<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, 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 incorporation (IRS Employer Identification No.)
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 November 5, 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 - September 30, 1999 and December 31, 1998... 3
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1999 and 1998.................. 4
Consolidated Statements of Cash Flows - Nine Months Ended September 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................................................ 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk................ 12
PART II. OTHER INFORMATION............................................................ 13
Item 1. Legal Proceedings........................................................ 13
Item 6. Exhibits and Reports on Form 8-K......................................... 14
SIGNATURES............................................................................ 15
</TABLE>
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WEST TELESERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 35,791 $ 6,928
Accounts receivable, net of allowance for doubtful accounts of $4,155 and $1,870 108,642 98,300
Notes receivable 7,853 3,462
Accounts receivable - financing 176 2,637
Other 15,185 14,798
---------- ----------
Total current assets 167,647 126,125
PROPERTY AND EQUIPMENT:
Land and improvements 5,355 5,183
Buildings 29,802 27,746
Telephone and computer equipment 156,026 124,950
Office furniture and equipment 30,789 25,982
Leasehold improvements 40,942 34,703
Construction in process 5,380 7,117
---------- ----------
Total property and equipment 268,294 225,681
Accumulated depreciation and amortization (102,155) (81,542)
---------- ----------
Total property and equipment, net 166,139 144,139
GOODWILL, net of accumulated amortization of $4,801 and $3,537 45,732 46,996
NOTES RECEIVABLE AND OTHER ASSETS 9,615 8,879
---------- ----------
TOTAL ASSETS $ 389,133 $ 326,139
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 3,000 $ 2,000
Notes payable - financing - 344
Accounts payable 15,843 12,857
Customer deposits and holdbacks 12,360 13,476
Accrued wages and benefits 10,250 5,305
Accrued phone expense 7,582 9,052
Other current liabilities 10,685 4,146
Current maturities of long-term obligations 13,601 8,246
---------- ----------
Total current liabilities 73,321 55,426
LONG TERM OBLIGATIONS, less current maturities 30,772 22,706
DEFERRED INCOME TAXES 5,697 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 121,063 83,928
---------- ----------
Total stockholders' equity 279,343 242,208
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 389,133 $326,139
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE $ 143,071 $ 123,294 $ 419,149 $ 357,373
COST OF SERVICES 73,192 65,237 216,373 192,221
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 50,229 40,044 143,711 109,584
--------- --------- --------- ---------
NET OPERATING INCOME 19,650 18,013 59,065 55,568
OTHER INCOME (EXPENSE):
Interest income 312 163 1,476 504
Interest expense - including interest expense -
financing of $127, $200, $441 and $593. (505) 493 (1,351) 1,414
Other income (expense), net 321 (231) 705 (909)
--------- --------- --------- ---------
Net other income 128 425 830 1,009
--------- --------- --------- ---------
NET INCOME BEFORE INCOME TAX EXPENSE 19,778 18,438 59,895 56,577
INCOME TAX EXPENSE:
Current income tax expense 8,190 7,286 22,972 21,855
Deferred income tax expense (572) (203) (212) (61)
--------- --------- --------- ---------
Total income tax expense 7,618 7,083 22,760 21,794
--------- --------- --------- ---------
NET INCOME $ 12,160 $ 11,355 $ 37,135 $ 34,783
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Basic $ 0.19 $ 0.18 $ 0.59 $ 0.55
========= ========= ========= =========
Diluted $ 0.19 $ 0.18 $ 0.58 $ 0.55
========= ========= ========= =========
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 614 - 357 -
--------- --------- --------- ---------
Diluted common shares 63,944 63,330 63,687 63,330
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------
1999 1998
--------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 37,135 $ 34,783
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 27,266 19,775
Loss on sale of equipment 110 41
Deferred income tax expense (212) (61)
Changes in operating assets and liabilities:
Accounts receivable (10,342) (45,637)
Other assets and vendor receivables (419) (6,149)
Accounts payable 2,986 4,183
Other liabilities and accrued expenses 8,785 6,608
Customer deposits and holdbacks (1,116) (9,564)
Income tax payable 1,426 1,812
--------------- -----------------
Net cash flows from operating activities 65,619 5,791
--------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (31,699) (43,859)
Proceeds from disposal of property and equipment 1,091 1,281
Issuance of notes receivable (6,404) (5,161)
Proceeds from payments of notes receivable 1,225 5,702
--------------- -----------------
Net cash flows from investing activities (35,787) (42,037)
--------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term obligations (10,084) (4,365)
Proceeds from issuance of debt 6,000 -
Net change in line of credit agreement 1,000 8,000
Net change in accounts receivable financing and notes
payable financing 2,115 396
--------------- -----------------
Net cash flows from financing activities (969) 4,031
--------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 28,863 (32,215)
CASH AND CASH EQUIVALENTS, Beginning of period 6,928 39,820
--------------- -----------------
CASH AND CASH EQUIVALENTS, End of period $ 35,791 $ 7,605
=============== =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,250 $ 960
=============== =================
Cash paid during the period for income taxes $ 21,461 $ 20,045
=============== =================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Reduction of accounts receivable through issuance of $ - $ 2,724
notes receivable
=============== =================
Acquisition of property with debt obligation financing $17,505 $ -
=============== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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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 below, in its
Form 10-K for the year ended December 31, 1998, and its quarterly reports on
Form 10-Q for the first and second quarters 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 ("RTC") 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 filed
preliminary motions for summary judgment on August 16, 1999. The court assigned
all preliminary matters to a magistrate who heard all pending motions, except
the motion for summary judgment, on September 24, 1999. The court denied WTCO's
motion requesting plaintiffs be required to join RTC, Old Stone Bank and a bank
employee as defendants and dismissed, without prejudice, all of plaintiff's
motions related to discovery issues.
