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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 September 30, 2002
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 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 October 31, 2002, 66,070,608 shares of Common Stock, par value $.01 per
share, of the registrant ("Common Stock") were outstanding.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Independent Accountants' Report ........................................................... 3
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2002 and December 31, 2001 ....... 4
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 2002 and 2001 ..................... 5
Consolidated Statements of Cash Flows - Nine Months Ended September 30,
2002 and 2001 ............................................................... 6
Notes to Consolidated Financial Statements ................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................... 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk .................... 16
Item 4. Controls and Procedures ...................................................... 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................ 17
Item 6. Exhibits and Reports on Form 8-K ............................................. 18
SIGNATURES ................................................................................ 19
CERTIFICATIONS ............................................................................ 20
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Report
Board of Directors and Stockholders
West Corporation
Omaha, Nebraska
We have reviewed the accompanying consolidated balance sheet of West Corporation
and subsidiaries (the "Company") as of September 30, 2002, and the related
consolidated statements of operations for the three-month and nine-month periods
ended September 30, 2002 and 2001 and of cash flows for the nine- month period
ended September 30, 2002 and 2001. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of West
Corporation and subsidiaries as of December 31, 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated February 6,
2002, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 2001 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 22, 2002
3
WEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(Unaudited)
September 30, December 31,
2002 2001
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 115,546 $ 151,520
Accounts receivable, net of allowance for doubtful accounts of $22,160 and $6,993 114,406 131,316
Notes receivable 5,739 4,315
Accounts receivable - financing 13,693 18,926
Prepaid Expenses 12,855 6,500
Deferred Income Taxes 8,311 3,710
Other 18,789 12,485
--------- ---------
Total current assets 289,339 328,772
PROPERTY AND EQUIPMENT:
Land and improvements 6,728 6,710
Buildings 43,334 42,314
Telephone and computer equipment 263,781 220,387
Office furniture and equipment 40,837 37,484
Leasehold improvements 60,883 59,005
Construction in process 10,461 10,172
--------- ---------
Total property and equipment 426,024 376,072
Accumulated depreciation and amortization (208,709) (173,401)
--------- ---------
Total property and equipment, net 217,315 202,671
GOODWILL, net of accumulated amortization of $8,591 111,291 41,942
INTANGIBLE ASSETS, net of accumulated amortization of $3,320 and $1,481 36,865 13,377
NOTES RECEIVABLE AND OTHER ASSETS 7,149 4,673
--------- ---------
TOTAL ASSETS $ 661,959 $ 591,435
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,143 $ 47,426
Customer deposits and holdbacks 3,567 8,131
Accrued wages and benefits 17,703 11,412
Accrued phone expense 3,015 5,520
Other current liabilities 9,876 11,725
Current maturities of long-term obligations 16,508 9,378
--------- ---------
Total current liabilities 69,812 93,592
--------- ---------
LONG TERM OBLIGATIONS, less current maturities 23,128 20,893
DEFERRED INCOME TAXES 10,747 6,629
OTHER LONG TERM OBLIGATIONS 24,267 1,531
MINORITY INTEREST 705 631
COMMITMENTS AND CONTINGENCIES (note 6)
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, 65,889 shares issued, 65,737
outstanding and 65,352 shares issued and 65,200 outstanding 659 654
Additional paid-in capital 200,473 191,821
Retained earnings 336,211 279,727
Treasury stock at cost (152 shares) (4,043) (4,043)
--------- ---------
Total stockholders' equity 533,300 468,159
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 661,959 $ 591,435
========= =========
The accompanying notes are an integral part of these financial statements.
