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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 March 31, 2003
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 __
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No
---
At April 25, 2003, 66,298,996 shares of Common Stock, par value $.01 per share,
of the registrant were outstanding.
INDEX
Page No.
PART I. FINANCIAL INFORMATION ....................................................... 3
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended March 31, 2003 and 2002 ............................. 4
Consolidated Balance Sheets - March 31, 2003 and December 31, 2002 ..... 5
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 2003 and 2002 ................................................ 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 .............. 15
Item 4. Controls and Procedures ................................................ 16
PART II. OTHER INFORMATION .......................................................... 17
Item 1. Legal Proceedings ...................................................... 17
Item 6. Exhibits and Reports on Form 8-K ....................................... 17
SIGNATURES ........................................................................... 18
CERTIFICATIONS ....................................................................... 19
2
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 March 31, 2003, and the related
consolidated statements of operations and cash flows for the three-month periods
ended March 31, 2003 and 2002. 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, 2002, 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 4,
2003, 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, 2002 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
April 22, 2003
3
WEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
March 31,
---------------------------
2003 2002
------------ ------------
REVENUE $ 216,186 $ 210,548
COST OF SERVICES 103,262 102,320
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 81,017 73,365
------------ ------------
OPERATING INCOME 31,907 34,863
OTHER INCOME (EXPENSE):
Interest income 409 961
Interest expense (337) (605)
Other, net 384 355
------------ ------------
Other income 456 711
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST 32,363 35,574
INCOME TAX EXPENSE:
Current income tax expense 15,536 15,000
Deferred income tax (benefit) (3,433) (2,124)
------------ ------------
Income tax expense 12,103 12,876
------------ ------------
INCOME BEFORE MINORITY INTEREST 20,260 22,698
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 165 106
------------ ------------
NET INCOME $ 20,095 $ 22,592
============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.30 $ 0.35
============ ============
Diluted $ 0.30 $ 0.33
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic common shares 66,185 65,402
Dilutive impact of potential common shares from stock options 1,283 3,215
------------ ------------
Diluted common shares 67,468 68,617
============ ============
The accompanying notes are an integral part of these financial statements.
4
WEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
March 31, December 31,
2003 2002
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 187,424 $ 137,927
Accounts receivable, net 110,235 121,868
Other 28,463 29,790
-------------- --------------
Total current assets 326,122 289,585
PROPERTY AND EQUIPMENT:
Property and equipment 440,245 427,625
Accumulated depreciation and amortization (229,991) (213,984)
-------------- ---------------
Total property and equipment, net 210,254 213,641
GOODWILL 120,456 114,146
INTANGIBLE ASSETS, net of accumulated amortization of $5,838 and $4,862 32,139 35,310
NOTES RECEIVABLE AND OTHER ASSETS 13,789 18,140
-------------- ---------------
TOTAL ASSETS $ 702,760 $ 670,822
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,829 $ 16,742
Accrued expenses 54,439 37,088
Current maturities of long-term obligations 6,920 12,492
Income tax payable 9,983 -
-------------- --------------
Total current liabilities 87,171 66,322
LONG TERM OBLIGATIONS, less current maturities 15,566 17,155
DEFERRED INCOME TAXES 9,019 11,691
OTHER LONG TERM LIABILITIES 19,428 25,131
MINORITY INTEREST 1,096 931
COMMITMENTS AND CONTINGENCIES (Note 8)
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,
66,286 shares issued and 66,214 outstanding and 66,228 shares issued
and 66,156 outstanding 663 662
Additional paid-in capital 204,983 204,335
Retained earnings 368,464 348,369
Treasury stock at cost (72 shares) (2,697) (2,697)
Unearned restricted stock (64 and 80 shares) (933) (1,077)
-------------- --------------
Total stockholders' equity 570,480 549,592
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 702,760 $ 670,822
============== ==============
The accompanying notes are an integral part of these financial statements.
