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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, 2000
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 August 7, 2000, 64,284,771 shares of Common Stock, par value $.01 per share,
of the registrant ("Common Stock") were outstanding.
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INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999........ 3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2000 and 1999...................... 4
Consolidated Statements of Cash Flows - Six Months Ended
June 30, 2000 and 1999................................................. 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................ 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders...................... 13
Item 6. Exhibits and Reports on Form 8-K......................................... 14
SIGNATURES............................................................................ 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WEST TELESERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 87,968 $ 61,865
Accounts receivable, net of allowance for doubtful accounts of $2,779 and $4,717 116,290 88,056
Notes receivable 4,635 18,604
Accounts receivable - financing 224 267
Other 25,746 16,348
-------------- ---------------
Total current assets 234,863 185,140
PROPERTY AND EQUIPMENT:
Land and improvements 5,392 5,355
Buildings 30,138 29,908
Telephone and computer equipment 176,527 164,691
Office furniture and equipment 35,152 30,748
Leasehold improvements 50,669 41,372
Construction in process 13,956 6,731
-------------- ---------------
Total property and equipment 311,834 278,805
Accumulated depreciation and amortization (128,305) (110,871)
-------------- ---------------
Total property and equipment, net 183,529 167,934
GOODWILL, net of accumulated amortization of $6,064 and $5,222 44,469 45,311
NOTES RECEIVABLE AND OTHER ASSETS 21,838 10,604
-------------- ---------------
TOTAL ASSETS $ 484,699 $ 408,989
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 38,119 $ 33,745
Customer deposits and holdbacks 11,020 9,273
Accrued wages and benefits 11,045 7,411
Accrued phone expense 7,958 5,245
Other current liabilities 12,648 10,157
Current maturities of long-term obligations 19,434 14,882
Income tax payable 1,928 -
-------------- ---------------
Total current liabilities 102,152 80,713
LONG TERM OBLIGATIONS, less current maturities 30,682 30,314
DEFERRED INCOME TAXES 5,703 6,000
MINORITY INTEREST (Note 2) 14,738 -
COMMITMENTS AND CONTINGENCIES (Note 3) - -
STOCKHOLDERS' EQUITY (Note 4)
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, 64,348 shares issued,
64,246 outstanding and 63,330 shares issued and outstanding 643 633
Additional paid-in capital 167,012 157,647
Treasury Stock at cost (102 shares) (2,661) -
Retained earnings 166,430 133,682
-------------- ---------------
Total stockholders' equity 331,424 291,962
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 484,699 $ 408,989
============== ================
</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 Six Months
Ended Ended
June 30, June 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUE $ 171,537 $ 138,085 $ 341,596 $ 276,077
COST OF SERVICES 89,224 71,452 175,421 143,181
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 57,982 49,105 115,034 93,582
-------------- -------------- -------------- --------------
NET OPERATING INCOME 24,331 17,528 51,141 39,314
OTHER INCOME (EXPENSE):
Interest income 744 792 1,872 1,669
Interest expense - including interest expense -
financing of $33, $141, $64 and $313. (455) (745) (1,681) (1,350)
Other income, net 322 360 511 482
-------------- -------------- -------------- --------------
Net other income 611 407 702 801
-------------- -------------- -------------- --------------
NET INCOME BEFORE INCOME TAX EXPENSE 24,942 17,935 51,843 40,115
INCOME TAX EXPENSE:
Current income tax expense 10,450 5,991 21,034 14,781
Deferred income tax expense (benefit) (1,228) 878 (1,939) 359
-------------- -------------- -------------- --------------
Total income tax expense 9,222 6,869 19,095 15,140
-------------- -------------- -------------- --------------
NET INCOME $ 15,720 $ 11,066 $ 32,748 $ 24,975
============== ============== ============== ==============
EARNINGS PER COMMON SHARE:
Basic $ 0.24 $ 0.17 $ 0.51 $ 0.39
============== ============== ============== ==============
Diluted $ 0.23 $ 0.17 $ 0.48 $ 0.39
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic common shares 64,246 63,330 64,069 63,330
Dilutive impact of potential common shares from
stock options 3,702 - 3,990 229
-------------- -------------- -------------- --------------
Diluted common shares 67,948 63,330 68,059 63,559
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32,748 $ 24,975
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 20,884 17,585
Loss on sale of equipment 380 97
Deferred income tax (benefit) expense (1,939) 359
