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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-21771
West TeleServices Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 47-0777362
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
68154
11808 Miracle Hills Drive, Omaha, (Zip Code)
Nebraska
(Address of principal executive
offices)
Registrant's telephone number, including area code: (402) 963-1500
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
At March 1, 2000, 63,821,365 shares of common stock of the registrant were
outstanding. The aggregate market value (based upon the closing price of these
shares on the NASDAQ National Market at March 1, 2000) of the voting stock
held by non-affiliates was approximately $186.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 10, 2000 are incorporated into Part III.
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TABLE OF CONTENTS
PART I
Page
----
ITEM 1. BUSINESS....................................................... 3
ITEM 2. PROPERTIES..................................................... 14
ITEM 3. LEGAL PROCEEDINGS.............................................. 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 17
EXECUTIVE OFFICERS OF THE REGISTRANT.................................... 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS....................................................... 19
ITEM 6. SELECTED FINANCIAL DATA........................................ 20
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.......................................... 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................... 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 27
ITEM 11. EXECUTIVE COMPENSATION......................................... 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...................................................... 27
SIGNATURES............................................................... 30
2
ITEM 1. BUSINESS
General
West TeleServices Corporation (the "Company") is one of the largest
independent teleservices companies in the United States, and provides a full
range of customized telecommunications-based services to business clients on
an outsourced basis. The Company conducts its business on a fully-integrated
basis principally through three wholly-owned subsidiaries: West Telemarketing
Corporation ("Inbound"); West Telemarketing Corporation Outbound ("Outbound");
and West Interactive Corporation ("Interactive"). The Company is a leading
provider in each of inbound operator services, automated voice response
services and outbound direct teleservices. The Company was incorporated in
1994 under the laws of the State of Delaware.
Inbound operator services consist of live operator call-processing
applications such as order capture, customer service and product support.
Inbound was established in 1986 with the goal of becoming the leading inbound
teleservices operation in the United States and represented approximately
44.8% of the Company's revenue in 1999. Call Center Solutions magazine ranked
Inbound as the number three inbound provider for 1999 up from the number four
ranking in 1998. Automated voice response services consist of computerized
call-processing applications such as automated product information requests,
prepaid calling card services and secure automated credit card activation.
Interactive began operations in 1989 with the goal of establishing the
leadership position in automated voice response services and represented
approximately 23.4% of the Company's revenues in 1999. Interactive was ranked
as the number one interactive teleservices company in 1997, 1998 and 1999 by
Call Center Solutions magazine. Outbound direct teleservices consist of live
operator direct marketing applications such as product sales and customer
acquisition and retention campaigns. Outbound began operations in 1990 with
the goal of becoming one of the leading outbound teleservices organizations in
the United States and represented approximately 31.8% of the Company's revenue
in 1999. For the years ended 1996 through 1999, Outbound has been named the
top outbound teleservices company by Call Center Solutions magazine. The
Company has developed technology platforms designed to provide a high degree
of automation and reliability in all three of its businesses. This technology
also enables the Company to efficiently integrate a range of its services. The
Company believes that its ability to offer integrated services for its clients
distinguishes it from most of its competitors. In 1999, 64% of the Company's
revenue was derived from clients using more than one service.
The Company targets businesses in highly competitive, consumer-based
industries, including telecommunications, e-commerce, Internet, insurance,
banking, pharmaceuticals, public utilities, consumer goods and computer
software services, that require large volume applications. The Company's
revenue and net income for the year ended December 31, 1999 were $562.4
million and $49.8 million, respectively. The Company's revenue and net income
for the year ended December 31, 1998, were $482.8 million and $46.0 million,
respectively. For financial information regarding the Company's last three
fiscal years, see the "Consolidated Financial Statements" and notes thereto
appearing elsewhere in this Annual Report on Form 10-K.
The Company operated 8,364 telephone workstations as of December 31, 1999 in
24 state-of-the-art call centers, which it uses for inbound and outbound
services, located in Nebraska, Texas, Virginia, Oklahoma, Florida, Georgia,
Alabama, Arkansas, Illinois, Louisiana and Nevada. The company also operated
33,476 proprietary interactive voice response ports as of December 31, 1999
for its automated voice response services in Nebraska, Texas, Canada,
Oklahoma, Louisiana, Colorado and Virginia. The Company has deployed multiple
automatic call distributors, predictive dialers, a proprietary interactive
voice response platform and multiple mainframe computer systems, in
combination with an intelligent workstation environment, in order to fully
automate and manage the Company's information-processing requirements. The
Company believes it has designed and
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implemented a sophisticated technology platform, permitting it to provide
flexible, high-quality and cost-effective service solutions for its clients.
Industry Overview
The teleservices industry facilitates direct communication between companies
and their current and prospective customers through telecommunications-based
systems. Wharton Economic Forecasting Associates ("WEFA Group") in its 1999
Economic Impact: US Direct Marketing Today forecasted that teleservices would
be the leading direct marketing medium by which approximately $538.3 billion
of goods and services would be sold via the telephone in 1999.
Advantages of Teleservices
Many industries, including telecommunications, pharmaceuticals, consumer
goods, banking and insurance, are experiencing increased competition to
attract and retain customers, and accordingly many businesses are seeking to
expand their direct contact with current and prospective customers. These
businesses are allocating more of their advertising and customer service
expenditures to teleservices which effectively complement other marketing
media such as television, radio and print advertising and enables businesses
to quantify and evaluate the effectiveness of specific marketing expenditures.
The American Teleservices Association estimates that nearly 100 million
Americans (one out of three) purchase goods and services over the phone each
year.
Evolution of the Teleservices Industry
The teleservices industry has evolved during the past 15 years from
primarily single-facility, low technology environments to large, full service
organizations with multi-location, large volume call-processing centers
utilizing advanced systems. Certain independent teleservices providers have
invested an increasing amount of capital in large volume state-of-the-art call
centers and advanced network technology. Larger service providers, who can
achieve greater economies of scale, can more easily justify ongoing investment
in sophisticated call management software, predictive dialers and automatic
call distributors, to better provide premium quality and cost-effective
services. Businesses are seeking to provide greater information for consumers
to make informed purchase decisions, as product and service offerings become
more complex and varied. Finally, businesses are increasingly recognizing the
economic benefits of expanding relationships with existing customers through
teleservices such as customer retention campaigns.
Role of Outsourcing
Businesses historically have relied on in-house personnel to provide
customer sales and service. Based on discussions with its clients and
prospective clients, the Company believes that businesses are increasingly
outsourcing these activities in order to focus their internal resources on
their core competencies, to increase the productivity of their marketing
services and to reduce overall teleservices expenditures. Providers of
outsourced teleservices can offer clients lower overall teleservices costs due
to economies of scale in sharing the cost of new technology among a larger
base of users and higher capacity utilization rates. According to a study by
Frost and Sullivan in 1999, U.S. Call Center Services Marketing Study, the
outsourcing services market is growing due to the increasing need of
organizations to focus on their core business and outsource mission critical
call center operations. This market will continue to grow due to the growing
tendency of organizations to conduct business over the telephone and the
increase in toll-free services. According to this same study, in 1999, it is
estimated that outsourcing services generated an estimated $22.9 billion in
call center service revenue.
Company Strategy
The Company is one of the leading providers in the teleservices industry and
is well positioned to benefit from the continued growth in outsourced
teleservices and the Internet. The Company's
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objective is to enhance its leading position by providing an integrated voice
and Internet service offering. The principal elements of the Company's strategy
are:
I. Leverage Ability to Provide Integrated Service Solutions
The Company seeks to apply its operating expertise in inbound, automated
voice response and outbound services to develop customized service solutions
that utilize the resources of each division on an integrated basis. The
Company is able to integrate its service offerings by utilizing its voice and
data networking technology and its software systems and hardware platforms.
The Company is able to design and implement highly flexible applications which
combine the large volume call capacity of automated voice response with the
specialized customer service capabilities of inbound services. As an
additional component of integration, customer follow-up can be scheduled and
initiated through the Company's outbound services. This integrated offering
provides a cost-effective solution for the client and increases the
productivity of the Company's live operators. Furthermore, the Company
leverages its ability to provide integrated services by cross-selling its
services to its clients to capture an increasing share of their outsourced
business. The Company believes that its integrated service capabilities are a
significant competitive advantage.
II. Pursue Recurring and Large Volume Applications
The Company has developed its facilities and operations specifically to
provide effective service to clients that generate large and recurring
transaction volumes. The Company has established a strong track record in
successfully managing client programs that produce such volumes. The
consistent revenue streams derived from these large volumes and recurring
applications help the Company manage its long-term growth. In 1999, 59% of the
Company's growth was derived from existing clients.