5
WEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
---------------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,095 $ 22,592
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 17,219 14,326
(Gain) loss on sale of equipment (31) 57
Deferred income tax benefit (3,433) (2,124)
Minority Interest 165 106
Changes in operating assets and liabilities before effects from
acquisitions:
Accounts receivable 11,638 24,860
Other assets (1,532) (6,027)
Accounts payable (913) (2,579)
Other liabilities and accrued expenses 9,535 (3,748)
Customer deposits and holdbacks 1,814 (793)
Income tax payable 13,837 12,317
--------- ---------
Net cash flows from operating activities 68,394 58,987
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs, net of cash received - (45,644)
Purchases of property and equipment (12,722) (6,426)
Proceeds from disposal of property and equipment 40 9
Proceeds from payments of notes receivable 294 198
--------- ---------
Net cash flows from investing activities (12,388) (51,863)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt assumed with the acquisition of subsidiary - 3,739
Payments of long-term obligations (7,161) (3,409)
Proceeds from stock options exercised including related tax
benefits 652 6,505
Net change in accounts receivable financing - (10,154)
--------- ---------
Net cash flows from financing activities (6,509) (3,319)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS: 49,497 3,805
CASH AND CASH EQUIVALENTS, Beginning of period 137,927 151,520
--------- ---------
CASH AND CASH EQUIVALENTS, End of period $ 187,424 $ 155,325
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 293 $ 541
========= =========
Cash paid during the period for income taxes $ 325 $ 358
========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Acquisition of property through assumption of long-term
obligations $ - $ 8,277
========= =========
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 (the "Company") is one of the largest independent
providers of outsourced customer relationship management ("CRM") and automated
voice transaction handling 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 offers its services over the telephone
and the Internet. The Company's services minimize its clients' cost of managing
their customer relationships, improve their customers' overall experience, and
provide its clients an opportunity to leverage customer data. The Company
provides its CRM solutions to Fortune 1,000 companies. These services help its
clients to effectively communicate with their customers, acquire and retain
customers, and to manage, expand and improve their customer relationships.
Founded in 1986 and headquartered in Omaha, Nebraska, the Company operates
a network of state-of-the-art customer contact centers and automated voice and
data processing centers throughout North America, and in Jamaica and India.
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned and majority-owned subsidiaries and
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, 2002, as
amended. 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 January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46, Consolidation of Variable Interest Entities (an
interpretation of ARB No. 51) ("FIN 46"). FIN 46 requires an enterprise to
consolidate a variable interest entity if that enterprise has a variable
interest (or combination of variable interests) that will either absorb a
majority of the entity's expected losses if they occur, receive a majority of
the entity's expected residual returns if they occur, or both. This standard
applies immediately to all variable interest entities created after January 31,
2003, and is effective for the first fiscal year or interim period beginning
after June 15, 2003 for variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. Management
believes, for the reasons explained in Note 8 to these Consolidated Financial
Statements, that FIN 46 will not have a significant impact on the Company's
Consolidated Financial Statements.
3. ACQUISITIONS
During 2002, the Company acquired Tel Mark Sales, Inc., Dakotah Direct II,
LLC and Attention LLC for an aggregate cost of $80.4 million, net of cash
received of $5.0 million, which was paid entirely in cash.
The Company has allocated the excess of the cost over the fair value of the
assets acquired and liabilities assumed to goodwill based on independent
appraisals. The appraisal for the acquisition of Attention LLC had not been
completed at March 31, 2003. Goodwill recognized in those three transactions
amounted to $78.5 million. Other intangible assets recognized in those
transactions amounted to $19.0 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. Amortization
expense for finite lived intangible assets was $0.8 million and $0.3 million for
the three months ended March 31, 2003 and 2002, respectively.
7
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company's unaudited pro forma results of operations for the three
months ended March 31, 2002 assuming the acquisitions referred to above occurred
as of the beginning of the period presented (in thousands, except per share
data) are as follows:
Revenue $ 225,731
Net Income $ 24,228
Earnings per common share-basic $ 0.37
Earnings per common share-diluted $ 0.35
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 date indicated, nor are they necessarily indicative of future results of
the combined companies.
On March 27, 2003, the Company announced the acquisition of ITC Holding
Company, Inc., the parent company of InterCall, Inc. ("InterCall") for a net
purchase price of $399.6 million in cash, subject to adjustment. Headquartered
in Chicago, InterCall is currently the largest privately held provider of
conferencing services in the world. InterCall provides audio, video and web
conferencing services that are designed to meet the teleconferencing needs of a
broad range of customers across a diverse range of businesses.
