows from operating activities 42,332 11,426
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (23,599) (28,272)
Proceeds from disposal of property and equipment 1,058 1,231
Issuance of notes receivable (4,263) (4,961)
Proceeds from payments of notes receivable 1,225 4,074
-------- --------
Net cash flows from investing activities (25,579) (27,928)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term obligations (6,553) (3,017)
Proceeds from issuance of debt 6,000 --
Net change in line of credit agreement (2,000) --
Net change in accounts receivable financing and notes payable financing 2,065 (638)
-------- --------
Net cash flows from financing activities (488) (3,655)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 16,265 (20,157)
CASH AND CASH EQUIVALENTS, Beginning of period 6,928 39,820
-------- --------
CASH AND CASH EQUIVALENTS, End of period $ 23,193 $ 19,663
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,720 634
======== ========
Cash paid during the period for income taxes $ 15,219 $ 13,067
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Reduction of accounts receivable through issuance of notes receivable $ -- $ 2,724
======== ========
Acquistion of property with debt obiligation financing $ 12,497 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
WEST TELESERVCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF CONSOLIDATION AND PRESENTATION
West TeleServices Corporation and its direct and indirect subsidiaries
(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,
pre-paid calling card services 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, 1998.
Certain amounts in prior fiscal periods have been reclassified for
comparative purposes.
2. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to lawsuits and claims which
arise out of its operations in 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. The Company believes, except for the items discussed
below, in its Form 10-K for the year ended December 31, 1998, and its quarterly
report on Form 10-Q for the first quarter of 1999, for which the Company 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.
Glenn K. Jackson and Elsie Jackson v. West Telemarketing Corporation
Outbound and Does 1 through 100, inclusive, was filed in the United States
District Court for the Central District of California at No. CV-97-8281 TJH
(AIJx), on August 12, 1997, and transferred to the United States District Court
for the Northern District of Texas, Dallas Division, where it is pending at
Civil Action No. 3:98-CV-0960-H. The complaint contains several causes of
action, all of which deal with the purchase by West Telemarketing Corporation
Outbound ("WTCO") of two pieces of property from the Resolution Trust
Corporation during 1993 and 1994. The plaintiffs contend that they also bid on
the property, that WTCO learned the amount of their bid, used that information
to out-bid them and, ultimately, purchase the property. The complaint seeks
general damages, special damages, equitable injunctive and restitutionary
relief, including restitution of the property involved, punitive damages,
attorneys' fees, and litigation costs. Pre-trial discovery, including discovery
on plaintiffs' damage claims and theories, actively began in the second quarter
of this year. WTCO expects to file a motion for summary judgment on August 16,
1999.
6
<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 the Three Months and Six Months Ended June 30, 1999 and 1998
Revenue: For the three months ended June 30, 1999, revenue increased
$20.1 million, or 17.0%, to $138.1 million up from $118.0 million for the three
months ended June 30, 1998. For the six months ended June 30, 1999, revenues
increased $42.0 million, or 17.9%, to $276.1 million up from $234.1 million for
the six months ended June 30, 1998. For the three months ended June 30, 1999,
revenue from inbound operator teleservices increased approximately $16.1 million
to $59.5 million. Revenue from interactive teleservices decreased approximately
$0.7 million to $31.5 million. Revenue from outbound direct teleservices
increased approximately $4.7 million to $47.1 million. The increases in inbound
operator teleservices and outbound direct teleservices are primarily the result
of servicing the growing needs of the Company's new and existing clients. The
decrease in interactive teleservices is a result of the reduction in 900
pay-per-call volume due to a continued shift in the emphasis by the Company's
clients to 800 interactive programs and pre-paid calling card services in the
three months ended June 30, 1999, compared to the comparable period of 1998.
Cost of services: Cost of services represents direct labor, telephone
expense and other costs directly related to teleservices activities. Costs of
services increased $7.2 million, or 11.2%, in the second quarter of 1999 to
$71.5 million, up from $64.3 million for the comparable period of 1998. Cost of
services increased $16.2 million, or 12.8%, to $143.2 million for the six months
ended June 30, 1999, up from $127.0 million for the comparable period of 1998.
As a percentage of revenue, cost of services improved to 51.7% for the second
quarter of 1999 and 51.9% for the six months ended June 30, 1999, compared to
54.5% and 54.3%, respectively, for the comparable periods in 1998. The decrease
in cost of services as a percentage of revenue can be attributed to lower
telecommunication costs due to lower service rates negotiated with AT&T Corp.