4
WEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
REVENUE $ 199,354 $ 180,968 $ 604,978 $ 577,015
COST OF SERVICES 98,103 93,713 293,210 295,178
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 80,320 61,736 224,851 191,998
--------- --------- --------- ---------
OPERATING INCOME 20,931 25,519 86,917 89,839
OTHER INCOME (EXPENSE):
Interest income 478 1,114 2,148 3,787
Interest expense - including interest expense - financing of $0, $181,
$0 and $52. (811) (723) (2,108) (2,316)
Write-down of investment - (3,000) - (3,000)
Other income, net 739 546 1,508 1,114
` --------- --------- --------- ---------
Other income (expense) 406 (2,063) 1,548 (415)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST 21,337 23,456 88,465 89,424
INCOME TAX EXPENSE:
Current income tax expense 4,257 8,306 32,261 34,541
Deferred income tax expense (benefit) 3,425 385 (483) (1,486)
--------- --------- --------- ---------
Total income tax expense 7,682 8,691 31,778 33,055
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTEREST 13,655 14,765 56,687 56,369
MINORITY INTEREST IN NET INCOME OF A CONSOLIDATED SUBSIDIARY 48 24 203 306
--------- --------- --------- ---------
NET INCOME $ 13,607 $ 14,741 $ 56,484 $ 56,063
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Basic $ 0.21 $ 0.23 $ 0.86 $ 0.86
========= ========= ========= =========
Diluted $ 0.20 $ 0.22 $ 0.83 $ 0.82
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic common shares 65,725 64,956 65,685 64,876
Dilutive impact of potential common shares from stock options (note 5) 1,836 2,888 2,628 3,263
--------- --------- --------- ---------
Diluted common shares 67,561 67,844 68,313 68,139
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
WEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
September 30,
--------------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 56,484 $ 56,063
Adjustments to reconcile net income to net cash flows from operating activites:
Depreciation and amortization 44,889 37,219
Loss on sale of equipment 115 11
Deferred income tax expense (benefit) (483) (1,486)
Minority interest 203 306
Write-off of investment - 3,000
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 26,754 21,869
Other assets (14,853) 3,306
Accounts payable (10,925) (3,647)
Other liabilities and accrued expenses (6,699) (14,531)
Customer deposits and holdbacks (4,564) (13,947)
Income tax payable - 7,490
--------- ---------
Net cash flows from operating activities 90,921 95,653
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs, net of cash received, $5,010 (80,278) -
Purchases of property and equipment (33,105) (37,317)
Proceeds from disposal of property and equipment 576 112
Issuance of notes receivable (120) (1,028)
Proceeds from payments of notes receivable 396 5,903
Purchase of a minority interest in a majority owned subsidiary (160) -
--------- ---------
Net cash flows from investing activities (112,691) (32,330)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term obligations (9,327) (16,341)
Proceeds from stock option exercises including related tax benefits 8,816 7,957
Net change in accounts receivable financing and notes payable financing (13,693) 106
--------- ---------
Net cash flows from financing activities (14,204) (8,278)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (35,974) 55,045
CASH AND CASH EQUIVALENTS, Beginning of period 151,520 108,113
--------- ---------
CASH AND CASH EQUIVALENTS, End of period $ 115,546 $ 163,158
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,875 $ 1,825
--------- ---------
Cash paid during the period for income taxes $ 30,286 $ 23,339
--------- ---------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
--------- ---------
Acquistion of property with debt obligation financing $ 14,955 $ 3,300
--------- ---------
Application of accounts receivable to accounts payable $ 18,926 $ 1,384
--------- ---------
Additional minimum guaranteed payment related to the acquisition of a subsidiary $ 21,500 $ -
--------- ---------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Treasury stock acquired in exchange for stock options exercised $ - $ 1,382
--------- ---------
Reduction of accounts receivable through issuance of notes receivable $ - $ 428
--------- ---------
Debt assumed with the acquisition of subsidiary $ 3,739 $ -
--------- ---------
The accompanying notes are an integral part of these financial statements.
6
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF CONSOLIDATION AND PRESENTATION
West Corporation and its direct and indirect subsidiaries (the "Company")
is one of the largest independent providers of outsourced customer relationship
management, or CRM, solutions in the United States. The Company is a leading
provider of integrated customer contact solutions focused on helping Fortune
1000 companies acquire, retain and grow their customer relationships. The
Company's customized solutions include large volume agent based transaction
processing, interactive voice response and Web-enabled customer contact
solutions. The Company's operational strength and proprietary technology helps
its clients gain greater value from each customer interaction and drive improved
results.
Founded in 1986 and headquartered in Omaha, Nebraska, the Company operates
a national network of 38 state-of-the-art customer contact centers and eight
automated voice and data processing centers throughout North America and in
India.
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 Annual Report on
Form 10-K for the year ended December 31, 2001. All significant intercompany
balances and transactions have been eliminated. Certain amounts in prior fiscal
periods have been reclassified for comparative purposes.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" (FAS 145). FAS 145 concludes that debt extinguishments
used as part of a company's risk management strategy should not be classified as
an extraordinary item. FAS 145 also requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Management believes that FAS 145 will not have a
significant impact on the Company's consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires companies to recognize
the costs associated with exit or disposal activities when they are incurred.
Currently these types of costs are recognized at the time management commits the
company to the exit/disposal plan in accordance with Emerging Issues Task Force
("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). SFAS No. 146 is effective for exit or disposal activities
that are initiated subsequent to December 31, 2002. Accordingly, the Company
will apply the provisions of SFAS No. 146 prospectively to exit or disposal
activities initiated subsequent to December 31, 2002. Management believes that
FAS 146 will not have a significant impact on the Company's Consolidated
Financial Statements.
7
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. GOODWILL AND OTHER INTANGIBLE ASSETS - ADOPTION OF SFAS NO. 142
The Company adopted SFAS No.142, Goodwill and Other Intangible Assets
beginning on January 1, 2002. SFAS No. 142 provides that goodwill and other
intangible assets with indefinite lives will not be amortized, but will be
tested for impairment on an annual basis. The Company has determined that
presently goodwill is not impaired and therefore no write-off is necessary. The
historical impact of not amortizing goodwill would have resulted in an increase
in net income for the nine months ended September 30, 2001 by $1,263,000. The
following table presents the effect of not amortizing goodwill on reported net
income, basic earnings per share and diluted earnings per share.