The acquisition of InterCall is expected to close during the second quarter
of 2003 and will be funded with cash and two bank credit facilities. The first
facility is a $200.0 million four-year term loan. The second facility is a
revolving credit facility of up to $125.0 million. Both facilities will bear
interest at a variable rate over a selected LIBOR based on the Company's
leverage. The initial LIBOR spread is expected to be 150 basis points over the
selected LIBOR. The facilities will bear interest at a minimum of 100 basis
points over the selected LIBOR and a maximum of 200 basis points over the
selected LIBOR. The facilities will be secured by the capital stock of all
material existing and future domestic and foreign subsidiaries of the Company.
All obligations of the Company under the facilities will be unconditionally
guaranteed by all material existing and subsequently acquired domestic
subsidiaries of the Company. Financial covenants will apply and will be measured
on a rolling four-quarter basis. Outstanding principal of the term loan will be
payable quarterly commencing in the first full fiscal quarter following the
closing of the transaction in the amounts and periods shown below:
Months 1-12 Months 13-24 Months 25-36 Months 37-48
----------- ------------ ------------ ------------
Term Loan $40.0 million $45.0 million $50.0 million $65.0 million
The acquisition is subject to customary closing conditions including the
approval by the stockholders of the parent company of InterCall. Stockholders
owning a majority of the voting stock of the parent company have agreed to vote
in favor of the acquisition.
8
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. ACCRUED EXPENSES
Accrued expenses consisted of the following as of:
March 31, December 31,
2003 2002
----------- ------------
Accrued wages and benefits $ 21,248 $ 13,717
Customer deposits 5,505 3,691
Accrued phone 2,196 4,025
Acquisition earnout commitment 7,752 2,752
Other current liabilities 17,738 12,903
----------- ------------
$ 54,439 $ 37,088
=========== ============
5. MINORITY INTEREST
On April 1, 2003, the Company consummated a reorganization merger involving
its 87.75% owned subsidiary, West Direct, Inc. ("West Direct"). Pursuant to that
certain Agreement and Plan of Merger, dated as of March 31, 2003 (the "Merger
Agreement"), by and among the Company, West Direct, WD Acquisition Corp.,
("Acquisition") a Delaware corporation and a wholly owned subsidiary of the
Company, and each of the West Direct stockholders named therein, West Direct
merged (the "Merger") with and into Acquisition, with Acquisition surviving the
Merger with the name "West Direct, Inc." As a result of the Merger and subject
to the terms of the Merger Agreement, the Company owns 100% of West Direct and
each share of common stock of West Direct (other than those held by the Company)
was automatically converted into the right to receive 1.9625 shares of the
Company's common stock. The four minority stockholders of West Direct, who are
each executive officers of the Company or West Direct, received an aggregate of
240,411 shares of the Company's common stock in the Merger, some of which is
subject to vesting requirements. Holders of outstanding and unexercised options
exercisable for shares of common stock of West Direct received options of
equivalent value exercisable for 97,143 shares of the Company's common stock
pursuant to the Company's Restated 1996 Stock Incentive Plan. The Merger and the
transactions contemplated thereby were approved by the Board of Directors of the
Company.
6. 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 March 31, 2003 and 2002 there were 1,877,026 and 0
options outstanding, respectively, with exercise prices exceeding the market
value of the Company's common stock that were therefore excluded from the
computation of shares contingently issuable upon exercise of the options.