III. Capitalize on State-of-the-Art Technology
The Company seeks to capitalize on its state-of-the-art technology, which
enables the Company to offer premium quality, flexible and cost-effective
service solutions to its clients. The Company believes that its significant
and continuing investment in sophisticated contact center technology,
including proprietary interactive voice response technology, proprietary
scheduling systems, computer telephony integration systems, advanced contact
management software systems and high speed, fault-tolerant computer systems,
is a competitive advantage. In addition, the Company's software systems,
hardware platforms and extensive networking technology allow it to provide
customized client applications and integrate two or more of its inbound,
automated voice response, Internet and outbound services. The Company
continually seeks to improve its technological capabilities. One example of
the Company's ability to capitalize on state-of-the art technology was the
recent announcement for Internet customer care utilizing its new iCare
platform. iCare is a scalable, open-channel platform, which supports a suite
of Internet-based, real-time interaction tools that can be fully integrated
into West's already proven customer care platform. iCare supports a clients's
Web site, materially improving e-commerce initiatives by providing the high-
quality customer service that today's Internet consumers are demanding. iCare
is mission critical to corporations that view satisfied customers as vital to
today's competitive Internet environment.
IV. Provide Premium Quality Services
The Company believes that service quality is a critical factor in a
potential client's decision to outsource its customer service and sales
functions. The Company differentiates the quality of its services through its
ability to quickly respond to new applications and short-term volume
fluctuations, efficiently address staffing needs, and effectively employ
operating systems that can process client campaign data and provide
sophisticated reports. The Company also seeks to provide premium quality
services through an extensive training program and an experienced management
team. The Company believes that it provides premium quality service to its
clients and that the quality of its service is one of its competitive
advantages.
5
V. Develop Long-Term Client Relationships
The Company focuses on developing long-term client relationships. Since the
Company manages programs that interface with its clients' current or
prospective customers, the Company seeks to develop a detailed understanding
of each of its clients' specialized businesses. This process enables the
Company to create customized solutions that meet clients' needs and minimize
client turnover. As a result, the Company is better positioned to cross-sell
its services and proactively offer new applications.
VI. Leverage Strong Management Experience
The Company's management team possesses extensive industry experience in
inbound, automated voice response and outbound services. The Company's
management team has proven experience managing the rapid growth of the
business. The founders of the Company are among the pioneers of key areas of
the teleservices industry and the members of the management team have
continued to contribute to the development of the services industry. The
Company believes that it has distinguished itself through its ability to
attract and retain some of the most talented managers in the industry.
Description of Services
The Company's organizational structure is outlined below:
[chart depicting the Company's organizational structure]
I. Operator teleservices (Inbound)
Inbound provides large volume inbound call-processing services including
order capture and customer service applications. Inbound was established in
1986 with the goal of becoming one of the leading inbound teleservices
operation in the United States. Call Center Solutions magazine ranked Inbound
as the number three Inbound provider for 1999 up from the number four ranking
in 1998. It was one of the first service providers to fully automate its
operations and to develop proprietary software systems to service the
customized needs of its clients. In 1999, Inbound represented approximately
44.8% of the Company's revenue. The two divisions of Inbound are Direct
Response Services and Custom Operator Services.
Direct Response Services. This division custom designs applications to meet
client specifications for order capture, lead generation, customer service,
dealer referral and other information processing campaigns. Direct Response
Services receives incoming calls 24 hours per day, 365 days per year. Clients
measure this division's service quality by its ability to (i) process a large
volume of simultaneous incoming calls and (ii) to minimize the number of
calls, which receive a busy signal. Although this division processes call
volume from other media such as radio, print and direct
6
mail advertisements, most of its call volume is generated via toll-free
numbers appearing in television advertisements. This type of inbound campaign
requires the capability to handle increases in call volumes over short periods
of time.
The Company utilizes automatic call distributors and digital switches to
identify the toll-free number dialed by each caller. The toll-free number
specifies the particular client campaign and designates customer, product, and
service information to the operator and provides a highly structured script
designed to aid in processing the transaction. Each individual operator may
receive a call for one of hundreds of different client campaigns at any given
time. Furthermore, the Company can immediately report information captured
during the call to its client; the client's advertising agency and the
client's designated fulfillment company. Caller information and campaign call
volume summary reports are customized and may be transmitted to the client via
magnetic tape, electronic transfer or facsimile per the client's instructions.
Clients also have the ability to access real-time on-line program results by
media source. Immediate access to call volume data allows the Company's
clients to quickly determine the cost effectiveness of various campaigns and
to adjust their media expenditures accordingly.
Custom Operator Services. This division provides customized teleservices
solutions on a dedicated basis to large business clients. Many businesses are
finding it increasingly difficult to provide high quality customer service and
product support without diverting resources from their core businesses. In
addition, it is expensive for these businesses to own, operate and maintain
state-of-the-art contact management facilities. The Company provides a wide
range of inbound telephone-based services including: (i) programs designed to
enhance or maximize customer acquisition and retention; (ii) customer service,
customer relationship management and support; (iii) product support; (iv)
collection services; (v) customer complaint resolution; (vi) client
satisfaction information; and (vii) technical support. Our client's critical
success factors are program specific, such as exceeding goals for contact
response time, reduced handle time, reduced average speed of answer, increased
contact quality, and successfully resolving the customer's concerns in a
single contact.
In 1998, the Custom Operator Services Division introduced the Company's new
desktop application to the call center, Agent Desktop Environment ("ADE"); a
graphical user interface-based application. The ADE application uses web-
enabled technology to present agent scripting. The application supports
computer telephony integration, and allows all transactions to be accomplished
from a personal computer. A majority of the division's clients have their own
host applications on the Company's desktop computer system. ADE allows
integration with outside host systems, and allows agent access to multiple
systems and to the Internet.
II. Interactive Teleservices (Interactive)
Interactive began operations in 1989 with the goal of establishing itself as
the leader in automated voice response services. The Company believes that
Interactive is currently the largest, fully automated call-processing
operation in the United States. Interactive was ranked as the number one
interactive teleservices company in 1997, 1998 and 1999 by Call Center
Solutions magazine. In 1999, Interactive represented approximately 23.4% of
the Company's revenues. Interactive has developed proprietary software systems
and hardware platforms to service the diverse needs of its clients and to
complement the Company's live operator service offerings.
Interactive provides large volume automated voice response services, which
allow a caller to access information by means of a touch-tone telephone or
voice prompt for callers with rotary phones. Interactive provides automated
voice response services for a broad range of applications, which include
secure automated credit card activation, information and entertainment
services, prepaid calling card services, automated product information
requests, database management and
7
enhancement, customer service and third-party caller transfers. Interactive is
measured by its ability to process a large volume of simultaneous
transactions. Additionally, Interactive designs customized applications to
meet stated client specifications and offers a variety of voice recording
services to aid in the design of an interactive voice application.
Interactive specializes in processing large volumes of telephone
transactions generated by print, direct mail, radio and television broadcast
advertisements. Interactive's clients typically advertise a toll-free or pay
per call number designed to generate a prompt response. Interactive's
automated voice-processing platforms may be accessed 24 hours per day, 365
days per year. Interactive's software systems and hardware platforms integrate
the use of digital switches and decentralized computers for database
management with remote host computer interfaces and other peripheral
processing activities. Interactive's proprietary technology systems along with
inbound and outbound services permit a caller to connect to a live operator to
process data already captured through automated voice response units.
Interactive utilizes the technology to identify the specific toll-free number
dialed by the caller. The toll-free number will identify the specific client
campaign and directs the call to the appropriate switches, database machines,
and other required hardware and software needed to fulfill the requirements of
the client's application. Interactive was the first large-scale platform to
incorporate advanced services such as voice recognition for callers with
rotary phones, and near real time transcription for quick data dissemination.
Interactive's clients have remote access capability to modify their scripts
and obtain instantaneous call count and program information. Interactive
reports all information captured or disseminated during a transaction to its
clients. Campaign information, summary reports and statistics are customized
to meet a client's specifications.
III. Direct Teleservices (Outbound)
Outbound provides live operator direct marketing services. Outbound began
operations in 1990 with the goal of becoming one of the leading outbound
teleservices operations in the United States. For the years 1996 through 1999,
Outbound has been named the top outbound teleservices company by Call Center
Solutions magazine. In 1999, Outbound represented approximately 31.8% of the
Company's revenue. Outbound focuses exclusively on high volume projects. The
two divisions of Outbound are Consumer Direct Services and Business Direct
Services.
Consumer Direct Services. This division provides business-to-consumer
marketing services. While client applications may include product
registration, customer acquisition and retention campaigns, lead generation,
database enhancement and management, customer service and verification
activities, the division's primary service is product sales. Outbound is
typically measured by its ability to generate the highest net revenue per
billable hour for its clients.