("AT&T") and the continued change in the service mix from interactive
teleservices to outbound direct and inbound operator teleservices divisions.
Outbound direct and inbound operator teleservices traditionally have lower
direct costs as a percentage of revenue.
Selling, general and administrative ("SG&A") expenses: SG&A expenses
increased by $12.8 million, or 35.5%, to $49.0 million for the second quarter of
1999 up from $36.2 million for the comparable period of 1998. For the six months
ended June 30, 1999, SG&A expenses increased by $24.0 million, or 34.4%, to
$93.5 million, up from $69.5 million for the comparable period of 1998. As a
percentage of revenue, SG&A expenses increased to 35.5% for the second quarter
of 1999 and 33.9% for the six months ended June 30, 1999 compared to 30.7% and
29.7%, respectively, for the comparable periods of 1998. The increase can be
attributed to increased depreciation expense and other costs associated with
call center expansion, excess capacity due to lower than expected revenue in
direct teleservices and the change in the service mix from interactive
teleservices to outbound direct and inbound operator teleservices divisions.
Outbound direct and inbound operator teleservices traditionally have higher SG&A
expenses as a percentage of revenue.
7
<PAGE>
Net operating income: Net operating income was $17.6 million for the
three months ended June 30, 1999 and 1998. For the six months ended June 30,
1999, net operating income increased by $1.8 million, or 5.0%, to $39.4 million
up from $37.6 million for the comparable period of 1998. As a percentage of
revenue, net operating income decreased to 12.8% for the second quarter of 1999
and 14.3% for the six months ended June 30, 1999 compared to 14.9% and 16.0%,
respectively, for the corresponding periods of 1998 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 income from customer notes receivable and interest expense
from short-term and long-term obligations. Other income (expense) for the second
quarter of 1999 totaled $323,000 compared to $346,000 for the second quarter of
1998. Other income (expense) for the six months ended June 30, 1999, totaled
$701,000 compared to $584,000 for the comparable period of 1998.
Net income: Net income was $11.1 million for the second quarter of 1999
compared to $11.0 million for the second quarter of 1998. Net income increased
by $1.6 million, or 6.6%, for the six months ended June 30, 1999, to $25.0
million up from net income of $23.4 million for the comparable period of 1998.
Net income includes a provision for income tax expense at an effective rate of
approximately 38.3% and 37.7% for the three and six months ended June 30, 1999,
respectively, and approximately 38.5% and 38.6% for the comparable periods of
1998.
Liquidity and Capital Resources
The Company's primary source of liquidity has historically been cash
flow from operations, supplemented by proceeds from notes payable, capital
leases and borrowings under its revolving bank lines of credit.
The Company has a $25.0 million unsecured revolving credit facility.
Advances under the revolving credit facility bear interest at the prime rate
less 1.0%. The Company previously had a $20.0 million revolving credit facility
which expired on June 29, 1999. This credit facility was renewed on June 29,
1999 for $25.0 million under substantially the same terms and conditions. There
were no borrowings outstanding under this facility at June 30, 1999. The
Company's credit facility contains certain financial covenants and restrictions,
which were met at June 30, 1999. The renewed credit facility expires on June 28,
2000. The Company believes it could increase the amount of the facility, if
needed.
The Company also has a $10.0 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. The Company previously
had a $15.0 million credit facility which expired on June 29, 1999. This credit
facility was renewed on June 29, 1999 for $10.0 million under substantially the
same terms and conditions. There were no borrowings outstanding under this
facility at June 30, 1999. The renewed credit facility expires on June 28, 2000.
The Company believes it could increase the amount of the facility, if needed.
During the three months ended June 30, 1999, the Company obtained
promissory notes from a bank for $6.0 million to finance the growth in
operations. The notes will be paid in 36 monthly installments of $185,000 and
bear interest at 6.75%.
8
<PAGE>
Net cash flow from operating activities increased $30.9 million, or
270.5%, to $42.3 million for the six months ended June 30, 1999, compared to a
net cash flow from operating activities of $11.4 million for the six months
ended June 30, 1998. The increase was due principally to the reduction of trade
accounts receivable and customer deposits and holdbacks, increased accounts
payable, accrued expenses and other liabilities, higher net income and higher
depreciation and amortization.