6
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The magistrate stated he would recommend that the judge vacate the December
trial date to allow time for ruling on the pending motion for summary judgment.
A trial in the spring of 2000 is anticipated.
7
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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 within the meaning of the Private
Securities Litigation Reform Act of 1995 which involve known and unknown 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 Nine Months Ended September 30, 1999 and 1998
Revenue: For the three months ended September 30, 1999, revenue increased
$19.8 million, or 16.1%, to $143.1 million up from $123.3 million for the three
months ended September 30, 1998. For the nine months ended September 30, 1999,
revenues increased $61.7 million, or 17.3%, to $419.1 million up from $357.4
million for the nine months ended September 30, 1998. For the three months
ended September 30, 1999, revenue from inbound operator teleservices increased
approximately $16.8 million to $63.9 million. Revenue from interactive
teleservices increased approximately $7.2 million to $36.2 million. Revenue from
outbound direct teleservices decreased approximately $4.2 million to $43.0
million. The increases in inbound operator teleservices and interactive
teleservices are primarily the result of servicing the growing needs of the
Company's new and existing clients. The decrease in outbound direct teleservices
is the result of a reduction in volume from the Company's largest customer, AT&T
Corp. ("AT&T"). Outbound direct teleservices revenue from AT&T declined $6.5
million for the three months ended September 30, 1999 compared to the comparable
period in 1998. As reported in April of this year, the Company was informed of
this reduction in volume and has taken corrective action to mitigate the overall
operating impact of this reduction in volume.
Cost of services: Cost of services represents direct labor, telephone
expense and other costs directly related to teleservices activities. Costs of
services increased $8.0 million, or 12.2%, in the third quarter of 1999 to $73.2
million, up from $65.2 million for the comparable period of 1998. Cost of
services increased $24.2 million, or 12.6%, to $216.4 million for the nine
months ended September 30, 1999, up from $192.2 million for the comparable
period of 1998. As a percentage of revenue, cost of services improved to 51.2%
for the third quarter of 1999 and 51.6% for the nine months ended September 30,
1999, compared to 52.9% and 53.8%, respectively, for the comparable periods in
1998. The decrease in costs of services as a percentage of revenue can be
attributed to continued lower labor costs due to the establishment of new
facilities in prior quarters and the change in service mix due to the
accelerated growth of the inbound operator teleservices division.
Selling, general and administrative ("SG&A") expenses: SG&A expenses
increased by $10.2 million, or 25.4%, to $50.2 million for the third quarter of
1999 up from $40.0 million for the comparable period of 1998. For the nine
months ended September 30, 1999, SG&A expenses increased by $34.1 million, or
31.1%, to $143.7 million, up from $109.6 million for the comparable period of
1998. As a percentage of revenue, SG&A expenses increased to 35.1% for the
third quarter of 1999 and 34.3% for the nine months ended September 30, 1999
compared to 32.5% and 30.7%, 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
8
<PAGE>
lower revenue in outbound direct teleservices, and the change in the service mix
due to accelerated growth of the inbound operator teleservices division. Inbound
operator teleservices traditionally have higher SG&A expenses as a percentage of
revenue.
Net operating income: Net operating income for the three months ended
September 30, 1999, increased $1.6 million, or 9.1%, to $19.6 million up from
$18.0 million for the three months ended September 30, 1998. For the nine
months ended September 30, 1999, net operating income increased by $3.5 million,
or 6.3%, to $59.1 million up from $55.6 million for the comparable period of
1998. As a percentage of revenue, net operating income decreased to 13.7% for
the third quarter of 1999 and 14.1% for the nine months ended September 30, 1999
compared to 14.6% and 15.6%, 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: Net other income 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 for the third quarter of 1999 totaled $128,000
compared to $425,000 for the third quarter of 1998. Other income for the nine
months ended September 30, 1999, totaled $830,000 compared to $1,009,000 for the
comparable period of 1998.