The Company typically initiates contact with consumers that have been
identified by a client as existing or potential customers. Integrated call
management systems utilizing large-scale predictive dialers systematically
call consumers and transfer successful connections to a designated marketing
representative. As a call is presented to a marketing representative who has
been trained for specific client applications, the consumer's name, address
and other available information are simultaneously presented along with the
client's customized script. The Company's proprietary software systems permit
clients to immediately access on-line program results and monitor the
performance of all designated marketing representatives. The Company can
report information captured, summary results and more detailed statistical
analyses in a customized format for each of its clients.
Business Direct Services. This division provides business-to-business
marketing services for clients whose target markets include thousands of small
to medium sized businesses. These
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applications are designed to enhance and increase client's databases of
information about their prospects and clients, schedule appointments for their
regional and national sales forces, and sell services to accounts that may not
warrant a face-to-face sales presentation.
Facilities and Service Fortification
The Company recognizes the importance of providing uninterrupted service for
its clients. The Company has invested significant resources to develop,
install and maintain facilities and systems designed to be highly reliable.
All of the Company's service facilities and systems are designed to maximize
system in-service time and minimize the possibility of telecommunications
outage, commercial power loss or equipment failure. The Company believes that
this level of reliability provides an important and necessary competitive
advantage.
The Company utilizes redundant network architecture, which substantially
reduces the possibility of a system failure and the interruption of
telecommunications service. As depicted in the diagram below, redundant long
distance and local access facilities serve Inbound's contact centers. Most
contact centers are serviced by dual central office switches, providing split
access flexible egress routing capabilities, as well as backup access into
each facility, using dual fiber ring SONET-based self-healing network
architectures. Most inbound numbers directed to a Company contact center are
appended with dual routing instructions in the event of an error on the
primary network path. These capabilities allow incoming calls to be redirected
via an alternate long distance switch and/or through a backup access line in
the unlikely event of a long distance or local network failure.
[Flow Chart of the Company Network Architecture Appears Here]
The Company's systems also feature operational redundancy. The Company uses
automatic call distributors with dual processors and online automatic backup
and fault-tolerant mainframe computers with spontaneous dual backup for all
processors, disk management and mechanical functions. Copies of all
proprietary Company software systems and client application software reside in
a secure off-site storage facility. The Company actively monitors all critical
components of its call-processing facilities 24 hours per day, 365 days per
year. Inbound and Interactive facilities also have stand-alone primary power
systems and both battery backup and diesel generator backup power systems.
Personnel and Training
The Company believes that a key component of its success is the quality of
its employees. As a large-scale service provider, the Company is continually
refining its approach to recruiting, training and managing its employees. The
Company has established procedures for the efficient weekly hiring and
training of hundreds of qualified employees. These procedures, coupled with
the Company's proprietary scheduling system, enable the Company to provide
flexible scheduling and staffing solutions to meet a client's needs for
additional resources.
The Company offers extensive classroom and on-the-job training programs for
personnel, including instruction regarding call-processing procedures, direct
sales techniques, customer service guidelines, telephone etiquette and proper
use of voice inflections. Operators receive professional training lasting from
four to 21 days, depending upon the client's program and the nature of the
services being provided. In addition to training designed to enhance job
performance, employees are
9
also given a detailed description of the Company's organizational structure,
standard operating procedures, and business philosophies.
In 1999, the Company employed an average of approximately 16,000 telephone
representatives per day for its inbound services and outbound services with
peak employment of approximately 17,900 operators per day. In addition, the
Company employed as of December 31, 1999 approximately 2,800 management, staff
and administrative employees. The Company considers its relations with its
employees to be good.
Call Management Systems
The Company specializes in processing large and recurring transaction
volumes. In each of the Inbound, Interactive and Outbound divisions, the
Company works closely with its clients to accurately project future
transaction volumes. The Company uses the following practices to efficiently
manage its transaction volumes:
Historical Trends Analyses. The Company tracks weekly, daily and hourly
trends for individual client programs for Inbound, Interactive and Outbound.
The Company believes that the key to a cost efficient teleservices program
begins with the effective planning of future volumes to determine the optimal
number of sites, employees, workstations and calling ports that need to be
deployed each hour. Based upon the Company's experience in processing large
volumes during the past ten years, it has accumulated the data necessary to
differentiate the transaction patterns of different applications such as order
capture, lead generation and customer service.
Forecasting Call Volumes/Establishing Production Plans. Volumes in Inbound
are forecasted for each one-half hour increment for each day. Detailed
assumptions are made regarding average handle time, average wait time, average
speed of answer, and service level targets to determine the actual number of
transactions that may be processed by a workstation or voice response port
during a specific one-half hour increment. This process enables the Company to
effectively determine the number of workstations and voice response ports
needed for a given campaign.
Staffing and Scheduling Plans. Based upon the total number of workstations
required to be staffed, a detailed schedule is created. These schedules are
typically forecasted six to eight weeks in advance to assist the Company's
personnel and training departments in hiring and training the desired number
of personnel. Operators are given regular work schedules that are designed to
coincide with anticipated transaction patterns and trends.
The Company has developed a proprietary scheduling system that efficiently
identifies variances between staff scheduled and staff needed. The system
accommodates real-time adjustments to be made for personnel schedules as
volume projections fluctuate. Agent personnel directly interact with the
system to schedule additional hours or excused time.
Facility Calling Plan. Once staffing and scheduling plans have been
developed, each division determines how to efficiently allocate the projected
volumes among its contact centers. Each contact center receives a detailed
plan outlining the projected volumes for each day of the week and each one-
half hour increment of each day. Personnel schedules are produced to optimally
match the projected volumes.
Network Control. The Company interfaces directly with the nationwide long
distance network of AT&T Corp. ("AT&T") and has the ability to allocate
volumes among its various inbound call centers on command assisted by
sophisticated third party routing products. Traffic control specialists within
the Company are responsible for comparing actual volumes and trends to stated
staffing and scheduling plans. When necessary, adjustments can be made to fine
tune minor variances between actual
10
volumes and personnel that have been scheduled by facility. As a result,
inbound transactions are optimally directed to available personnel, which
maximizes the utilization of personnel and improves efficiency. Network
control monitors the status of all inbound processing activities on a minute-
by-minute basis. Minor real time variances between projected and actual trends
are promptly entered into the Company's database and the transaction
management cycle repeats.
Technology/Systems Development
All software systems and hardware platforms for Inbound, Interactive and
Outbound permit the design and execution of highly integrated service
offerings. All systems provide clients with the ability to directly interface
and communicate with the Company's systems. The Company currently employs
approximately 750 systems analysts, programmers and technicians to modify and
enhance the Company's operating systems and to design client applications.
Quality Assurance
By the nature of its services, the Company establishes direct contact with
the customer base of its clients. Given the importance of this role, the
Company believes that its reputation for providing premium quality service is
critical. Both the Company and its clients shadow monitor and evaluate the
performance of operators to confirm that clients' programs are properly
implemented using clients' approved scripts and that the operators meet
clients' customer service standards. The Company regularly measures the
quality of its services by reviewing such variables as average handle time,
volume, average speed of answer, sales per hour, rate of abandonment and order
conversion percentages. The Company's information systems enable the Company
to provide clients with regular reports on a real-time basis as to the status
of an ongoing campaign and to transmit summary data and captured information
electronically to clients.
The Company maintains a quality assurance department for each of the live
agent divisions that is responsible for the overall quality of the services
being provided. A comprehensive performance appraisal is typically given to
every agent representative every six to eight weeks. The Company uses
statistical summaries of the performance appraisal information for its
training and operations departments to provide feedback and to identify
operators who may need additional training.
Sales and Marketing
The Company's sales and marketing strategy focuses on leveraging the
Company's expertise, integrated service capabilities and reputation for
premium quality service in order to cross-sell its services to existing
clients and to develop new long-term client relationships. The Company also
identifies industries that face increased competition, such as
telecommunications, e-commerce, insurance, banking, pharmaceuticals, consumer
goods and computer software, in which the Company can offer clients large-
scale cost-effective solutions on an outsourced basis.
The Company formulates detailed annual sales and marketing plans. These
plans contain objectives and milestones, which are tracked regularly
throughout the year. The sales organization is a group of sales professionals
organized by division who are trained to focus on specific industries and
overall client needs. The objective is to sell integrated teleservice
solutions to prospective and existing clients. Commissions are paid on both
new sales and incremental revenues generated from new and existing clients to
provide the appropriate incentives for the sales professionals. Once a client
campaign is initiated, a client services account manager is responsible for
the daily management of the campaign.