Net cash flow used in investing activities was $25.6 million for the
six months ended June 30, 1999, compared to $27.9 million for the comparable
period of 1998. The decrease was primarily due to lower cash investments in call
center expansion in the six months ended June 30, 1999. The Company invested
$12.5 million in call center expansion to support the growth of the Company's
businesses primarily through capital lease financing during the six months end
June 30, 1999.
Net cash flow used in financing activities was $488,000 for the six
months ended June 30, 1999, compared to $3.7 million for the comparable period
of 1998. In the six months ended June 30, 1999, net cash flow used in financing
activities was primarily for payments of debt and capital lease obligations
offset by proceeds from the issuance of debt.
Capital Expenditures
The Company's operations continue to require significant capital
expenditures for capacity expansion and upgrades. Capital expenditures were
$36.1 million for the six months ended June 30, 1999 compared to $28.3 million
for the six months ended June 30, 1998. Capital expenditures for the six months
ended June 30, 1999 consisted primarily of equipment purchases.
The Company believes cash flow from operations, together with existing
cash and cash equivalents, financing through capital or operating leases, 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 its subsidiaries, which are not
already pledged as collateral securing existing credit facilities. The Company
or any of its affiliates may be required to guarantee any existing or additional
credit facilities.
Impact of Year 2000 Issue
The Year 2000 Issue is a result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs having date-sensitive software may calculate "00" as
1900 instead of the desired 2000. This could result in system failure or
miscalculations causing disruptions in operation, including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
Based on hardware and software assessments, the Company is in the
process of modifying or replacing portions of its information and
non-information technology systems. These adaptations will prepare the Company
for continued operation beyond December 31, 1999. The Company believes that the
modifications to existing software and conversions to new hardware and software
should mitigate the impact of the Year 2000 Issue. The Company is also in the
process of validating non-information technology systems utilized to support the
Company's operations. The Company is requesting compliance data from vendors and
is modifying or replacing equipment if necessary. Internal testing of the
non-information technology systems is being conducted where possible. However,
if the modifications and the conversions are not completed, the Year 2000 Issue
could subject the Company to potential liability claims from its customers and
could have a material adverse impact on the operations of the Company.
Contingency plans are being developed and put into place to control the impact
of single point failures within both production and support operations. A major
contingency already in place is back-up power capabilities within most of the
Company's call centers. The Company has an established October 1, 1999 deadline
for completion of contingency plans for the Company's operations.
9
<PAGE>
The Company is communicating with all of its significant suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issues. The Company's
current assessment is based on presently available information. However, there
can be no guarantee that the systems of other companies on which the Company's
system relies, will be converted on a timely basis, or that failure to convert
by another company, or a conversion is incompatible with the Company's systems,
would not have material adverse effect on the Company. In the event the Company
is unable to initiate phone calls or receive phone calls on behalf of its
clients, loss of revenue will result, the extent and materiality of which would
depend on the length of the time required to restore access.
The Company believes it has successfully met the June 30, 1999 goal for
mission critical system compliance. Reaching this crucial milestone keeps the
Company on-track in completing the overall Year 2000 project. The Company has
been, and will continue to use both internal and external resources to reprogram
or replace incompatible hardware and software. The Company's Year 2000 test lab
facility, which is dedicated to testing systems for Year 2000 compliance, is in
full operation testing both in-house and client applications. The test lab is
designed to replicate, as closely as possible, the Company production
environments in each of the Company's divisions, allowing testing of all systems
without impacting the production or normal development systems. The Company is
committed to conducting internal system testing and, where possible, external
system compatibility testing to validate operational capabilities beyond
December 31, 1999.
The total projected cost of the Year 2000 project has been increased by
management from $5.6 million to $5.9 million for the Company's critical systems
and is being funded through operating cash flows. Of the total projected cost,
approximately $2.1 million is attributable to the purchase of new hardware and
software which is being capitalized. To date, the Company has expended $1.7
million towards the purchase of new hardware and software. The remaining $3.8
million is for personnel and non-capital expenses which is expensed as incurred
and is not expected to have a material effect on the results of operations. To
date, the Company has expended $2.4 million of the $3.8 million for personnel
and non-capital expense. The costs of the project and date on which the Company
plans to complete the Year 2000 modifications and conversions are based on
management's best estimates which were derived utilizing numerous assumptions of
future events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ materially
from those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes,
failure of third parties on which the Company relies and similar uncertainties.