Changes in operating assets and liabilities:
Accounts receivable (28,234) (13,991)
Other assets and vendor receivables (4,325) (4,708)
Accounts payable 4,374 9,370
Other liabilities and accrued expenses 8,838 5,481
Minority interest in earnings 72 -
Customer deposits and holdbacks 1,747 3,687
Income tax payable (receivable) 1,928 (523)
---------------- ----------------
Net cash flows from operating activities 36,473 42,332
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (34,359) (23,599)
Proceeds from disposal of property and equipment 1,169 1,058
Issuance of notes receivable (427) (4,263)
Proceeds from payments of notes receivable 14,396 1,225
---------------- ----------------
Net cash flows from investing activities (19,221) (25,579)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term obligations (7,905) (6,553)
Proceeds from issuance of debt 10,000 6,000
Net change in line of credit agreement - (2,000)
Secondary offering costs (486) -
Proceeds from stock option exercises 7,199 -
Net change in accounts receivable financing and notes
payable financing 43 2,065
---------------- ----------------
Net cash flows from financing activities 8,851 (488)
---------------- ----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 26,103 16,265
CASH AND CASH EQUIVALENTS, Beginning of period 61,865 6,928
---------------- ----------------
CASH AND CASH EQUIVALENTS, End of period $ 87,968 $ 23,193
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,515 $ 1,720
================ ================
Cash paid during the period for income taxes $ 19,507 $ 15,219
================ ================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Acquisition of property with debt obligation financing $ 2,825 $ 12,497
================ ================
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Acquisition of a patent with a debt obligation and
stock options $ 14,666 $ -
================ ================
Treasury stock acquired in exchange for stock options
exercised $ 2,661 $ -
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF CONSOLIDATION AND PRESENTATION
West TeleServices Corporation and its direct and indirect subsidiaries (the
"Company") is one of the largest independent providers of customer relationship
management, or CRM, solutions in the United States. The Company enables its
clients to completely outsource a full range of services, including processing
of customer initiated contacts, automated voice response services, and direct
marketing services. The Company provides its CRM solutions to Fortune 500
companies, leading Internet oriented companies and e-commerce companies. These
services help the Company's clients acquire customers, provide customer support
and generate repeat sales. The Company provides these integrated CRM services
through three operating divisions - Operator Teleservices, Interactive
Teleservices and Direct Teleservices.
The Company's Operator Teleservices division provides agent processing of
customer initiated transactions such as order capture, product support and
general customer service. The Company's Interactive Teleservices division
provides technology oriented automated voice response services for customer
initiated transactions, consisting of computerized transaction-processing
programs such as automated product information requests, computerized surveys
and polling and secure automated credit card activation. The Company's Direct
Teleservices division provides our clients with a premium service that includes
agent direct marketing applications, including product sales, customer
acquisition and retention campaigns. As part of the Company's complete customer
care solution, the Company offers West iCare, a full suite of Internet services,
including "chat", e-mail, Voice over the Internet, call back requests, form
sharing, electronic faxing and co-browsing. West iCare is integrated with other
services or can be provided on a stand-alone basis.
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, 1999. All significant intercompany balances and
transactions have been eliminated. Certain amounts in prior fiscal periods have
been reclassified for comparative purposes.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's fourth quarter of
2000. The effects of applying this guidance, if any, will be reported as a
cumulative effect adjustment as of January 1, 2000, resulting from a change in
accounting principle, along with the restatement of previously reported results
of the earlier quarters of fiscal 2000. The Company does not expect the adoption
of SAB 101 to have a material effect on its financial statements.
2. MINORITY INTEREST
The Company exercised an option to acquire, develop and commercialize an
innovative new technology that is the subject of a patent issued on April 25,
2000. The technology relates to a process that the Company believes could have
applications in the teleservices industry and a wide range of other industries.