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Competition
The outsourced teleservices and Internet customer service industry is highly
fragmented and competitive. Similar to the Company, competitors in the
outsourced teleservices industry are also starting to provide integrated
Internet services with their current service offerings. The Company's
competitors in the teleservices industry range from very small firms catering to
specialized applications and short-term projects to large independent firms and
the in-house operations of many clients and potential clients. In addition, some
of the Company's services compete with other forms of marketing such as mail,
television, Internet and radio. While the Company has various competitors for
each of its divisions, the Company believes that only a few competitors have the
capability to provide each of inbound, automated voice-processing and outbound
services. The Company believes that the principal competitive factors in the
teleservices industry are capacity, flexibility of implementing customized
solutions to clients' teleservices needs, technological expertise and price.
Proprietary Rights and Licenses
The Company has made significant investments in the development of its
proprietary software systems and hardware platforms. The Company relies on a
combination of the protections provided by applicable copyright, trademark and
trade secret laws, as well as on confidentiality procedures, to establish and
protect its proprietary rights. The Company does not license any of its
software or hardware designs for use by others. Despite these precautions,
there can be no assurance that misappropriation of the Company's proprietary
software and hardware designs will not occur. Although the Company believes
that its intellectual property rights do not infringe upon the proprietary
rights of third parties, there can be no assurance that third-parties will not
assert infringement claims against the Company. Further, there can be no
assurance that intellectual property protection will be available in certain
foreign countries should the Company commence operations outside North
America.
Reliance on Major Clients
A significant portion of the Company's revenue is generated from relatively
few clients. The loss of the largest client or a number of its largest clients
could have a material adverse effect on the Company. The Company's largest
client, AT&T, accounted for approximately 32%, and the Company's 46 largest
clients in the aggregate accounted for approximately 80% of the Company's
revenue in 1999. AT&T revenue was generated by over 39 different teleservices
programs. The Company generally operates under contracts with these clients
who may be terminated on 30-days notice and generally the contracts are for a
term of less than one year. Subsequent contracts may be subject to open
bidding among the Company and its competitors.
Government Regulation
Teleservices sales practices are regulated at both the federal and state
level. The Telephone Consumer Protection Act which was enacted in 1991
authorized and directed the Federal Communications Commission (the "FCC") to
enact rules to regulate the telemarketing industry. In December 1992, the FCC
enacted rules, which place restrictions on the methods and timing of
telemarketing sales calls.
The Federal Telemarketing Consumer Fraud and Abuse Act of 1994 (the "TCFAA")
authorizes the Federal Trade Commission (the "FTC") to issue regulations
designed to prevent deceptive and abusive telemarketing acts and practices.
The FTC issued its Telemarketing Sales Rule (the "TSR"), which went into
effect in January 1996. The TSR applies to most outbound telemarketing calls
and certain inbound telemarketing calls and generally prohibits a variety of
deceptive, unfair or abusive practices in telemarketing sales. The FTC has
initiated administrative rulemaking proceedings to review and possibly revise
TSR. The Company cannot predict whether any modifications will be made to the
TSR, and, if so, what impact such revisions would have on the Company or its
industry.
12
The FTC has also adopted regulations governing pay per call services (the
"900 Number Rule") pursuant to the Telephone Disclosure and Dispute Resolution
Act passed by Congress in 1992. In general, the 900 Number Rule prescribes the
content of advertising for such services, requires that certain introductory
disclosures be made (at no charge to the caller) and provides for the manner
and content of billing and collection for such services. The FCC supplements
this regulation by requiring that common carriers assign a telephone number to
a provider of interstate pay per call services and offer billing and
collection services to such a provider to assure compliance with the 900
Number Rule. In March 1997, the FTC initiated a 900 Number Rule rulemaking
review proceeding to evaluate the operation of the 900 Number Rule and to
determine whether the scope of the 900 Number Rule should be expanded to
information services provided through dialing patterns other than 900 numbers.
As part of this rulemaking review proceeding, the FTC has issued proposed
revisions to the 900 Number Rule which, among other things, would expand the
scope of the 900 Number Rule to information services provided through other
dialing patterns, impose more stringent requirements on the establishment of
pre-subscription arrangements governing the use of toll free numbers for pay
per call services and require express verifiable authorization from a
telephone subscriber in order for purchases to be billed to the telephone
subscriber's telephone bill. The industry filed written comments to the FTC's
proposed revisions in March 1999. The FTC held a workshop in May 1999. In
addition to commenting on the FTC's proposed changes, the industry has
requested certain other reforms, which would help reduce the charge-back
rates. The Company cannot predict what final modifications to the 900 Number
Rule will be implemented and what impact those modifications will have on the
Company or the industry. The Company cannot predict whether any modifications
will be made to the 900 Number Rule, and, if so, what impact they would have
on the Company or its industry.
The Telecommunications Act of 1996 also contains certain provisions, which
may have an impact upon the Company. In general, this act eliminated the
tariffed service exception from the pay per call rules and required the FCC to
adopt new and more stringent rules for the use of toll free numbers for pay
per call services because of abuses that arose from pay per call services
offering toll free numbers. The FCC has proposed rules for the use of toll
free numbers for pay per call services. The FCC has also proposed rules
designed to restrict the use of toll free numbers in connection with pay per
call information programming. Among the most significant changes to the toll
free number rules are that pre-subscription agreements now must be executed in
writing, require the use of a personal identification number (PIN), or other
identifier unique to the subscriber and provide subscribers with a choice of
the following billing methods: direct remit, debit prepaid account phone bill
or credit or calling card. As an alternative, information providers may charge
information services provided via toll free numbers with a prepaid account or
debit, credit, charge or calling card if there is a preamble disclosing the
costs, the point in time when the charges begin and billing methods. There are
also corresponding disclosure requirements for soliciting pre-subscription
agreements and for consumers' billing statements.
In addition to the federal legislation and regulations, there are numerous
state statutes and regulations governing telemarketing activities, which do or
may apply to the Company. For example, some states also place restrictions on
the methods and timing of telemarketing calls and require that certain
mandatory disclosures be made during the course of a telemarketing call.
The Company employees who are involved in certain types of sales activity,
such as activity regarding insurance or mortgage loans, are required to be
licensed by various state commissions or regulatory bodies and to comply with
regulations enacted by those entities.
The industries served by the Company are also subject to varying degrees of
government regulation. Generally, the Company relies on its clients and their
advisors to develop the scripts to be used by the Company in making consumer
solicitations. The Company generally requires its clients to indemnify the
Company against claims and expenses arising with respect to the scripts
provided by its clients.
13
The Company specifically trains its marketing representatives to handle
calls in an approved manner and believes it is in compliance in all material
respects with all federal and state regulations. There can be no assurance,
however, that the Company would not be subject to regulatory challenge for a
violation of federal or state law by any of its clients.
ITEM 2. PROPERTIES
The Company operated seven automated voice response facilities with 33,476
ports as of December 31, 1999 and 24 state-of-the-art call centers with 8,364
workstations as of December 31, 1999. Certain of the Company's call centers
can be used interchangeably by both Inbound and Outbound.
Inbound operates eight large volume, automated call-processing facilities
located in Nebraska, Texas, Virginia, Oklahoma, Nevada, Louisiana, Alabama and
Illinois. These facilities consist of 3,948 computer-assisted workstations. In
1999, Inbound employed an average of approximately 8,995 operators per day
with peak employment of approximately 10,155 operators per day.
Interactive operates seven large volume, automated voice response facilities
located in Nebraska, Texas, Alberta (Canada), Oklahoma, Louisiana, Colorado
and Virginia. Interactive has a total capacity of 33,476 voice response ports.
Interactive is not a labor intensive business and employs approximately 281
managerial, staff and administrative personnel.
Outbound operates 17 large volume, automated facilities located in Texas,
Alabama, Arkansas, Louisiana Georgia, Florida and Illinois. Outbound maintains
4,416 computer-assisted workstations and in 1999 employed an average of 7,009
marketing representatives per day with peak employment of approximately 7,705
marketing representatives per day.
14
The following table summarizes the location of and the number of telephone
workstations at each of the Company's call centers for each of Inbound,
Interactive and Outbound as of December 31, 1999.