(Amounts in thousands
except for per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Reported net income $ 13,607 $ 14,741 $ 56,484 $ 56,063
Add back: Goodwill amortization - 421 - 1,263
--------- --------- --------- ---------
Adjusted net income $ 13,607 $ 15,162 $ 56,484 $ 57,326
========= ========= ========= =========
Basic earnings per share:
Reported net income $ 0.21 $ 0.23 $ 0.86 $ 0.86
Goodwill amortization - - - 0.02
--------- --------- --------- ---------
Adjusted net income $ 0.21 $ 0.23 $ 0.86 $ 0.88
========= ========= ========= =========
Diluted earnings per share:
Reported net income $ 0.20 $ 0.22 $ 0.83 $ 0.82
Goodwill amortization - - - 0.02
--------- --------- --------- ---------
Adjusted net income $ 0.20 $ 0.22 $ 0.83 $ 0.84
========= ========= ========= =========
The Company also has a patent, which is classified as a finite life
intangible asset. This patent was valued at $14.7 million when it was acquired
on May 4, 2000. The patent is being amortized over the life of the patent, 17
years, using a straight-line method. Goodwill and other intangible assets
acquired in 2002 through acquisitions are discussed in note 4 below.
4. ACQUISITIONS
During the nine months ended September 30, 2002, the Company acquired the
following three entities for a cost of $80.3 million, net of cash received of
$5.0 million, plus an additional $11.4 million in assumed liabilities. The
results of operations of the acquired businesses are included in the
accompanying consolidated balance sheet, statement of operations and statement
of cash flows subsequent to the respective acquisition dates.
.. Tel Mark Sales, Inc., based in Appleton, Wisconsin, is a provider of
outsourced business to business customer care and telemarketing services.
The stock of Tel Mark Sales, Inc. was acquired on January 1, 2002.
8
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
.. Dakotah Direct II, LLC, based in Spokane, Washington, is a customer
relationship services company that focuses on providing marketing and
customer solutions through inbound, outbound and Internet services. The
membership interests of Dakotah Direct II, LLC were acquired on March 1,
2002.
.. Attention LLC, based in Atlanta, Georgia, provides accounts receivable
management, outsourcing and other services, including debt collection to
clients in various industries. The membership interests of Attention LLC
were acquired on August 1, 2002.
There is a provision for a three-year contingent earn-out with a maximum
earn-out of $5.0 million per year relating to one of the acquisitions. The
earn-out is based on the acquired entity achieving certain revenue growth
objectives. Another of the acquisitions calls for additional consideration,
payable over the four year period between 2004 and 2008, which will range from a
minimum of $21.5 million to a maximum of $50.0 million, based on the acquired
entity's satisfaction of certain earnings objectives during such period. The
$21.5 million minimum payment was accrued as an other long term obligation.
Goodwill recognized in those three transactions amounted to $69.3 million.
Other intangible assets in those transactions amounted to $25.3 million. These
intangible assets, including customer lists, a favorable lease, non-competition
agreements, trade names and software, are being amortized over one to twenty
years depending on the estimated remaining useful lives of the various
intangible assets. The estimated 2002 amortization expense for these finite
lived intangible assets is $2.6 million. Estimated amortization expense for
these intangible assets over the next five-years (in thousands) are as follows:
Year Ending December 31,
2003 3,804
2004 3,385
2005 2,863
2006 2,408
2007 2,167
The Company's unaudited pro forma results of operations for the nine months
ended September 30, 2002 and 2001, assuming the acquisitions referred to above
occurred as of the beginning of the periods presented (in thousands, except per
share data) are as follows:
2002 2001
Revenue $626,727 $641,963
Net Income $ 55,377 $ 62,133
Earnings per common share- basic $ 0.84 $ 0.96
Earnings per common share- diluted $ 0.81 $ 0.91
The pro forma results above are not necessarily indicative of the operating
results that would have actually occurred if the acquisitions had been in effect
on the dates indicated, nor are they necessarily indicative of future results of
the combined companies. The Company believes synergies and cost savings will
result from the acquisitions and would affect the pro forma results noted above.
9
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. EARNINGS PER SHARE
Basic earnings per share is calculated on the basis of weighted average
outstanding common shares. Diluted earnings per share is computed on the basis
of weighted average outstanding common shares plus equivalent shares assuming
exercise of stock options. At September 30, 2002 and 2001 there were 872,000 and
314,000 options outstanding, respectively, with exercise prices exceeding the
market value of Common Stock that were therefore excluded from the computation
of shares contingently issuable upon exercise of the options.
6. 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, 2001 and in its
quarterly reports on Form 10-Q for the first and second quarter of 2002, 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, results of operations, or cash flows.