7. STOCK BASED COMPENSATION
The Company accounts for its stock-based compensation plans under the
provisions of Accounting Principles Board Opinion 25, Accounting for Stock
Issued to Employees, which utilizes the intrinsic value method. As a result of
the exercise price being equal to the market price at the date of grant, the
Company recognized no compensation expense for the three months ended March 31,
2003 and 2002.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. Had the Company's stock
option and stock purchase plan been accounted for under SFAS No. 123, Accounting
for Stock-Based Compensation; net income and earnings per share for the three
months ended March 31, 2003 and 2002 would have been reduced to the following
pro forma amounts:
Three months ended March 31,
------------------------------
2003 2002
---------- ----------
Net Income:
As reported $ 20,095 $ 22,698
Pro forma $ 18,043 $ 21,465
Earnings per common share:
Basic as reported $ 0.30 $ 0.35
Diluted as reported $ 0.30 $ 0.33
Pro forma basic $ 0.27 $ 0.33
Pro forma diluted $ 0.27 $ 0.31
The weighted average fair value per share of options granted in the three
months ended March 31, 2003 and 2002 was $14.89 and $19.53, respectively. The
fair value for options granted under the above described plans was estimated at
the date of grant using the Black Scholes pricing model with the following
assumptions:
2003 2002
---------- ----------
Risk-free interest rate 2.2% 2.2%
Dividend yield 0.0% 0.0%
Expected volatility 115.0% 120.0%
Expected life (years) 4.4 4.4
The following table presents the activity of the stock options for the
three months ended March 31, 2003:
Stock Option Weighted Average
Shares Exercise Price
-------------- ------------------
Outstanding at December 31, 2002 4,380,456 $ 12.7981
Granted 1,043,750 16.5757
Canceled (64,100) 14.9986
Exercised (57,175) 9.7372
-------------- ------------------
Outstanding at March 31, 2003 5,302,931 $ 13.548
============== ==================
Shares available for future grants at
March 31, 2003 4,275,260
==============
The following table summarizes information about the Company's employee
stock options outstanding at March 31, 2003:
Average Weighted Weighted
Range of Stock Option Remaining Average Average
Exercise Shares Contractual Exercise Stock Option Exercise
Prices Outstanding Life in Years Price Shares Exercisable Price
- -------------- ------------- --------------- -------- ------------------ --------
$ 8.00 - $ 8.00 8,000 6.12 $ 8.00 8,000 $ 8.00
$ 9.69 - 9.69 3,044,525 5.71 $ 9.6875 1,791,210 $ 9.6875
$10.81 - 14.77 373,380 7.01 $11.4472 182,130 $10.813
$16.58 - 16.58 1,018,750 9.76 $16.58 - -
$18.02 - 25.31 592,903 8.26 $22.9585 164,274 $23.2916
$25.45 - 26.01 24,000 8.22 $25.6833 8,000 $25.59
$26.14 - 26.14 15,000 9.12 $26.14 - -
$26.78 - 26.78 67,500 7.84 $26.7813 33,756 $26.7813
$27.56 - 27.56 81,873 7.76 $27.5625 40,655 $27.5625
$31.62 - 31.62 77,000 9.01 $31.62 - -
------------- --------------- -------- ------------------ --------
$ 8.00 - $31.62 5,302,931 6.99 $13.548 2,228,025 $11.4191
============= =============== ======== ================== ========
8. 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 item discussed
below for which the Company is currently unable to predict the outcome or
reasonably estimate the possible loss or range of losses associated with the
claim, the disposition of the claims currently pending will not have a material
adverse effect on the Company's financial position or results of operations.
9
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Sanford v. West Corporation et al., No. GIC 805541, was filed February 13,
2003 in the San Diego County Superior Court. This matter arises out the same
facts and involves the same plaintiff as Patricia Sanford v. Memberworks
Incorporated, et al., Case No. 02CV0601H filed in the United States District
Court, Southern District of California as discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, as amended. The
complaint alleges violations of the California Consumer Legal Remedies Act, Cal.
Civ. Code (S)(S)1750 et seq., unfair business practices in violation of Cal.
Bus. & Prof. Code (S)(S)17200 et seq., untrue or misleading advertising in
violation of Cal. Bus. & Prof. Code (S)(S)17500 et seq., and common law claims
for conversion, unjust enrichment, fraud and deceit, and negligent
misrepresentation, and seeks monetary damages, including punitive damages, as
well as injunctive relief. The complaint is brought on behalf of a purported
class of persons in California who were sent a Memberworks, Inc. ("MWI")
membership kit in the mail, were charged for an MWI membership program, and were
customers of a joint venture between MWI and the Company or West Telemarketing
Corporation ("WTC") or were wholesale customers of the Company or WTC. The
Company and WTC have moved to dismiss the case on the grounds that the
California courts lack personal jurisdiction over them, and are awaiting the
court's ruling on that motion.