Number of Number of
Telephone Voice Response
Call Centers Workstations Ports
- ------------ ------------ --------------
Inbound
Omaha, Nebraska................................... 907 --
San Antonio, Texas................................ 520 --
Hampton, Virginia................................. 708 --
Tulsa, Oklahoma................................... 435 --
Reno, Nevada...................................... 318 --
Baton Rouge, Louisiana............................ 564 --
Rockford, Illinois................................ 272 --
Dothan, Alabama................................... 224 --
-----
Inbound Total................................... 3,948 --
-----
Interactive......................................... --
Omaha, Nebraska................................... -- 20,879
San Antonio, Texas................................ -- 2,712
Calgary, Alberta (Canada)......................... -- 345
Tulsa, Oklahoma................................... -- 940
Baton Rouge, Louisiana............................ 240
Denver, Colorado.................................. 7,616
Hampton, Virginia................................. -- 744
------
Interactive Total............................... 33,476
------
Outbound
San Antonio, Texas................................ 849 --
Universal City, Texas............................. 640 --
El Paso, Texas.................................... 582 --
Killeen, Texas.................................... 252 --
Waco, Texas....................................... 252 --
Lubbock, Texas.................................... 252 --
Odessa, Texas..................................... 117 --
McAllen, Texas.................................... 144 --
Mobile, Alabama................................... 376 --
Dothan, Alabama................................... 42
Texarkana, Arkansas............................... 157 --
Ft. Smith, Arkansas............................... 117 --
Fayetteville, Arkansas............................ 120 --
Lafayette, Louisiana.............................. 151 --
Carbondale, Illinois.............................. 117 --
Tallahassee, Florida.............................. 124
Hinesville, Georgia............................... 124
-----
Outbound Total.................................. 4,416 --
-----
Total......................................... 8,364 33,476
===== ======
The Company occupied approximately 1,181,000 square feet of office space at
December 31, 1999. All of the facilities described above other than the
facilities located in San Antonio, Texas (which are owned) are leased. The
Company also owns 125,000 square feet of office space in a corporate
headquarters building in Omaha, Nebraska.
15
The Company believes that its facilities are adequate for its current
requirements and that additional space will be available as required. See Note
D to the Company's Consolidated Financial Statements included elsewhere in
this Annual Report on Form 10-K for information regarding the Company's
obligations under its facilities leases.
ITEM 3. 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
discussed below for which the Company is currently unable to predict the
outcome, the disposition of claims currently pending will not have a material
adverse effect on the Company's financial position or results of operations.
Richard Carney, et al. v. West TeleServices, Inc., West Telemarketing
Corporation, West Telemarketing Corporation Outbound, West Telemarketing
Insurance Agency, Inc., Hal Morris, Matt Mazzarella and John Erwin (Cause No.
97-CI-15780) was filed on October 31, 1997, in the 131st Judicial District
Court of Bexar County, Texas. Plaintiffs seek certification of a class
consisting of all hourly employees of the Company, Inbound, Outbound, and West
Telemarketing Insurance Agency, Inc. Plaintiffs allege that they were not paid
for all compensable work performed by them during their employment. Plaintiffs
seek recovery under the theories of quantum meruit, common law fraud, common
law debt, conversion and civil theft. The Court conducted hearings on West's
motion for summary judgment and plantiff's class certification motion on
November 8, 1999. No ruling has yet been issued.
Outbound is a defendant in a case filed on July 28, 1997, entitled Schurman,
Bowers, et al., individually and on behalf of a class of all other persons
similarly situated v. Horry Telephone Cooperative, Inc.; AT&T Corp.; AT&T
Communications, Inc.; AT&T Communications of the Southern States, Inc.; and
West Telemarketing Outbound Corporation, pending in the United States District
Court for the District of South Carolina (Civil Action No. 4:97-2635-12).
Outbound is also named as a defendant in a Fourth Amended Complaint filed on
October 26, 1998, in the case of Chris Bone, et al., individually and as class
representatives, vs. Horry Telephone Cooperative, Inc.; AT&T Corp.; AT&T
Communications, Inc.; AT&T Communications of Southern States, Inc.; and West
Telemarketing Outbound Corporation, which is also pending in United States
District Court for the District of South Carolina (Civil Action No. 4:96-3527-
22). Plaintiffs in both cases allege claims of negligent misrepresentation,
fraud, breach of contract and statutory violations in connection with offers
by AT&T of rate programs and long distance services which were allegedly
either unavailable or not provided to plaintiffs. Outbound provided
telemarketing services to AT&T in connection with AT&T's marketing of its
programs and services. Plaintiffs seek monetary damages, punitive damages,
attorney's fees, costs and injunctive relief. No class has been certified in
either case. The federal judge to whom both cases are assigned has
consolidated the cases and referred all issues in both cases to the FCC. The
judge also stayed both cases pending the outcome of the FCC referral.
Glenn K. Jackson and Elsie Jackson v. West Telemarketing Corporation
Outbound and Does 1 through 100, inclusive, was filed in the United States
District Court for the Central District of California (No. CV-97-8281 TJH
(AIJx)), on August 12, 1997, and transferred to the United States District
Court for the Northern District of Texas, Dallas Division, where it is pending
(Civil Action No. 3:98-CV-0960-H). The complaint contains several causes of
action, all of which deal with the purchase by Outbound of two pieces of
property from the Resolution Trust Corporation ("RTC") during 1993 and 1994.
The plaintiffs contend that they also bid on the property, that Outbound
learned the amount of their bids, used that information to out-bid them and,
ultimately, purchase the property. The complaint seeks general damages,
special damages, equitable injunctive and
16
restitutionary relief, including restitution of the property involved,
punitive damages, attorneys' fees, and litigation costs. Pre-trial discovery,
including discovery on plaintiffs' damage claims and theories, actively began
in the second quarter of 1999. Outbound filed preliminary motions for summary
judgment on August 16, 1999. The Court assigned all preliminary matters to a
U.S. magistrate who heard all pending motions, except the motion for summary
judgment, on September 24, 1999. The Court denied Outbound's motion requesting
plaintiffs be required to join RTC, Old Stone Bank and a bank employee as
defendants and dismissed, without prejudice, all of plaintiff's motions
related to discovery issues. On November 19, 1999, the U.S. magistrate granted
West's motion for summary judgment in full. On December 9, 1999, the
plaintiffs appealed to the U.S. Fifth Circuit Court of Appeals the summary
judgment granted Outbound by the United States District Court for the Northern
District of Texas, Dallas Division. The briefing schedule has not yet been
set.
A settlement agreement was reached in the Lamar Andrews, et al., Plantiff v.
American Telephone & Telegraph Company, et al., Defendants, (No. CV 191--175)
and Janie Gilchrist, individually and on behalf of a class of all other
persons similarly situated, v. Direct American Marketers, Inc., Anthony Brown,
Integretel, Inc., Troy Eaden, Gary West, Interactive and Bellsouth
Corporation, (File No. CV 197-233) cases disclosed earlier in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998. Pursuant to
the settlement agreement Interactive agreed to pay settlement costs for which
all claims relating to Interactive and the individuals related to the Company
named therein were settled. Joint dismissal of both cases was filed on
February 11, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Gary L. West.......... 54 Co-Chairman of the Board and Director
Mary E. West.......... 54 Vice Chair of the Board, Secretary and Director
Troy L. Eaden......... 37 Co-Chairman of the Board and Director
Thomas B. Barker...... 45 President, Chief Executive Officer and Director
Nancee Shannon Berger. 39 Chief Operating Officer
Michael A. Micek...... 50 Chief Financial Officer, Executive Vice President--
Finance and Treasurer
John W. Erwin......... 37 President--Direct Teleservices
Mark V. Lavin......... 41 President--Operator Teleservices
Steven M. Stangl...... 41 Executive Vice President--Interactive Teleservices
Michael M. Sturgeon... 38 Executive Vice President--Sales and Marketing
Jon R. Hanson......... 33 Executive Vice President--Administrative Services
and Chief Administrative Officer
Gary L. West co-founded WATS Marketing of America ("WATS") in 1978 and
remained with that company until 1985. Mr. West joined the Company in July
1987 after the expiration of a noncompetition agreement with WATS. Mr. West
has served as Chairman of the Board since joining the Company. Mr. West and
Mary E. West are husband and wife.
Mary E. West co-founded WATS and remained until December 1985. In January
1986, she and Mr. Eaden founded the Company. Mrs. West has served as Vice
Chair of the Company since 1987. Mrs. West and Mr. West are wife and husband.
17
Troy L. Eaden co-founded the Company with Mrs. West in January 1986. Mr.
Eaden has served as Co-Chairman of the Board since September 1998. He served
as the principal executive of the Company beginning in 1989 and formally held
the title of Chief Executive Officer from March 1995 to September 1998. Mr.
Eaden was employed by WATS from May 1980 to December 1985.
Thomas B. Barker joined the Company in 1991 as Executive Vice President of
Interactive. Mr. Barker was promoted to President and Chief Operating Officer
of the Company in March 1995. Mr. Barker was promoted to President and Chief
Executive Officer in September 1998. Prior to joining the Company, he served
as President and Chief Operating Officer of Cue Network Corp., a provider of
nationwide paging and satellite data distribution services.
Nancee Shannon Berger joined Interactive in 1989 as Manager of Client
Services. Ms. Berger was promoted to Vice President of Interactive in May
1994. She was promoted to Executive Vice President of Interactive in March
1995, and to President of Interactive Teleservices in October 1996. She was
promoted to Chief Operating Officer of the Company in September 1998. Before
joining Interactive, she was Senior Project Manager at Applied Communications,
Inc.