Patricia Sanford v. Memberworks Incorporated, et al., pending in the United
States District Court, Southern District of California, Case No. 02CV0601H was
filed on March 28, 2002. West Corporation and West Telemarketing Corporation,
are named as defendants in the plaintiff's class action complaint. The other
defendants include Memberworks Incorporated, MWI Essentials, MWI Leisure
Advantage, MWI Home & Garden, MWI Connections and MWI Valuemax. The complaint
alleges that class members were sold club memberships by misleading means or
billed for club memberships they did not purchase as a part of an upsell offer
after ordering another product. The plaintiff asserts four separate claims. The
plaintiff claims the defendants mailed unordered merchandise to the plaintiff
and the similarly situated class members in violation of 39 USC (S) 3009. The
plaintiff also seeks declaratory relief granting the plaintiff the right to keep
any unordered merchandise as a gift. The plaintiff has also asserted claims for
conversion, unjust enrichment and fraud. The purported class is composed of all
persons in the United States who, after calling a telephone number to inquire
about or purchase another product, (1) were sent a membership kit in the mail;
(2) were charged for a Memberworks membership program; and (3) were customers of
a joint venture between Memberworks and the Company or were wholesale customers
of the Company. The Company filed a motion to dismiss for lack of personal
jurisdiction, which was denied. The Company joined with Memberworks on a motion
to dismiss on various other grounds. On July 12, 2002 this motion to dismiss was
granted. On September 12, 2002, the plaintiff filed a petition to arbitrate the
claims with the American Arbitration Association's Fresno, California office.
Despite the fact that the District Court's order on July 12, 2002 explicitly
held that the plaintiff's claims against West Corporation and West Telemarketing
Corporation were not subject to mandatory arbitration, the plaintiff named West
Corporation and West Telemarketing Corporation as defendants in the arbitration.
The Company believes that West Corporation and West Telemarketing Corporation
are not proper defendants in the arbitration and that the American Arbitration
Association lacks jurisdiction over West Corporation and West Telemarketing
Corporation. On September 25, 2002, the Company sent a letter to the American
Arbitration Association detailing this position. The American Arbitration
Association determined that the arbitration should go forward without West
Corporation or West Telemarketing Corporation as parties. However, the American
Arbitration Association indicated that it may consider West Corporation or West
Telemarketing Corporation necessary parties in the future.
10
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" as defined under the Private Securities Litigation Reform Act of
1995, which involve risks and uncertainties that could cause actual results to
differ materially from the Company's historical experience and the Company's
present expectations or projections. The Company's actual results in the future
could differ significantly from the results discussed or implied in such
forward-looking statements. Generally, the words "believe," "expect," "intend,"
"estimate," "anticipate," "project," "will" and similar expressions identify
forward-looking statements, which generally are not historical in nature.
Forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from the Company's historical
experience and present expectations or projections. As and when made, management
believes that these forward-looking statements are reasonable. However, caution
should be taken not to place undue reliance on any such forward-looking
statements since such statements speak only as of the date when made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Some of the 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 outsourced CRM solutions 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, trends in the general economy and
government regulation.
In addition, future events including, without limitation, future terrorist
attacks against the United States, rumors or threats of such attacks or war,
armed hostilities or international conflicts directly or indirectly involving
the United States or its allies or military or trade disruptions may impact the
Company's operations. Subsequent to the September 11, 2001 attacks on the World
Trade Center and the Pentagon, many Direct Teleservices projects were
temporarily halted and the Company also experienced a reduction in Operator
Teleservices call volumes as well. More generally, any of these events could
cause consumer confidence and spending to decrease or result in increased
volatility in the United States and worldwide financial markets and economy. In
addition, historically when significant news events occur Operator Teleservices
volume is adversely affected. Any of these occurrences could have a significant
impact on the Company's operating results, revenues and costs and may result in
the volatility of the market price for the Common Stock and on the future price
of the Common Stock.
CRITICAL ACCOUNTING POLICIES
The process of preparing financial statements requires the use of estimates
on the part of management. The estimates used by management are based on the
Company's historical experiences combined with management's understanding of
current facts and circumstances. Certain of the Company's accounting policies
are considered critical as they are both important to the portrayal of the
Company's financial condition and results and require significant or complex
judgment on the part of management. The Company believes the following represent
the critical accounting policies of the Company as contemplated by Financial
Reporting Release No. 60 "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies."
Revenue Recognition - Operator Teleservices, Direct Teleservices,
Interactive Teleservices, Tel Mark Sales, Inc. and Attention LLC, are the
Company's five operating divisions. West Direct, Inc., is a majority owned
performance based marketing and technology subsidiary of the Company. Operator
Teleservices revenue is recognized at the time calls are answered by an agent
based on the number of calls and/or minutes received and processed on behalf of
clients. Interactive Teleservices revenue is recognized at the time calls are
received or sent by automated voice response units and is billed based on call
duration. Direct Teleservices revenue is generally recognized on an hourly and
success based rate basis at the time the agents place calls to consumers on
behalf of
11
clients. The customer is obligated to pay for these services when these
activities have been performed. Tel Mark Sales, Inc. recognizes commission
revenue when Tel Mark Sales, Inc's. clients ship their products to the clients'
customers. Tel Mark Sales, Inc. also has agreements with clients that provide
for Tel Mark Sales, Inc's. to recognize revenue on an hourly rate basis at the
time agents place calls to businesses on behalf of clients. Attention LLC
recognizes collection fees for services performed under various collection
service agreements with its customers. Fees are earned as the related consumer
debts are collected and are calculated based upon a percentage of cash collected
or other agreed upon parameters as defined in the agreements. West Direct, Inc.
recognizes revenue during the period services are provided. The Company defers
revenue during the period in which customer refund obligations exist, which
period generally does not exceed one year.