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 an 84,000 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 renewal options. The lease
payments are based on a variable interest rate of 87.5 basis points over a
selected LIBOR, which resulted in an effective interest rate of 2.19% at March
31, 2003. The aggregate lease expense on these leases for the three months ended
March 31, 2003 and 2002 were $89,100 and $84,253, respectively. Based on the
Company's variable-rate obligation at March 31, 2003, each 50 basis point
increase would increase annual interest expense by approximately $206,000. The
Company may, at any time, elect to exercise a purchase option of approximately
$10.0 million for the San Antonio building and approximately $31.0 million for
the Omaha building. If the Company elects not to purchase either building or
renew either lease, the buildings would be returned to the lessee for
remarketing. The Company has guaranteed a residual value of 85% to the lessor
upon the sale of each building. At March 31, 2003, the guarantee for the San
Antonio and Omaha buildings was approximately $34.9 million.
The Company and the lender are currently working on a transaction whereby a
development company will acquire the debt and equity holdings of the special
purpose trust. The special purpose trust will be terminated and the development
company will become the owner of the two buildings. The Company will lease the
buildings from this development company under terms similar to the existing
lease arrangement. The development company is not a variable interest entity as
defined by FIN 46. In addition, the development company will utilize some level
of recourse capital to fund the acquisition of the buildings. The Company
expects to execute this transaction in conjunction with the acquisition
financing described above. Upon completion of this transaction, the facility
will bear interest at a variable rate equal to the two new acquisition related
facilities described above. This transaction will be completed prior to July 1,
2003, which is the first interim period beginning after June 15, 2003 as
required in FIN 46.
These synthetic lease arrangements qualify and are recorded as operating
leases versus capital leases. The initial recognition and measurement provisions
of FASB Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others ("FIN 45"), are required on a prospective basis to guarantees issued or
modified after December 31, 2002. Thus, the Company will recognize the fair
value of the guaranteed residual value in its financial statements when the
lease arrangements with the new owner-lessor, mentioned above, commence.
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, terrorist attacks in the United States, as well as future
events occurring in response thereto or in connection therewith, 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. 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.
They also could result in prolonging the economic recession in the United States
or abroad. 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 Company's common stock and on the future price of
the Company's 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 accounting policies the Company
considers critical are its accounting policies with respect to revenue
recognition, allowance for doubtful accounts, goodwill and other intangible
assets, stock options and income taxes. For additional discussion of these
critical accounting policies, see the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, as amended.
11
Results of Operations
Comparison of the Three Months Ended March 31, 2003 and 2002
Revenue: For the three months ended March 31, 2003, revenue increased
$5.7 million, or 2.7%, to $216.2 million up from $210.5 million for the three
months ended March 31, 2002. The overall revenue increase is attributable
primarily to the acquisitions of Dakotah Direct II, LLC and Attention LLC. This
increase was partially offset by reduced call volumes in Direct Teleservices and
Operator Teleservices. The increase in revenue included $6.1 million derived
from new clients and $15.5 million derived from the acquisitions of Dakotah
Direct II, LLC and Attention LLC, which were acquired on March 1, 2002 and
August 1, 2002, respectively. During the three months ended March 31, 2003, 80%
of the Company's total revenue was generated by 43 clients. This compares to 45
clients during the comparable period in 2002. During the three months ended
March 31, 2003, AT&T Corp. remained the Company's largest client and accounted
for 19% of total revenue, up from 17% during the comparable period in 2002.
These percentages do not include the former Wireless and Broadband units of
AT&T, which were divested from AT&T in 2002.
Cost of services: Cost of services represents direct labor, telephone
expense and other costs directly related to providing services to clients. Costs
of services increased $1.0 million, or 0.9%, in the first quarter of 2003 to
$103.3 million, up from $102.3 million for the comparable period of 2002. As a
percentage of revenue, cost of services decreased to 47.8% for the first quarter
of 2003 compared to 48.6% for the comparable period of 2002. This reduction was
due to the continued control of variable labor costs and telecommunications
costs by the Company, as well as a greater percentage of Interactive
Teleservices call volumes which traditionally have a lower direct cost as a
percent of revenue than other Company operations.
Selling, general and administrative expenses ("SG&A"): SG&A expenses
increased by $7.6 million, or 10.4%, to $81.0 million for the first quarter of
2003 up from $73.4 million for the comparable period of 2002. As a percentage of
revenue, SG&A expenses increased to 37.5% for the first quarter of 2003 compared
to 34.8% for the comparable period of 2002. The increase can be attributed
primarily to increases in salaries and employee benefits of $3.5 million and
depreciation and amortization of finite life intangible assets of $2.9 million
related to the 2002 acquisitions discussed above.