Michael A. Micek joined the Company in 1988 and was appointed to Chief
Financial Officer, Vice President--Finance and Treasurer in 1990. In 1997, Mr.
Micek was promoted to Chief Financial Officer, Executive Vice President--
Finance and Treasurer. Prior to joining the Company, Mr. Micek was a partner
in the accounting firm of Blackman and Micek, P.C. from 1983 to 1988 and was
employed by the accounting firm of Touche Ross from 1981 to 1983.
John W. Erwin joined the Company in 1988 as Executive Vice President of
Outbound. In March of 1995, Mr. Erwin became President--Direct Teleservices.
Prior to joining the Company, Mr. Erwin held a management position with Dial
America Marketing and a management and ownership position with Telcom
Communications Marketing, Inc., both of which provide outbound telemarketing
services.
Mark V. Lavin joined the Company in 1996 as Executive Vice President--
Operator Teleservices. In September 1998, Mr. Lavin was promoted to
President--Operator Teleservices. From 1991 until 1996, he held various
management positions in reservation services for Radisson Hospitality
Worldwide.
Steve M. Stangl joined Interactive in 1993 as Controller. Mr. Stangl was
promoted to Vice President of Accounting in 1996. He was promoted to Executive
Vice President of Interactive in September 1998. Before joining Interactive,
he was an audit manager with the accounting firm of Deloitte & Touche.
Michael M. Sturgeon joined the Company in 1991 as a National Account
Manager--Interactive. In September 1994, Mr. Sturgeon was promoted to Vice
President of Sales and Marketing--Interactive. In March of 1997, Mr. Sturgeon
was promoted to Executive Vice President--Sales and Marketing for the Company.
Prior to joining the Company, Mr. Sturgeon was a management consultant for
Anderson Consulting and Laventhol & Hartworth.
Jon R. (Skip) Hanson joined the company in 1991 as a Business Analyst. Mr.
Hanson was promoted to Vice President, Corporate Administrative Services in
June 1996. In October 1999, he was promoted to Chief Administrative Officer
and Executive Vice President. Prior to joining the Company, Mr. Hanson was a
consultant with Andersen Consulting from 1989 to 1991.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On December 2, 1996, the Company completed the initial public offering (the
"Initial Public Offering") of its shares of common stock, par value $0.01 per
share (the "Common Shares"). The Common Shares are listed on the NASDAQ
National Market under the symbol "WTSC." The following table sets forth, for
the periods indicated, the high and low sales prices of the Common Shares as
reported on the NASDAQ National Market.
High Low
------- -------
1997
----
First Quarter................................................ $25 1/4 $12
Second Quarter............................................... $16 1/4 $12 3/8
Third Quarter................................................ $16 3/8 $12 1/2
Fourth Quarter............................................... $15 1/8 $10 1/8
1998
----
First Quarter................................................ $17 3/8 $11 1/2
Second Quarter............................................... $18 1/4 $11 1/4
Third Quarter................................................ $15 1/4 $ 9 1/4
Fourth Quarter............................................... $14 1/4 $ 8 3/8
1999
----
First Quarter................................................ $12 1/4 $ 8 1/2
Second Quarter............................................... $10 5/8 $ 7 3/8
Third Quarter................................................ $12 5/8 $ 8 3/8
Fourth Quarter............................................... $25 $11 5/8
As of March 1, 2000, there were 77 holders of record of Common Shares. As of
the same date, there were a total of 63,821,365 Common Shares issued and
outstanding. No dividends have been declared with respect to the Common Shares
since the Initial Public Offering. The Company currently intends to retain
earnings to finance the growth and development of its business and for working
capital and general corporate purposes, and does not anticipate paying cash
dividends on the Common Shares in the foreseeable future. Any payment of
dividends will be at the discretion of the Company's Board of Directors and
will depend upon earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to payment of dividends
and other factors.
19
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the periods on and at the dates
indicated, selected historical consolidated financial data of Company. The
selected consolidated historical financial data has been derived from the
audited historical consolidated financial statements of the Company. The
Company's consolidated financial statements as of December 31, 1999 and 1998,
and for the years ended December 31, 1999, 1998 and 1997 and Deloitte & Touche
LLP's audit report with respect thereto have been included elsewhere in this
Annual Report on Form 10-K. The information is qualified in its entirety by
the detailed information included elsewhere herein and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and the "Consolidated Financial
Statements" and notes thereto included elsewhere in this Annual Report on Form
10-K.
Year ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except for per share and
selected operating data)
Income Statement Data:
Revenue.................... $562,444 $482,823 $398,832 $317,210 $256,894
Cost of services........... 288,503 256,494 220,858 180,380 146,531
Selling, general and
administrative expenses... 194,433 152,838 118,878 87,499 70,575
-------- -------- -------- -------- --------
Net operating income....... 79,508 73,491 59,096 49,331 39,788
Net other income (expense). 850 1,269 1,716 (3,420) (3,389)
-------- -------- -------- -------- --------
Net income before income
tax expense............... 80,358 74,760 60,812 45,911 36,399
Actual income tax expense.. 30,604 28,769 23,402 4,213 828
Pro Forma Information (1):
Income tax expense....... -- -- -- 12,950 13,130
-------- -------- -------- -------- --------
Net income............... $ 49,754 $ 45,991 $ 37,410 $ 28,748 $ 22,441
======== ======== ======== ======== ========
Earnings per share:
Basic.................. $ 0.79 $ 0.73 $ 0.59 $ 0.52 $ 0.42
Diluted................ $ 0.77 $ 0.73 $ 0.59 $ 0.52 $ 0.42
Weighted average number
of common shares
outstanding:
Basic.................. 63,330 63,330 63,330 54,891 53,968
Diluted................ 64,380 63,353 63,346 54,966 53,968
Selected Operating Data:
Operating margin........... 14.1% 15.2% 14.8% 15.6% 15.5%
Number of workstations (at
end of period)............ 8,364 7,624 5,931 4,440 3,158
Number of ports (at end of
period)................... 33,476 11,160 8,056 5,804 3,870
As of December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital............ $104,427 $ 70,699 $ 55,320 $ 46,169 $ 6,550
Property and equipment,
net....................... 167,934 144,139 111,710 70,608 45,889
Total assets............... 408,989 326,139 282,150 238,285 123,452
Total debt................. 45,196 30,952 21,686 22,523 41,743
Stockholders' equity....... 291,962 242,208 196,217 158,879 38,229
- --------
(1) Reflects a pro forma provision for income taxes as if the Company had been
subject to Federal and state corporate income taxes for all periods. The
pro forma provision for income taxes represents a combined Federal and
state tax rate.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company conducts its business principally through three wholly-owned
subsidiaries: Inbound, Interactive and Outbound. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with "Selected Financial Data" and the "Consolidated
Financial Statements" and notes thereto appearing elsewhere in this Annual
Report on Form 10-K.
Certain statements under this caption constitute forward-looking statements,
which involve risks and uncertainties. The Company's actual results in the
future could differ significantly from the results discussed or implied in
such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, the effect on financial
performance of increased competition in the teleservices industry, potential
future competition, competitive pricing for services, potential future
competing technologies and trends, dependence on technology and phone service,
dependence on the Company's labor force, reliance on major clients, the
success of new product innovations, legal proceedings and government
regulation.
Overview
The Company is a leading provider of teleservices to businesses on an
outsourced basis. The Company believes it has established a distinct
competitive advantage in its ability to offer a range of services through its
three operating divisions (Inbound, Interactive and Outbound) on a fully
integrated basis.
Revenue: Inbound services represented approximately 44.8% of total revenue
for the year ended December 31, 1999. Revenue for Inbound services is
primarily generated at the time calls are answered by a telemarketing
representative based on the number of calls and/or minutes received and
processed on behalf of clients. Inbound services also generates revenue from
calls transferred to telemarketing representatives from interactive voice
response units and by providing assistance to clients in the design and
implementation of new applications.
Interactive services represented approximately 23.4% of total revenue for
the year ended December 31, 1999. Revenue for Interactive services is
primarily generated at the time calls are received or sent by automated voice
response units and is billed based on call duration.
Outbound services represented approximately 31.8% of total revenue for the
year ended December 31, 1999. Revenue for Outbound services is generated
generally on an hourly basis based on the time the marketing representatives
place calls to consumers on behalf of clients. Outbound services also generate
revenue by providing assistance to clients in the design and programming of
customized applications.
Expenses: Costs of telecommunications services incurred by the Company are
primarily comprised of long distance transmission charges. The Company
effectively manages its telecommunications costs through a long-term services
contract with AT&T which includes an established rate schedule subject to
certain call volume commitments. As one of AT&T's largest clients, the Company
believes it has negotiated a favorable contract at an attractive service rate.