As a result of
6
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exercising this option, a new venture was formed, Eubiquity, Inc. The Company
currently has an equity interest in Eubiquity, Inc. of 87.1%. In order to
incentivize certain of the Company's executive officers to develop and pursue
this opportunity an equity interest was granted to those executives in
Eubiquity, Inc. The Company's venture partner and patent developer was granted
500 shares of convertible preferred stock in Eubiquity, Inc. The venture partner
has the option during the first 18 months of the venture, to surrender those
shares of convertible preferred stock in Eubiquity, Inc. in exchange for $12
million in cash plus an option to acquire 325,000 shares of the Company's Common
Stock, exercisable at the average market price on the 15 days prior to the date
of the agreement ($26.03 per share). Alternatively, the venture partner has the
option to convert the 500 shares of convertible preferred stock into 5% of the
common stock of Eubiquity, Inc.
The Company utilized the Black-scholes Multiple Option model to value the
325,000 options. The sum of that calculation and the $12 million resulted in the
valuation of the patent at $14.7 million, which will be amortized over the life
of the patent. An independent financial advisor was consulted to opine on the
fairness of this transaction to the Company's stockholders (other than the
participating officers) from a financial point of view. In its opinion, the
transaction was fair from a financial point of view. Its opinion did not address
the Company's underlying business decision to effect the transaction.
3. 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 the disposition of claims
currently pending will not have a material adverse effect on the Company's
financial position or results of operations.
4. STOCKHOLDERS' EQUITY
Under the conditions set forth in the 1996 Stock Incentive Plan, 1,403,700
options vested on January 1, 2000. Additionally, another 629,795 options vested
on June 2, 2000. During the six months ended June 30, 2000, 983,960 stock
options were exercised at an average exercise price of $9.688 per share.
Further, the 1996 Stock Incentive Plan provides that the payment for options may
be in cash or shares of Common Stock valued at the fair market value at the time
the option is exercised (provided that such Common Stock has been held by the
participant for at least six months). In the quarter ended June 30, 2000, one
employee chose to exchange shares in lieu of cash when exercising his options.
This exchange resulted in the Company acquiring 102,337 shares of Common Stock,
which is being held as treasury stock, for $2,661,101.
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, 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, 2000 and 1999
Revenue: For the second quarter of 2000, revenue increased
$33.4 million, or 24.2%, to $171.5 million up from $138.1 million for the three
months ended June 30, 1999. For the six months ended June 30, 2000, revenue
increased $65.5 million, or 23.7%, to $341.6 million up from $276.1 million for
the six months ended June 30, 1999. For the second quarter of 2000, revenue from
Operator Teleservices increased approximately $23.6 million to $83.1 million.
Revenue from Interactive Teleservices decreased approximately $1.5 million to
$30.0 million. Revenue from Direct Teleservices increased approximately $11.3
million to $58.4 million. The increases in Operator Teleservices and Direct
Teleservices were primarily the result of servicing the growing needs of the
Company's new and existing clients.
Cost of services: Cost of services represents direct labor, telephone
expense and other costs directly related to teleservices activities. Costs of
services increased $17.7 million, or 24.9%, in the second quarter of 2000 to
$89.2 million, up from $71.5 million for the comparable period of 1999. Cost of
services increased $32.2 million, or 22.5%, to $175.4 million for the six months
ended June 30, 2000, up from $143.2 million for the comparable period of 1999.
As a percentage of revenue, cost of services increased to 52.0% for the second
quarter of 2000 but improved to 51.4% for the six months ended June 30, 2000,
compared to 51.7% and 51.9%, respectively, for the comparable periods in 1999.
The decrease in cost of services as a percentage of revenue for the six months
ended June 30, 2000 can be attributed primarily to lower telecommunication costs
due to lower service rates negotiated with our telecommunications vendor. The
slight increase in cost of services in the second quarter was due to increased
wages paid for direct labor.
Selling, general and administrative ("SG&A") expenses: SG&A expenses
increased by $8.9 million, or 18.1%, to $58.0 million for the second quarter of
2000 up from $49.1 million for the comparable period of 1999. For the six months
ended June 30, 2000, SG&A expenses increased by $21.4 million, or 22.9%, to
$115.0 million, up from $93.6 million for the comparable period of 1999. As a
percentage of revenue, SG&A expenses declined to 33.8% for the second quarter of
2000 and 33.7% for the six months ended June 30, 2000 compared to 35.6% and
33.9%, respectively, for the comparable periods of 1999. The improvement in SG&A
is due to better use of capacity this year over the same period in 1999. Revenue
per workstation improved in the second quarter 2000 in our Direct Teleservices
division to $13,348 from $10,349 during the second quarter of 1999.