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.
10
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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.
The Company does not use derivative financial and commodity
instruments. The Company's other financial instruments include cash and cash
equivalents, accounts and notes receivable, accounts and notes payable and
long-term obligations. The Company's cash and cash equivalents, accounts and
notes receivable and accounts and notes payable balances are generally
short-term in nature and do not expose the Company to material market risk. At
June 30, 1999, the Company had $30.7 million of long-term obligations. (See Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.) Management does not believe that
changes in future interest rates on these fixed rate long-term obligations would
have a material effect on the Company's results of operations given the
Company's currently existing obligations under such long-term obligations and
credit facilities.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is subject to lawsuits and claims which
arise out of its operations in 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. The Company believes, except for the items below, in
its Form 10-K for the year ended December 31, 1998, and its quarterly report on
Form 10-Q for the first quarter of 1999, for which the Company 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.
Glenn K. Jackson and Elsie Jackson v. West Telemarketing Corporation
Outbound and Does 1 through 100, inclusive, was filed in the United States
District Court for the Central District of California at No. CV-97-8281 TJH
(AIJx), on August 12, 1997, and transferred to the United States District Court
for the Northern District of Texas, Dallas Division, where it is pending at
Civil Action No. 3:98-CV-0960-H. The complaint contains several causes of
action, all of which deal with the purchase by West Telemarketing Corporation
Outbound ("WTCO") of two pieces of property from the Resolution Trust
Corporation during 1993 and 1994. The plaintiffs contend that they also bid on
the property, that WTCO learned the amount of their bid, used that information
to out-bid them and, ultimately, purchase the property. The complaint seeks
general damages, special damages, equitable injunctive and restitutionary
relief, including restitution of the property involved, punitive damages,
attorneys' fees, and litigation costs. Pre-trial discovery, including discovery
on plaintiffs' damage claims and theories, actively began in the second quarter
of this year. WTCO expects to file a motion for summary judgment on August 16,
1999.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on May
12, 1999 (the "Annual Meeting"). The matters submitted to the stockholders for a
vote included (a) the election of two directors with terms expiring at the 2002
annual meeting of stockholders and (b) the ratification of appointment of
Deloitte & Touche LLP as the Company's independent auditors. The following table
sets forth the results of the voting on these matters:
<TABLE>
<CAPTION>
Number of Number of
Number of Votes Against Abstentions and
Matter Votes For or Withheld Broker Non-Votes Abstain
<S> <C> <C> <C> <C>
Election of Directors
Gary L. West 51,790,522 11,218 161,698 --
Greg T. Sloma 51,790,522 11,218 161,698 --
Ratification of Appointment of Deloitte & Touche LLP as
Independent Auditors 51,955,593 3,245 -- 4,600
</TABLE>
Members of the Board of Directors whose term of office as a director
continued after the Annual Meeting other than those elected are Mary E. West,
Troy L. Eaden, Thomas B. Barker, and William E. Fisher.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
13
<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.
WEST TELESERVICES CORPORATION
By: /s/ Thomas B. Barker
------------------------------
Thomas B. Barker
President and Chief Executive Officer
By: /s/ Michael A. Micek
------------------------------
Michael A. Micek
Chief Financial Officer,
Executive Vice President-Finance and Treasurer
Date: August 16, 1999
14
<PAGE>
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
------ ----------- -----------
<S> <C> <C>
27.01 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 1999 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-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 23,193
<SECURITIES> 0
<RECEIVABLES> 112,526
<ALLOWANCES> 235
<INVENTORY> 0
<CURRENT-ASSETS> 160,664
<PP&E> 256,915
<DEPRECIATION> 94,578
<TOTAL-ASSETS> 378,982
<CURRENT-LIABILITIES> 75,588
<BONDS> 0
0
0
<COMMON> 633
<OTHER-SE> 266,550
<TOTAL-LIABILITY-AND-EQUITY> 378,982
<SALES> 138,085
<TOTAL-REVENUES> 138,085
<CGS> 71,452
<TOTAL-COSTS> 120,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 886
<INCOME-PRETAX> 17,935
<INCOME-TAX> 6,869
<INCOME-CONTINUING> 11,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,066
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
</TABLE>