The Company has also entered into a number of equipment maintenance and
network management contracts with AT&T in order to facilitate reliable and
efficient network operations. Rates for telecommunications services are
primarily determined by total call volume, level of network management and
technical support under contract.
21
The Company manages its direct labor costs through its flexible staffing and
scheduling initiatives. In particular, the Company has developed its own
proprietary scheduling systems which are designed to optimize staffing and pay
levels in anticipation of fluctuating call volumes as clients' campaigns are
scheduled. The Company seeks to control its direct labor costs by
decentralizing its operations and by seeking new geographic markets which
offer attractive labor market characteristics for its Inbound and Outbound
services. Direct labor rates fluctuate based upon local market factors such as
the size and availability of a part-time workforce in addition to local
economic growth. Labor rates are adjusted, as necessary, to attract the
required number of service representatives during seasonal fluctuations.
During the year ended December 31, 1999, the Company experienced improvement
in direct costs as a percentage of revenue due in part to more favorable labor
rates realized by entering new local markets.
Selling, general and administrative 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 goodwill, allowance for doubtful accounts, sales
and marketing activities, client support services, and corporate management
costs. Changes in selling, general and administrative expenses primarily
reflect the addition of new facilities over certain periods or expanded
marketing activities.
Prior to the reorganization in November 1996, Inbound, Interactive and
Outbound elected to be treated as "Small Business Corporations" for income tax
purposes. Under this election, all income and expense flowed through to the
stockholders on a pro rata basis for income tax purposes. Accordingly, no
provision for actual income taxes had been provided for during this period
except for certain state taxes, which were applicable to "Small Business
Corporations." Prior to the closing of the Company's Initial Public Offering
and simultaneously with the reorganization, the subsidiary companies
terminated their Small Business Corporation status and became subject to
Federal and state income taxes.
Results of Operations
The following table sets forth the Consolidated Statement of Operations Data
as a percentage of revenue for the periods indicated:
Year ended
December 31,
-------------------
1999 1998 1997
----- ----- -----
Revenue................................................. 100.0% 100.0% 100.0%
Cost of services........................................ 51.3 53.1 55.4
Selling, general and administrative expenses............ 34.6 31.7 29.8
Net operating income.................................... 14.1 15.2 14.8
Net other income (expense).............................. 0.2 0.3 0.5
Net income before income tax expense.................... 14.3 15.5 15.3
Income tax expense...................................... 5.4 6.0 5.9
----- ----- -----
Net income.............................................. 8.9% 9.5% 9.4%
===== ===== =====
Years Ended December 31, 1999 and 1998
Revenue: Revenue increased $79.6 million or 16.5% to $562.4 million in 1999
from $482.8 million in 1998. The increase in revenue included $32.6 million
derived from new clients and $47.0 million derived from existing clients. The
overall revenue increase is attributable to higher call volumes.
During the year ended December 31, 1999, the Company provided service to
more than 900 clients. Eighty percent of the Company's total revenue was
generated by 46 clients. During 1999,
22
AT&T remained the Company's largest client and accounted for 32% of total
revenue, down from 33% in 1998.
Cost of Services: Cost of service represents direct labor, telephone expense
and other costs directly related to teleservices activities. Costs of services
increased $32.0 million or 12.5% for the year ended December 31, 1999 to
$288.5 million from $256.5 million for the comparable period of 1998. As a
percentage of revenue, cost of services decreased to 51.3% for 1999 compared
to 53.1% for 1998. The decreases in direct costs as a percentage of revenues
can be attributed to continued favorable labor costs due to the deployment of
new facilities earlier in 1999 and the shift in operating activity from
interactive teleservices to direct and operator teleservices divisions.
Historically, Interactive has higher cost of services to generate revenue.
Selling, General and Administrative Expenses ("SG&A"): SG&A expenses
increased by $41.6 million or 27.2% to $194.4 million for the year ended
December 31, 1999, from $152.8 million in 1998. As a percentage of revenue,
SG&A expenses increased to 34.6% for the year ended December 31, 1999,
compared to 31.7% in 1998. The increase can be attributed to increased
depreciation expense taken on new call centers, SG&A expenses related to 1999
facility site development and the shift in operating activity to operator
teleservices. Depreciation for the twelve months ended December 31, 1999 was
$35.7 million compared to $25.6 million in 1998. The change in revenue mix
accounted for 1.8% of the shift from direct costs of services to SG&A. The
remaining 1.1% increase can be explained by 0.7% in increased depreciation and
the remaining 0.4% is due to the under utilization of assets in Outbound
teleservices.
Net Operating Income: Net operating income increased by $6.0 million or 8.2%
to $79.5 million in 1999 from $73.5 million in 1998. For the twelve months
ended December 31, 1999, operating income as a percentage of revenue decreased
1.1% to 14.1% from 15.2% for 1998. Operating margins were lower than expected
in the second quarter at 12.8%, due to a reduction in minutes by Outbound's
largest customer, AT&T, but have increased to 14.3% in the fourth quarter.
Net Other Income (Expense): Net other income (expense) includes interest
income from short-term investments, interest income from an accounts
receivable financing program (net of the related interest expense to fund the
program), interest income from customer notes receivable and interest expense
from short-term and long-term borrowings under credit facilities and capital
leases. Other income (expense) for the year ended December 31, 1999, totaled
$0.9 million compared to $1.3 million for 1998. This decrease was due
primarily to an increase in interest expense related to new capital leases.
Net Income: Net income increased by $3.8 million or 8.2% for the year ended
December 31, 1999, to $49.8 million from net income of $46.0 million in 1998.
Net income includes a provision for income tax expense at a combined effective
rate of 38.1% and 38.5% for 1999 and 1998, respectively.
Years Ended December 31, 1998 and 1997
Revenue: Revenue increased $84.0 million or 21.1% to $482.8 million in 1998
from $398.8 million in 1997. The increase in revenue included $19.6 million
derived from new clients and $64.4 million derived from existing clients. The
overall revenue increase is attributable to higher call volumes.
During the year ended December 31, 1998, the Company provided service to
more than 800 clients. Eighty percent of the Company's total revenue was
generated by 41 clients. During 1998, AT&T remained the Company's largest
client and accounted for 33% of total revenue.
23
Cost of Services: Cost of services represents direct labor, telephone
expense and other costs directly related to teleservices activities. Cost of
services increased $35.6 million or 16.1% for the year ended December 31,
1998, to $256.5 million from $220.9 million for the comparable period of 1997.
As a percentage of revenue, cost of services decreased to 53.1% for 1998
compared to 55.4% for 1997. The decreases are partially due to the addition of
call centers in new markets that had available, cost-effective quality labor.
Call center additions in 1998 included Rockford, Illinois; Reno, Nevada; Baton
Rouge, Louisiana; Texarkana, Arkansas; Carbondale, Illinois; Lafayette,
Louisiana; Ft. Smith, Arkansas; McAllen, Texas and Fayetteville, Arkansas.
Selling, General and Administrative Expenses ("SG&A"): SG&A expenses
increased by $33.9 million or 28.6% to $152.8 million for the year ended
December 31, 1998, from $118.9 million in 1997. As a percentage of revenue,
SG&A expenses increased to 31.7% for the year ended December 31, 1998,
compared to 29.8% in 1997. The increase can be attributed to increased
depreciation expense and other costs associated with call center expansion and
the shift in the overall service mix from Interactive services to more
Outbound and Inbound services. Outbound and Inbound services traditionally
have higher SG&A expenses as a percentage of revenue.
Net Operating Income: Net operating income increased by $14.4 million or
24.4% to $73.5 million in 1998 from $59.1 million in 1997. As a percentage of
revenue, net operating income increased slightly to 15.2% for the year ended
December 31, 1998, compared to 14.8% in 1997, due to the factors discussed
above for Revenue, Cost of Services and SG&A Expenses.
Net Other Income (Expense): Net other income (expense) includes interest
income from short-term investments, interest income from an accounts
receivable financing program (net of the related interest expense to fund the
program), interest expense from short-term and long-term borrowings under
credit facilities and capital leases. Other income (expense) for the year
ended December 31, 1998, totaled $1.3 million compared to $1.7 million for
1997.
Net Income: Net income increased by $8.6 million or 22.9% for the year ended
December 31, 1998, to $46.0 million from $37.4 million in 1997. Net income
includes a provision for actual income tax expense at a combined effective
rate of 38.5% for 1997 and 1998.
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%. The Company previously had a $20.0 million revolving credit
facility, which expired on June 29, 1999. This credit facility was renewed on
June 29, 1999 for $25.0 million under substantially the same terms and
conditions. There were no borrowings outstanding under this facility at
December 31, 1999. The Company's credit facility contains certain financial
and other covenants, which were met at December 31, 1999. The renewed credit
facility expires on June 28, 2000. The Company believes it could increase the
amount of the facility, or renew the facility upon expiration, if needed.