Selling, General and Administrative ("SG&A") Expenses - SG&A expenses
consist of all expenses that support the ongoing operation of the Company. These
expenses include costs related to division management, facilities costs,
equipment depreciation and maintenance, amortization of intangibles, allowance
for doubtful accounts, sales and marketing activities, client support services
and corporate management costs. These costs require estimates to be made by
management who periodically re-evaluate these estimates which include estimated
useful lives of fixed assets, impairment of goodwill and ultimate collection of
monies owed by clients. These estimates are reviewed on a continuous basis and
adjusted based upon the most current information available and the judgment of
management.
Allowance for Doubtful Accounts - The Company's allowance for doubtful
accounts reflects reserves for customer receivables to reduce receivables to
amounts expected to be collected. Management uses significant judgment in
estimating uncollectible amounts. In estimating uncollectible amounts,
management considers factors such as overall economic conditions,
industry-specific economic conditions, historical customer performance and
anticipated customer performance. While management believes the Company's
processes effectively address its exposure to doubtful accounts, changes in the
economy, industry or specific customer conditions may require adjustment to the
allowance for doubtful accounts recorded by the Company.
Goodwill and Other Intangible Assets - As a result of the three
acquisitions made during 2002, the Company's recorded goodwill as of September
30, 2002 has increased significantly by $69.4 million to $111.3 million and the
recorded value of other intangible assets as of September 30, 2002 has increased
significantly by $25.3 million to $36.9 million. Two matters arise with respect
to these assets that require significant management estimates and judgment: 1)
the valuation in connection with the initial purchase price allocation and 2)
the ongoing evaluation of goodwill and other intangible assets for impairment.
In connection with these acquisitions, a third-party valuation was completed to
determine the purchase price allocation between goodwill and other intangible
assets. Upon completion of this process, approximately 25% was assigned to
various identified finite lived intangible assets and the remainder to goodwill.
The purchase price allocation process requires estimates and judgments as to
certain expectations and business strategies. If the actual results differ from
the assumptions and judgments made, the amounts recorded in the consolidated
financial statements could result in a possible impairment of the intangible
assets and goodwill or require acceleration in amortization expense. In
addition, SFAS No. 142 requires that goodwill be tested annually using a
two-step process. The first step is to identify a potential impairment. The
second step measures the amount of the impairment loss, if any. Because of the
significance of the goodwill and identified intangible assets to the Company's
consolidated balance sheet, the annual impairment analysis will be critical. Any
changes in key assumptions about the businesses and their prospects, or changes
in market conditions or other externalities, could result in an impairment
charge and such a charge could have a material effect on the Company's financial
condition and results of operations.
Results of Operations
Comparison of the Three Months and Nine Months Ended September 30, 2002 and 2001
Revenue: For the three months ended September 30, 2002, revenue increased
$18.4 million, or 10.2%, to $199.4 million up from $181.0 million for the three
months ended September 30, 2001. For the nine months ended September 30, 2002,
revenues increased $28.0 million, or 4.9%, to $605.0 million up from $577.0
million for the
12
nine months ended September 30, 2001. The increase in revenue for the three
months ended September 30, 2002, included $8.0 million derived from new clients
and $21.3 million derived from the acquisitions of Tel Mark Sales, Inc., Dakotah
Direct II, LLC and Attention LLC. The increase in revenue for the nine months
ended September 30, 2002, included $52.8 million derived from new clients and
$46.6 million derived from such acquisitions. The overall revenue increase was
partially offset by lower call volumes in Direct Teleservices and Operator
Teleservices, as well as the wind down of 900 services in Interactive
Teleservices. In addition, pricing concessions resulting from various market
changes in both Direct Teleservices and Operator Teleservices contributed to a
decline in revenue in Direct Teleservices and a decline in the revenue growth of
Operator Teleservices.
For the third quarter of 2002, 80% of the Company's total revenue was
generated by 32 clients. This compares to 93 clients during the comparable
period 2001. For the nine months ended September 30, 2002, 80% of the Company's
total revenue was generated by 42 clients. This compares to 55 clients during
the comparable period in 2001. During the three months ended September 30, 2002,
AT&T Corp. remained the Company's largest client and accounted for 26% of total
revenue, down from 27% during the comparable period in 2001. For the nine months
ended September 30, 2002, AT&T Corp. accounted for 25% of total revenue in 2002
and in the comparable period in 2001.