Operating income: Operating income decreased by $3.0 million, or 8.5%,
to $31.9 million in the first quarter of 2003, down from $34.9 million in the
first quarter of 2002. As a percentage of revenue, operating income decreased to
14.8% for the first quarter of 2003 compared to 16.6% for the corresponding
period of 2002 due to the factors discussed above for revenue, cost of services
and SG&A expenses.
Other income: Other income includes sub-lease rental income, interest
income from short-term investments, interest income from customer notes
receivable and interest expense from short-term and long-term borrowings under
credit facilities, a mortgage note and capital leases. Other income for the
first quarter of 2003 totaled $456,000 compared to $711,000 for the first
quarter of 2002. The decrease in other income was the result of lower interest
rates earned on the Company's cash and cash equivalents.
Net income: Net income decreased by $2.5 million, or 11.1%, for the
first quarter of 2003, to $20.1 million from net income of $22.6 million for the
first quarter of 2002. Net income includes a provision for income tax expense at
an effective rate of approximately 37.4% for the three months ended March 31,
2003 and approximately 36.2% for the comparable period of 2002.
12
Liquidity and Capital Resources
The Company's primary source of liquidity has been cash flow from
operations, supplemented by proceeds from notes payable, capital leases and
borrowings under its revolving bank lines of credit.
The Company has a $25.0 million unsecured revolving credit facility.
Advances under the revolving credit facility bear interest at the prime rate
less 1.0%. There were no borrowings outstanding under this facility at March 31,
2003. The Company's credit facility contains certain financial covenants and
restrictions, which were met at March 31, 2003. The credit facility expires on
June 28, 2003. The Company expects to replace this revolving credit facility
when the Company closes the proposed transaction with ITC Holding Company, Inc.
Net cash flow from operating activities increased $9.4 million, or
15.9%, to $68.4 million for the three months ended March 31, 2003, compared to
net cash flows from operating activities of $59.0 million for the three months
ended March 31, 2002. The increase was due primarily to a decrease in accounts
receivable, an increase in depreciation and amortization and an increase in
other liabilities and accrued expenses. This increase was partially offset by a
decrease in net income and accounts payable.
Net cash flow used in investing activities was $12.4 million for the
three months ended March 31, 2003, compared to $51.9 million for the comparable
period of 2002. The decrease in cash flow used in investing activities was
primarily due to the two acquisitions completed by the Company during the first
quarter of 2002 requiring approximately $45.6 million of cash flow. The decrease
was partially reduced by an increase in the cash purchases of property and
equipment in 2003. The Company invested $12.7 million in capital expenditures
primarily for a new call center in Canada, which began taking calls in April of
2003, and a new network operations center completed in March of 2003. This
compares to the $14.7 million invested during the same period in 2002. However,
the 2002 purchases were financed by $8.3 million of capital lease obligations
and the remaining $6.4 million were funded through cash flow from operations.
The Company did not utilize any new capital lease financing in the first quarter
of 2003. The Company projects its capital expenditures during the last nine
months of 2003 to be approximately $40.0 million to $45.0 million, primarily for
equipment and upgrades at existing facilities.
Net cash flow used in financing activities was $6.5 million for the
three months ended March 31, 2003, compared to $3.3 million for the comparable
period of 2002. During the three months ended March 31, 2003 and 2002, net cash
flow used in financing activities was primarily for payments of debt and capital
lease obligations. These payments were $7.2 million during the three months
ended March 31, 2003 compared to $3.4 million for the comparable period of 2002.
Proceeds from stock options exercised including related tax benefits were $0.7
million during the three months ended March 31, 2003 compared to $6.5 million
for the comparable period of 2002. During the three months ended March 31, 2002,
debt obligations in the amount of $3.7 million were assumed in the acquisition
of Dakotah Direct II LLC. This obligation was paid in full during the three
months ended March 31, 2003.