8
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Net operating income: Net operating income increased by $6.8 million, or
38.8%, to $24.3 million for the second quarter of 2000 up from $17.5 million for
the comparable period of 1999. For the six months ended June 30, 2000, net
operating income increased by $11.8 million, or 30.1%, to $51.1 million up from
$39.3 million for the comparable period of 1999. As a percentage of revenue,
net operating income increased to 14.2% for the second quarter of 2000 and 15.0%
for the six months ended June 30, 2000 compared to 12.7% and 14.2%,
respectively, for the corresponding periods of 1999 due to the factors discussed
above for Revenue, Cost of services and SG&A expenses.
Net other income: 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 2000
totaled $611,000 compared to $407,000 for the second quarter of 1999. Other
income (expense) for the six months ended June 30, 2000, totaled $702,000
compared to $801,000 for the comparable period of 1999.
Net income: Net income increased by $4.6 million, or 42.1%, to $15.7
million for the second quarter of 2000 compared to $11.1 million for the second
quarter of 1999. For the six months ended June 30, 2000; net income increased
$12.7 million, or 31.1%, to $32.7 million for the comparable period of 1999. Net
income included a provision for income tax expense at an effective rate of
approximately 37.0% and 36.8% for the second quarter of 2000 and six months
ended June 30, 2000, respectively, and approximately 38.3% and 37.7% for the
comparable periods of 1999.
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 $25.0 million revolving credit facility,
which expired on June 29, 2000. This credit facility was renewed on June 29,
2000 for $25.0 million under substantially the same terms and conditions. There
were no borrowings outstanding under this facility at June 30, 2000. The
Company's credit facility contains certain financial covenants and restrictions,
which were met at June 30, 2000. The renewed credit facility expires on June
29, 2001. The Company believes it could increase the amount of the facility, if
needed.
The Company also has a $1.0 million revolving bank line used to fund an
accounts receivable financing program offered to certain customers in the pay-
per-call industry. The Company previously had a $10.0 million revolving bank
line, which expired on June 29, 2000. Historically, the Company had not fully
used this revolving bank line and therefore the renewal was for a reduced
amount. This bank line was renewed on June 29, 2000 for $1.0 million under
substantially the same terms and conditions. Borrowings under the bank line are
limited to a borrowing base of pledged accounts receivable from certain of the
Company's qualified customers which are assigned by the Company to the bank.
Borrowings bear interest at 1.0% below the prime rate. There were no borrowings
under this credit facility at June 30, 2000. The renewed credit facility expires
on June 29, 2001. The Company believes it could increase the amount of the
facility, if needed.
During the second quarter of 2000, the Company issued a promissory note to
a bank for $10.0 million to finance its growth in operations. The note will be
paid in 36 monthly installments of $277,777.77 plus interest. The note bears
interest at 1% less than the prime rate.
9
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Net cash flow from operating activities decreased $5.8 million, or 13.8%,
to $36.5 million for the six months ended June 30, 2000, compared to a net cash
flow from operating activities of $42.3 million for the six months ended June
30, 1999. The decrease was due principally to the increase in accounts
receivable related to increased revenue.
Net cash flow used in investing activities was $19.2 million for the six
months ended June 30, 2000, compared to $25.6 million for the comparable period
of 1999. During the first six months of 2000, the Company invested $37.2 million
in contact center expansion to support the growth of the Company's business. The
Company also financed $2.8 million of equipment with capital leases. The
remaining $34.4 million of property and equipment purchases were financed
through cash flow from operations and the $10.0 million promissory note issued
to a bank referenced above.
Net cash flow provided by financing activities was $8.9 million for the six
months ended June 30, 2000, compared to net cash flow used of $488,000 for the
comparable period of 1999. In the six months ended June 30, 2000, net cash flow
used in financing activities was primarily for payments of debt and capital
lease obligations. The cash used was offset by $7.2 million of proceeds from the
exercise of stock options to purchase Company Common Stock and the $10.0 million
proceeds from the promissory note issued to a bank.
Capital Expenditures
The Company's operations continue to require significant capital expenditures
for capacity expansion and upgrades. Capital expenditures were $37.2 million for
the six months ended June 30, 2000 compared to $36.1 million for the six months
ended June 30, 1999. Capital expenditures for the six months ended June 30, 2000
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.
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.