Cost of services: Cost of services represents direct labor, telephone
expense and other costs directly related to revenue generating activities. Costs
of services increased $4.4 million, or 4.7%, in the third quarter of 2002 to
$98.1 million, up from $93.7 million for the comparable period of 2001. Cost of
services decreased $2.0 million, or 0.7%, to $293.2 million for the nine months
ended September 30, 2002, down from $295.2 million for the comparable period of
2001. As a percentage of revenue, cost of services decreased to 49.2%, for the
three months ended September 30, 2002, down from 51.8% during the comparable
period in 2001. For the nine months ended September 30, 2002, cost of services
as a percentage of revenue decreased to 48.5%, compared to 51.2% for the
comparable period in 2001. The decrease in cost of services as a percentage of
revenue for the three months and nine months ended September 30, 2002 can be
attributed primarily to continued control of variable labor costs, a greater
percentage of Interactive Teleservices and Operator Teleservices call volumes
which traditionally have a lower direct cost as a percent of revenue than other
Company operations and the significant reduction in 900 call volumes which have
higher direct costs as a percentage of revenue than other Company operations.
Lower telecommunication costs due to lower service rates negotiated with the
Company's telecommunications vendor also contributed to lower cost of services
in the nine months ended September 30, 2002.
SG&A expenses: SG&A expenses increased by $18.6 million, or 30.1%, to $80.3
million for the third quarter of 2002 up from $61.7 million for the comparable
period of 2001. For the nine months ended September 30, 2002, SG&A expenses
increased by $32.9 million, or 17.1%, to $224.9 million, up from $192.0 million
for the comparable period of 2001. The increase in SG&A for the third quarter
is due primarily to an increase in the accrual for bad debts of $7.5 million,
increased depreciation and amortization of $3.1 million and SG&A expenses
associated with the three acquisitions of $7.2 million The increase in SG&A for
the nine months ended September 30, 2002, is due primarily to an increase in the
accrual for bad debts of $15.2 million, increased depreciation and amortization
of $7.8 million and SG&A expenses associated with the three acquisitions of
$16.7 million. The increase in the allowance for doubtful accounts is based on
management's judgment as to the potential effect of the continued weak economy
on the ultimate collection of amounts owed by clients. The increase in
depreciation is due to the overall increase in property and equipment primarily
due to the increase in interactive voice response ports during the nine months
ended September 30, 2002. As a percentage of revenue, SG&A expenses
increased to 40.3% for the third quarter of 2002 and increased to 37.2% for the
nine months ended September 30, 2002 compared to 34.1% and 33.3%, respectively,
for the comparable periods of 2001.
Operating income: Operating income for the three months ended September 30,
2002 decreased $4.6 million, or 18.0%, to $20.9 million down from $25.5 million
for the three months ended September 30, 2001. For the nine months ended
September 30, 2002, operating income decreased by $2.9 million, or 3.2%, to
$86.9 million down from 89.8 million for the comparable period of 2001. As a
percentage of revenue, operating income decreased to 10.5% for the third quarter
of 2002 and decreased to 14.4% for the nine months ended September 30, 2002
compared to 14.1% and 15.6%, respectively, for the corresponding periods of 2001
due to
13
the factors discussed above for Revenue, Cost of services and SG&A expenses.
Other income (expense): Other income (expense) includes sub-lease rental
income, 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 third quarter of 2002 totaled $0.4 million compared to $(2.1) million for
the third quarter of 2001. Other income (expense) for the nine months ended
September 30, 2002 totaled $1.5 million compared to $(0.4) million for the
comparable period of 2001. The increase of $2.5 million and $1.9 million for the
three and nine months ended September 30, 2002, respectively, is primarily the
result of a $3.0 million write down of an investment in Synchrony
Communications, Inc. in September 2001.
Net income: Net income decreased by $1.1 million, or 7.5%, to $13.6 million
for the third quarter of 2002 compared to $14.7 million for the third quarter of
2001. For the nine months ended September 30, 2002, net income increased $0.4
million, or 0.7%, to $56.5 million compared to $56.1 million for the comparable
period of 2001. Diluted earnings per share for the three months ended September
30, 2002 were $0.20 compared to $0.22 for the comparable period in 2001. For the
nine months ended September 30, 2002, diluted earnings per share were $0.83
compared to $0.82 for the comparable period in 2001.
Net income includes a provision for income tax expense at an effective rate
of approximately 36.0% for the three months ended September 30, 2002 and 35.9%
for the nine months ended September 30, 2002. This compares to 37.1% and 37.0%,
respectively, for each of the comparable periods in 2001.
Liquidity and Capital Resources
The Company's primary source of liquidity has historically been cash flows
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 were no borrowings outstanding under this facility at September
30, 2002. The Company's credit facility contains certain financial covenants and
restrictions, which were met at September 30, 2002. The credit facility expires
on June 28, 2003. The Company believes it could increase the amount of the
facility, if needed.
Net cash flows from operating activities decreased $4.8 million, or 5.0%,
to $90.9 million for the nine months ended September 30, 2002, compared to net
cash flows from operating activities of $95.7 million for the nine months ended
September 30, 2001. The decrease was due principally to the decrease in accounts
payable, as well as a decrease in income tax payable. The decrease in net cash
flows from operating activities was partially offset by an increase in
depreciation and amortization.