On March 27, 2003, the Company announced the acquisition of InterCall
for a net purchase price of $399.6 million in cash, subject to adjustment. The
acquisition is expected to close during the second quarter of 2003 and will be
funded with cash and two bank credit facilities. The first facility is a $200.0
million four year term loan. The second facility is a revolving credit facility
of up to $125.0 million. Both facilities will bear interest at a variable rate
over a selected LIBOR based on the Company's leverage. The initial LIBOR spread
is expected to be 150 basis points over the selected LIBOR. The facilities will
bear interest at a minimum of 100 basis points over the selected LIBOR and a
maximum of 200 basis points over the selected LIBOR. The facilities will be
secured by the capital stock of all material existing and future domestic and
foreign subsidiaries of the Company. All obligations of the Company under the
facilities will be unconditionally guaranteed by all material existing and
subsequently acquired domestic subsidiaries of the Company. Financial covenants
will apply and will be measured on a rolling four-quarter basis. Outstanding
principal of the term loan will be payable quarterly commencing in the first
full fiscal quarter following the closing of the transaction in the amounts and
periods shown below:
13
Months 1-12 Months 13-24 Months 25-36 Months 37-48
----------- ------------ ------------ ------------
Term Loan $40.0 million $45.0 million $50.0 million $65.0 million
The acquisition is subject to customary closing conditions including the
approval by the stockholders of the parent company of InterCall. Stockholders
owning a majority of the voting stock of the parent company have agreed to vote
in favor of the acquisition.
Contractual Obligations
The Company's contractual obligations are disclosed in its Annual Report
on Form 10-K for the year ended December 31, 2002, as amended. The balance of
the promissory note assumed in the acquisition of Dakotah Direct II, LLC (in the
amount of $3.7 million) was paid off during the three months ended March 31,
2003. The note payable to a bank of $1.7 million at December 31, 2002 was also
paid off during the three months ended March 31, 2003. These two items and the
obligations expected to be incurred with the purchase of InterCall as described
in the previous two paragraphs are the only material changes to the Company's
contractual obligations since December 31, 2002.
Capital Expenditures
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 or future
credit facilities. The Company or any of its affiliates may be required to
guarantee any existing or additional credit facilities.
Effects of Inflation
The Company does not believe that inflation has had a material effect on
its financial position or results of operations. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
Other Events
On April 1, 2003, the Company consummated a reorganization merger
involving its 87.75% owned subsidiary, West Direct. Pursuant to that certain
Merger Agreement, by and among the Company, West Direct and Acquisition, and
each of the West Direct stockholders named therein, West Direct merged with and
into Acquisition, with Acquisition surviving the Merger with the name "West
Direct, Inc." As a result of the Merger and subject to the terms of the Merger
Agreement, the Company owns 100% of West Direct and each share of common stock
of West Direct (other than those held by the Company) was automatically
converted into the right to receive 1.9625 shares of the Company's common stock.
The four minority stockholders of West Direct, who are each executive officers
of the Company or West Direct, received an aggregate of 240,411 shares of the
Company's common stock in the Merger, some of which is subject to vesting
requirements. Holders of outstanding and unexercised options exercisable for
shares of common stock of West Direct received options of equivalent value
exercisable for 97,143 shares of the Company's common stock pursuant to the
Company's Restated 1996 Stock Incentive Plan. The Merger and the transactions
contemplated thereby were approved by the Board of Directors of the Company.
Off-Balance Sheet Arrangements
See "Note 7 Commitments and Contingencies" in the Notes to Consolidated
Financial Statements.
14
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 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.
Market Risk Management
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
changes in the market value of investments.
Interest Rate Risk
As of March 31, 2003, the Company had $22.5 million of long-term
obligations, $41.0 million of a synthetic lease obligation and $25.0 million of
credit facilities with variable interest rates. The long-term obligations were
composed of a $9.9 million variable rate mortgage note and $12.6 million in
numerous fixed rate capital leases. There were no borrowings outstanding under
the $25.0 million credit facilities at March 31, 2003.
The Company has entered into variable-rate debt that, at March 31,
2003 had an outstanding balance of $9.9 million. This variable rate debt is a
mortgage note payable to a bank, bearing a variable interest rate of 0.5% less
than the prime rate with a minimum rate of 5% and a maximum rate of 8%. Based on
the Company's obligation under this mortgage note at March 31, 2003, each 50
basis point increase over the current minimum 5% interest rate would increase
annual interest expense by approximately $50,000. If the interest rate were to
increase to the maximum rate of 8%, the annual interest expense would be
increased by approximately $300,000.