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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, the challenge of managing the Company's growth
effectively, 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, 2000,
the Company had $30.7 million of long-term obligations and $26.0 million
available under its credit facilities. (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
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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, 1999, and its quarterly report on
Form 10-Q for the first quarter of 2000, 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.
Richard Carney, et al. v. West TeleServices, Inc., et al. was filed on
October 31, 1997 in the 131st Judicial District Court of Bexar County, Texas. On
July 7, 2000 defendants filed a brief for an interlocutory appeal of the
certification order. Plaintiffs sued under theories of breach of contract,
quantum meriut, common law fraud, common law debt, conversion and civil theft. A
partial summary judgment was granted to the defendants on March 8, 2000 on
breach of express contract and civil theft and on all claims against the
individual defendants. On May 12, 2000 the court certified a class of plaintiffs
and other similarly situated hourly employees of the Company and several of its
subsidiaries that allege they had not been paid for all compensable work
performed during their employment. No claims remain in the lawsuit that allow
for an award of punitive damages under Texas law.
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 (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 (Civil
Action No. 3:98-CV-0960-H). The complaint contains several causes of action, all
of which deal with the purchase by the Company's subsidiary, West Telemarketing
Corporation Outbound ("Outbound"), 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 Outbound learned the amount of their bids, used
that information to out-bid them and, ultimately, purchased 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. On November 19, 1999, the
Company's motion for summary judgment was granted in full. On December 9, 1999,
the plaintiffs appealed this summary judgment order to the U.S. Fifth Circuit
Court of Appeals. Plaintiffs filed their brief on April 12, 2000 and the
defendants filed their brief on June 16, 2000. This appeal is pending.
Outbound is a defendant in three cases which have been consolidated into
one proceeding entitled Bone, Zarella, et al. individually and on behalf of a
class of all other persons similarly situated vs. Horry Telephone Cooperative,
Inc.; AT&T Corp.; AT&T Communications, Inc., AT&T Communications of the Southern
States, Inc.; and West Telemarketing Outbound Corporation, pending in the United
States District Court for the District of South Carolina. The plaintiffs in
these cases alleged they were marketed AT&T long distance calling plans, and did
not receive the full benefits of the marketed plans. Outbound provided
telemarketing services to AT&T in connection with AT&T's marketing of these
plans. The Federal judge referred the consolidated case to the Federal
Communications Commission, and on March 10, 2000, the plaintiff filed a Motion
Seeking Conditional Certification of the Settlement Class, Preliminary Approval
of a Settlement, and Approval and Order for Class Notice to be Given. The
Company and the co-defendants concurred in the motion. On March 23, 2000, the
Federal judge approved the plaintiffs' motion and conditionally certified a
12
<PAGE>
class settlement and preliminarily approved the settlement. Under the proposed
settlement AT&T will pay the entire settlement amount and the Company will not
be responsible for any such costs. AT&T is in the process of notifying potential
class members of the settlement and a fairness hearing has been set for November
3, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on May 10,
2000 (the "Annual Meeting"). The matters submitted to the stockholders for a
vote included (a) the election of two directors with terms expiring at the 2003
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
Thomas B. Barker 54,044,664 12,600 - 38,000
William E. Fisher 54,057,264 - - 38,000
Ratification of Appointment of Deloitte & Touche LLP as
Independent Auditors 854,087,674 2,527 - 5,063
</TABLE>
Members of the Board of Directors whose term of office as a director
continued after the Annual Meeting other than those elected are Gary West, Mary
E. West and Greg T. Sloma.
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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.
On April 3, 2000, the Company filed a Current Report on Form 8-K to
announce the filing of a Registration Statement on Form S-3 with the
Securities and Exchange Commission relating to (1) a public offering of 4.5
million shares of Company Common Stock to be sold by Troy Eaden, a
significant stockholder and former director and Co-Chairman of the Company
and other Company stockholders; (2) the resignation of Mr. Eaden as Co-
Chairman and a member of the Board of Directors; and (3) results of
operations for the Company's first quarter of 2000.
On April 11, 2000 the Company filed a Current Report on Form 8-K/A to
correct a typographical error contained in the Form 8-K filed on April 3,
2000.
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<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 14, 2000
15
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INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Sequential
Exhibit Page
Number Description Number
------ ----------- ------
27.01 Financial Data Schedule