Net cash flows used in investing activities increased $80.4 million, or
252.2%, to $112.7 million for the nine months ended September 30, 2002, compared
to $32.3 million for the comparable period of 2001. This increase was primarily
due to acquisition costs of $80.3 million, net of cash received, for three
acquisitions consummated during the nine months ended September 30, 2002. During
the first nine months of 2002, the Company invested $48.1 million primarily for
additional voice response ports and equipment purchases for Interactive
Teleservices and upgrades at existing facilities. The Company financed $15.0
million of equipment purchases with capital leases. The remaining $33.1 million
of property and equipment purchases were financed through cash flows from
operations.
Net cash flows used in financing activities were $14.2 million for the nine
months ended September 30, 2002, compared to net cash flows used in financing
activities of $8.3 million for the comparable period of 2001 an increase of
171.1%. During the nine months ended September 30, 2001, net cash flows used in
financing activities were primarily for payments of debt and capital lease
obligations. These payments were $9.3 million
14
during the nine months ended September 30, 2002 compared to $16.3 million for
the comparable period of 2001. Proceeds from stock options exercised, including
related tax benefits, were $8.8 million during the nine months ended September
30, 2002 compared to $8.0 million for the comparable period of 2001. The net
change in accounts receivable financing was $13.7 million compared to $(0.1)
million for the comparable period.
During the first quarter of 2001, the Company executed synthetic lease
agreements for two buildings. A special purpose trust owns both buildings and
leases these to the Company. The leases are for a 34,000 square foot office
building in San Antonio, Texas and a 158,000 square foot office building in
Omaha, Nebraska. The leases have five-year terms with three renewal options of
five years each. The lease payments are based on a variable interest rate of
87.5 basis points over a selected LIBOR, which was 1.82% at September 30, 2002.
The estimated aggregate lease expense on these leases for 2002 is estimated to
be $0.4 million. The Company may, at any time, elect to exercise a purchase
option of approximately $10.0 million for the San Antonio building and
approximately $34.0 million for the Omaha building.
During the three months ended September 30, 2002, operations at two Direct
Teleservices customer contact centers were temporarily suspended. The operations
of the customer contact center in Lafayette, Louisiana were relocated to another
customer contact center, and the customer contact center in Lafayette, Louisiana
(135 production workstations) is being converted for use by another division.
Also, the operations of the customer contact center in Texarkana, Arkansas were
relocated to another customer contact center and the customer contact center in
Texarkana, Arkansas (136 production workstations) is being converted for use by
another division. During October 2002, the operations of the Direct Teleservices
call center in Hinesville, Georgia (108 production workstations) were suspended.
A decision to relocate the operations of this customer contact center has not
been made at this time. These actions are consistent with management's strategy
to better utilize capacity throughout the Company.
Contractual Obligations
The Company's contractual obligations are disclosed in its annual report on
Form 10-K for the year ended December 31, 2001. The acquisition commitments of
$42.8 million disclosed at December 31, 2001 related to the acquisitions of
Dakotah Direct II, LLC and Tel Mark Sales, Inc., have been paid in full. During
the nine months ended September 30, 2002 the Company has entered into $15.0
million in capital lease obligations with three year terms and interest rates
that range from 4.5% to 6.1%. Other than these items, there have been no
material changes to the Company's contractual obligations since December 31,
2001.
Capital Expenditures
The Company's operations continue to require significant capital
expenditures for capacity expansion and upgrades. Capital expenditures were
$48.1 million for the nine months ended September 30, 2002 compared to $40.6
million for the nine months ended September 30, 2001. Capital expenditures for
the nine months ended September 30, 2002 consisted primarily of additional voice
response ports and equipment purchases for Interactive Teleservices and upgrades
at existing facilities. The Company is also constructing a network operations
center to centralize the control of all Operator Teleservices and Direct
Teleservices calls. The total cost of the center is approximately $10.0 million
and is expected to be completed early in 2003. This center is expected to
provide improved utilization of capacity as well as improved physical security
of the network operations. The Company projects its capital expenditures for the
remainder of 2002 to be approximately $13.0 million primarily for completion of
the network operations center and facility upgrades.
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
15
The Company does not believe that inflation has had a material effect on
its results of operations. However, there can be no assurance that the Company's
business will not be affected by inflation in the future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Certain statements under this caption constitute "forward-looking
statements" as defined under the Private Securities Litigation Reform Act of
1995, which involve risks and uncertainties that could cause actual results to
differ materially from the Company's historical experience and present
expectations or projections. The Company's actual results in the future could
differ significantly from the results discussed or implied in such
forward-looking statements. Generally, the words "believe," "expect," "intend,"
"estimate," "anticipate," "project," "will" and similar expressions identify
forward-looking statements, which generally are not historical in nature.
Forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from the Company's historical
experience and present expectations or projections. As and when made, management
believes that these forward-looking statements are reasonable. However, caution
should be taken not to place undue reliance on any such forward-looking
statements since such statements speak only as of the date when made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Some of the 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 outsourced CRM solutions 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, trends in the general economy and
government regulation.
The Company does not use derivative financial and commodity instruments.