The remaining $12.6 million of long term obligations as of March 31,
2003 consisted of numerous capital leases with fixed interest rates ranging from
4.49% to 6.12%.
The Company has entered into a synthetic lease that had an outstanding
balance of $41.0 million at March 31, 2003. This variable rate lease bears a
variable interest rate of 87.5 basis points over a selected LIBOR, for an
effective rate of 2.19% as of March 31, 2003. Based on the Company's obligation
under this synthetic lease at March 31, 2003, each 50 basis point increase would
increase annual interest expense by approximately $206,000.
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 on cash flows given the Company's currently existing obligations
under such long-term obligations and credit facilities.
15
Foreign Currency Risk
On March 31, 2003 the Company had no material revenue or assets outside
the United States. The Company operates under contractual arrangements for
workstation capacity in India and Jamaica. The contracts are denominated in U.S.
dollars. These call centers are receiving or initiating calls only from or to
customers in the United States. The Company has no direct management or
ownership of the personnel or assets at these foreign locations. These sites do
not currently have dedicated customers. Therefore, the particular programs or
campaigns run at these sites could be moved to other operations.
Investment Risk
The Company does not use derivative financial or commodity instruments.
The Company's 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 investment risk.
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
procedures 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 and Executive Vice President
- - Chief Financial Officer and Treasurer, 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 Executive Vice President - Chief
Financial Officer and Treasurer 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 Securities and Exchange Commission 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 item discussed
below for which the Company is currently unable to predict the outcome, or
reasonably estimate the possible loss or range of losses associated with the
claim, the disposition of the claims currently pending will not have a material
adverse effect on the Company's financial position or results of operations.
Sanford v. West Corporation et al., No. GIC 805541, was filed February
13, 2003 in the San Diego County Superior Court. This matter arises out the same
facts and involves the same plaintiff as Patricia Sanford v. Memberworks
Incorporated, et al., Case No. 02CV0601H filed in the United States District
Court, Southern District of California as discussed in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, as amended. The
complaint alleges violations of the California Consumer Legal Remedies Act, Cal.
Civ. Code (S)(S) 1750 et seq., unfair business practices in violation of Cal.
Bus. & Prof. Code (S)(S) 17200 et seq., untrue or misleading advertising in
violation of Cal. Bus. & Prof. Code (S)(S) 17500 et seq., and common law claims
for conversion, unjust enrichment, fraud and deceit, and negligent
misrepresentation, and seeks monetary damages, including punitive damages, as
well as injunctive relief. The complaint is brought on behalf of a purported
class of persons in California who were sent an MWI membership kit in the mail,
were charged for an MWI membership program, and were customers of a joint
venture between MWI and the Company or WTC or were wholesale customers of the
Company or WTC. The Company and WTC have moved to dismiss the case on the
grounds that the California courts lack personal jurisdiction over them, and are
awaiting the court's ruling on that motion.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 filed a Report on Form 8-K, dated March 28, 2003,
with the Securities and Exchange Commission to disclose the execution of
an agreement to purchase all of the outstanding shares of capital stock
of ITC Holding Company, Inc., parent and sole stockholder of InterCall.
The Company filed a Report on Form 8-K, dated April 1, 2003, with
the Securities and Exchange Commission to disclose the agreement and plan
of merger executed in connection with the acquisition of InterCall.
The Company filed a Report on Form 8-K, dated April 2, 2003, with
the Securities and Exchange Commission to disclose a reorganization
merger involving its 87.75% owned subsidiary, West Direct.
The Company filed a Report on Form 8-K, dated April 24, 2003,
with the Securities and Exchange Commission to disclose its operating
results for the quarter ended March 31, 2003.
17
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/ Paul M. Mendlik
--------------------------------
Paul M. Mendlik
Executive Vice President -
Chief Financial Officer and Treasurer
Date: May 8, 2003
18
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 officer 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 officer 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
6. The registrant's other certifying officer 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: May 8, 2003 /s/ Thomas B. Barker
--------------------
Thomas B. Barker
President and Chief Executive Officer
19
CERTIFICATION
I, Paul M. Mendlik, 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 officer 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 officer 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
6. The registrant's other certifying officer 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: May 8, 2003 /s/ Paul M. Mendlik
-------------------
Paul M. Mendlik
Executive Vice President -
Chief Financial Officer and Treasurer
20