Net income: Net income was $12.2 million for the third quarter of 1999
compared to $11.4 million for the third quarter of 1998. Net income increased
by $2.3 million, or 6.8%, for the nine months ended September 30, 1999, to $37.1
million up from net income of $34.8 million for the comparable period of 1998.
Net income includes a provision for income tax expense at an effective rate of
approximately 38.5% and 38.0% for the three and nine months ended September 30,
1999, respectively, and approximately 38.4% and 38.5% 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%. There was $3.0 million outstanding under this facility at September
30, 1999. The Company's credit facility contains certain financial covenants
and restrictions, which were met at September 30, 1999. The 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. There were no borrowings
outstanding under this facility at September 30, 1999. The credit facility
expires on June 28, 2000. The Company believes it could increase the amount of
the facility, if needed.
The Company has outstanding 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% until April 1, 2002.
9
<PAGE>
Net cash flow from operating activities increased $50.2 million to $65.6
million for the nine months ended September 30, 1999, compared to a net cash
flow from operating activities of $5.8 million for the nine months ended
September 30, 1998. The increase was due principally to the reduction of trade
accounts receivable and customer deposits and holdbacks, increased accrued
expenses and other liabilities, higher net income and higher depreciation and
amortization.
Net cash flow used in investing activities was $35.8 million for the nine
months ended September 30, 1999, compared to $42.0 million for the comparable
period of 1998. The decrease was primarily due to lower cash investments in
call center expansion in the nine months ended September 30, 1999. The Company
invested $17.5 million in call center expansion to support the growth of the
Company's businesses primarily through capital lease financing during the nine
months ended September 30, 1999.
Net cash flow used in financing activities was $969,000 for the nine months
ended September 30, 1999, compared to $4.0 million for the comparable period of
1998. In the nine months ended September 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 $49.2 million for
the nine months ended September 30, 1999 compared to $43.9 million for the nine
months ended September 30, 1998. Capital expenditures for the nine months ended
September 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 has modified or
replaced 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 has validated non-information technology
systems utilized to support the Company's operations. The Company
has requested 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. The Company has developed extensive
contingency plans as well as reviewed and enhanced existing plans in preparation
for the century rollover. The Company will continue to revise the contingency
plans as new systems or procedures are implemented.
10
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The Company has communicated 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 that is incompatible with the Company's
systems, would not have a 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. 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 is estimated at $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 $2.0 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
$2.6 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.
11
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Certain statements under this caption constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
involve known and unknown 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, convertible debentures, 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 September 30, 1999, the Company had $30.8 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.
12
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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 reports on
Form 10-Q for the first and second quarters 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 ("RTC") 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 filed
preliminary motions for summary judgment on August 16, 1999. The court assigned
all preliminary matters to a magistrate who heard all pending motions, except
the motion for summary judgment, on September 24, 1999. The court denied WTCO's
motion requesting plaintiffs be required to join RTC, Old Stone Bank and a bank
employee as defendants and dismissed, without prejudice, all of plaintiff's
motions related to discovery issues. The magistrate stated he would recommend
that the judge vacate the December trial date to allow time for ruling on the
pending motion for summary judgment. A trial in the spring of 2000 is
anticipated.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
--------- -----------
<S> <C>
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None.
</TABLE>
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.
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: November 12, 1999
15
<PAGE>
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description Number
-------- ----------- ----------
<S> <C> <C>
27.01 Financial Data Schedule
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE THIRD QUARTER 1999 FORM 10-Q OF WEST TELESERVICES CORPORATION, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED
THEREIN.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 35,791
<SECURITIES> 0
<RECEIVABLES> 112,797
<ALLOWANCES> 4,155
<INVENTORY> 0
<CURRENT-ASSETS> 167,647
<PP&E> 268,294
<DEPRECIATION> 102,155
<TOTAL-ASSETS> 389,133
<CURRENT-LIABILITIES> 73,321
<BONDS> 0
0
0
<COMMON> 633
<OTHER-SE> 278,710
<TOTAL-LIABILITY-AND-EQUITY> 389,133
<SALES> 143,071
<TOTAL-REVENUES> 143,071
<CGS> 73,192
<TOTAL-COSTS> 123,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 505
<INCOME-PRETAX> 19,778
<INCOME-TAX> 7,618
<INCOME-CONTINUING> 12,160
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,160
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