The Company's financial instruments include cash and cash equivalents, accounts
and notes receivable, accounts and notes payable and long-term obligations
including capital leases. 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. The
Company has $39.6 million of long-term obligations and $25.0 million of credit
facilities with both fixed and variable interest rates. There were no borrowings
outstanding under these credit facilities at September 30, 2002. Management does
not believe that changes in future interest rates on these fixed and variable
rate long-term obligations and credit facilities would have a material effect on
the Company's financial position, results of operations, or cash flows given the
Company's currently existing obligations under such long-term obligations and
credit facilities.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's
management team continues to review the Company's internal controls and
prodedures and the effectiveness of those controls. Within the 90 days prior to
the date of this report, the Company carried out an evaluation under the
supervision and with the participation of the Company's management, including
the Company's President and Chief Executive Officer, Interim Chief Financial
Officer and Vice President Corporate Controller, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that
evaluation, the President and Chief Executive Officer, and Interim Chief
Financial Officer and Vice President Corporate Controller concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the Company's disclosure and procedures subsequent to the date of their
evaluation, nor were there any significant deficiencies or material weaknesses
in the Company's internal controls. As a result, no corrective actions were
required or taken.
16
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 Annual Report on Form 10-K for the year ended December 31, 2001, and its
Quarterly Reports on Form 10-Q for the first and second calendar quarters of
2002, 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 or cash flows.
Patricia Sanford v. Memberworks Incorporated, et al., pending in the United
States District Court, Southern District of California, Case No. 02CV0601H was
filed on March 28, 2002. West Corporation and West Telemarketing Corporation,
are named as defendants in the plaintiff's class action complaint. The other
defendants include Memberworks Incorporated, MWI Essentials, MWI Leisure
Advantage, MWI Home & Garden, MWI Connections and MWI Valuemax. The complaint
alleges that class members were sold club memberships by misleading means or
billed for club memberships they did not purchase as a part of an upsell offer
after ordering another product. The plaintiff asserts four separate claims. The
plaintiff claims the defendants mailed unordered merchandise to the plaintiff
and the similarly situated class members in violation of 39 USC (S) 3009. The
plaintiff also seeks declaratory relief granting the plaintiff the right to keep
any unordered merchandise as a gift. The plaintiff has also asserted claims for
conversion, unjust enrichment and fraud. The purported class is composed of all
persons in the United States who, after calling a telephone number to inquire
about or purchase another product, (1) were sent a membership kit in the mail;
(2) were charged for a Memberworks membership program; and (3) were customers of
a joint venture between Memberworks and the Company or were wholesale customers
of the Company. The Company filed a motion to dismiss for lack of personal
jurisdiction, which was denied. The Company joined with Memberworks on a motion
to dismiss on various other grounds. On July 12, 2002 this motion to dismiss was
granted. On September 12, 2002, the plaintiff filed a petition to arbitrate the
claims with the American Arbitration Association's Fresno, California office.
Despite the fact that the District Court's order on July 12, 2002 explicitly
held that the plaintiff's claims against West Corporation and West Telemarketing
Corporation were not subject to mandatory arbitration, the plaintiff named West
Corporation and West Telemarketing Corporation as defendants in the arbitration.
The Company believes that West Corporation and West Telemarketing Corporation
are not proper defendants in the arbitration and that the American Arbitration
Association lacks jurisdiction over West Corporation and West Telemarketing
Corporation. On September 25, 2002, the Company sent a letter to the American
Arbitration Association detailing this position. The American Arbitration
Association determined that the arbitration should go forward without West
Corporation or West Telemarketing Corporation as parties. However, the American
Arbitration Association indicated that it may consider West Corporation or West
Telemarketing Corporation necessary parties in the future.
17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.01 Restated By-Laws of West Corporation
10.01 Employment Agreement between the Company and Paul M. Mendlik
dated September 12, 2002, effective November 4, 2002
10.02 Restricted Stock Agreements between the Company and Paul M.
Mendlik dated September 12, 2002
99.01 Certification pursuant to 18 U.S.C. section 1350 as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
99.02 Certification pursuant to 18 U.S.C. section 1350 as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
The Company announced on September 12, 2002 that Mr. Paul M. Mendlik
had been named as the Company's new Chief Financial Officer to be
effective November 4, 2002. Mr. Mendlik had been a partner with
Deloitte & Touche since 1984 and had served as the regional partner
overseeing the audit and assurance practice, including the audit of
the Company. In the same filing, the Company lowered financial
guidance for the third quarter of 2002.
18
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 CORPORATION
By: /s/ Thomas B. Barker
-------------------------
Thomas B. Barker
President and Chief Executive Officer
By: /s/ R. Patrick Shields
-----------------------
R. Patrick Shields
Interim Chief Financial Officer/
Vice President Corporate Controller
Date: November 4, 2002
19
CERTIFICATION
I, Thomas B. Barker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of West
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date" ) and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
20
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 4, 2002 /s/ Thomas B. Barker
--------------------
Thomas B. Barker
President and Chief Executive Officer
21
CERTIFICATION
I, R. Patrick Shields, certify that:
1. I have reviewed this quarterly report on Form 10-Q of West
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date" ) and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
22
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 4, 2002 /s/ R. Patrick Shields
----------------------
R. Patrick Shields
Interim Chief Financial Officer/
Vice President Corporate Controller
23