The Company also has a $10.0 million revolving bank line used to fund an
accounts receivable financing program offered to certain customers in the pay
per call industry. Borrowings under the facility are limited to a borrowing
base of pledged accounts receivable from certain of the Company's qualified
customers which were assigned by the Company to the bank. Borrowings bear
interest at 1.0% below the prime rate (actual rate 7.50% at December 31,
1999). The Company previously had a $15.0 million credit facility which
expired on June 29, 1999. This credit facility was renewed on June 29, 1999
for $10.0 million under substantially the same terms and conditions. There
were no borrowings outstanding under this facility at December 31, 1999. The
Company believes it could increase the amount of the facility, or renew the
facility upon expiration, if needed.
24
On April 1, 1999 the Company obtained promissory notes from a bank for $6.0
million to finance the growth in operations. The notes will be paid in 36
monthly installments of $185,000 and bear interest at 6.75%.
Throughout 1999, the Company purchased $22.0 million of furniture and
telephone and computer equipment financed through notes payable to vendors and
banks and capital leases over three years which bear interest from 6.10% to
8.10%.
Net cash flow from operating activities was $114.2 million for the year
ended December 31, 1999, compared to net cash flow from operating activities
of $11.9 and $45.1 million for the years ended December 31, 1998 and 1997,
respectively. The increase was due principally to decreases in accounts
receivable and increases in depreciation, accounts payable and other
liabilities and accrued expenses.
Net cash flow used in investing activities was $51.6 million for the year
ended December 31, 1999, compared to $43.5 million and $49.6 million, for the
comparable periods of 1998 and 1997, respectively. The net cash flow used in
investing activities was primarily due to investments in call centers to
support the growth of the Company's business and the issuance of notes
receivable to specific customers.
Net cash flow used in financing activities was $7.7 million for the year
ended December 31, 1999, compared to $1.3 million and $10.8 million, for the
comparable periods of 1998 and 1997, respectively. The net cash flow used in
financing activities for the year ended December 31, 1999, was due primarily
for payments on capital lease obligations. Net cash flow used in financing
activities for the year ended December 31, 1998, was due primarily to the
repayment of $6.0 million in long-term debt obligations offset partially by
$2.7 million in cash borrowings under existing lines of credit and the net
change in the accounts receivable financing program. The net cash flow used in
financing activities for the year ended December 31, 1997, was used primarily
for the repayment of $17.6 million in debt and capital lease obligations
offset by $6.8 million in cash received from the accounts receivable financing
program.
The Company is subject to lawsuits and claims, which arise out of 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.
Management believes, except for the items listed in Note H to the notes to the
Consolidated Financial Statements included elsewhere in this Annual Report on
Form 10-K, for which management 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.
Capital Expenditures
The Company's operations will continue to require significant capital
expenditures for capacity expansion and upgrades. Capital expenditures were
$60.9 million for the year ended December 31, 1999. Capital expenditures for
1999 consisted primarily of furniture and telephone and computer equipment
purchases. The Company projects its capital expenditures for 2000 to be
approximately $40 million to $50 million, primarily for capacity expansion and
upgrades at existing facilities and the addition of two call centers.
The Company believes that the 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 any of its
subsidiaries, which are not already pledged as collateral securing existing
credit facilities of the Company or any of its affiliates. The Company or any
of its affiliates may be required to guarantee any existing or additional
credit facilities.
25
Year 2000
The Company's program to address the Year 2000 issue consisted of the
following phases: awareness, assessment, remediation, testing and contingency
planning. As of December 31, 1999 all phases were completed. The Company did
not experience any significant disruption as a result of the Year 2000 issue,
but the Company can provide no assurance that disruptions may still not occur
due to the Year 2000 issue.
The Company's program was initiated and executed to prevent interruptions in
the business due to Year 2000 problems using both internal and external
resources to identify and correct problems and to test for readiness. The
Company expended $2.1 million for the purchase of new hardware and software.
Additionally, $3.8 million was expended for personnel and non-capital
expenses. These costs were funded through operating cash flows.
The Company completed its assessment of its Year 2000 risks related to
relationships with its critical third-party suppliers and customers. Despite
these efforts, the Company can provide no assurance that all of its suppliers'
and customers' Year 2000 compliance plans were successfully completed in a
timely manner, although it is not currently aware of any problems which would
significantly impact its operations.
Inflation
The Company does not believe that inflation has had a material effect on its
results of operations. However, there can be no assurance that the Company's
business will not be affected by inflation in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Certain statements under this caption constitute forward-looking statements,
which involve risks and uncertainties. The Company's actual results in the
future could differ significantly from the results discussed or implied in
such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, the effect on financial
performance of increased competition in the teleservices industry, potential
future competition, competitive pricing for services, potential future
competing technologies and trends, dependence on technology and phone service,
dependence on the Company's labor force, reliance on major clients, the
success of new product innovations, legal proceedings and government
regulation.
The Company does not use derivative financial and commodity instruments. The
Company's financial instruments include cash and cash equivalents, accounts
and notes receivable, accounts and notes payable and long-term obligations.
The Company's cash and cash equivalents, accounts and notes receivable and
accounts and notes payable balances are generally short-term in nature and do
not expose the Company to material market risk. The Company has $45.2 million
of long-term obligations and $35.0 million of credit facilities with variable
interest rates. There were no borrowings outstanding under these credit
facilities at December 31, 1999. 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 results of
operations given the Company's currently existing obligations under such long-
term obligations and credit facilities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item is incorporated from the Company's
Consolidated Financial Statements and Notes thereto set forth on pages F-1
through F-16.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for the 2000 annual meeting of
stockholders to be held on May 10, 2000. The definitive proxy statement will
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for the 2000 annual meeting of
stockholders to be held on May 10, 2000. The definitive proxy statement will
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for the 2000 annual meeting of
stockholders to be held on May 10, 2000. The definitive proxy statement will
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for the 2000 annual meeting of
stockholders to be held on May 10, 2000. The definitive proxy statement will
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
(a) Documents filed as a part of the report:
(1) Financial Statements:
Reports of Independent Auditors...................................... F-1
Consolidated balance sheets as of December 31, 1999 and 1998......... F-2
Consolidated statement of operations for the years ended December 31,
1999, 1998 and 1997................................................. F-3
Consolidated statements of stockholders' equity for the years ended
December 31, 1999, 1998 and 1997.................................... F-4
Consolidated statements of cash flows for the years ended December
31, 1999, 1998 and 1997............................................. F-5
Notes to the Consolidated Financial Statements....................... F-6
(2) Financial Statement Schedules:
Report of Independent Auditors....................................... S-1
Schedule II (Consolidated valuation accounts for the three years
ended December 31, 1999)............................................ S-2
27
(3) Exhibits
Exhibits identified in parentheses below, on file with the United States
Securities and Exchange Commission, are incorporated herein by reference as
exhibits hereto.
Exhibit
Number Description
------- -----------
3.01 Restated Certificate of Incorporation of the Company (Exhibit 3.01 to
Registration Statement under Form S-1 (Amendment No. 2) dated November
21, 1996, File No. 333-13991)
3.02 Restated Bylaws of the Company (Exhibit 3.02 to Registration Statement
under Form S-1 (Amendment No. 2) dated November 21, 1996, File No.
333-13991)
10.01 Form of Registration Rights Agreement (Exhibit 10.01 to Registration
Statement under Form S-1 (Amendment No. 1) dated November 12, 1996,
File No. 333-13991)
10.02 Bill of Sale & Assignment, dated October 30, 1996, from West
Telemarketing Corp. to Troy L. Eaden (Exhibit 10.02 to Registration
Statement under Form S-1 (Amendment No. 1) dated November 12, 1996,
File No. 333-13991)
10.03 Purchase Agreement, dated March 14, 1996, between West Telemarketing
Corporation and Executive Jet Sales, Inc. (Exhibit 10.03 to
Registration Statement under Form S-1 (Amendment No. 1) dated November
12, 1996, File No. 333-13991)
10.04 1996 Stock Incentive Plan (Exhibit 10.04 to Registration Statement
under Form S-1 (Amendment No. 1) dated November 12, 1996, File No.
333-13991)
10.05 Agreement and Plan of Reorganization (Exhibit 10.05 to Registration
Statement under Form S-1 (Amendment No. 2) dated November 21, 1996,
File No. 333-13991)
10.06 Employment Agreement between the Company and Thomas B. Barker dated
January 1, 1996, as amended September 1, 1998 (Exhibit 10.01 to Form
10-Q dated November 12, 1998, File No. 000-21771)
10.07 Employment Agreement between the Company and Michael A. Micek dated
January 1, 1996, as amended September 1, 1998 (Exhibit 10.02 to Form
10-Q dated November 12, 1998, File No. 000-21771)
10.08 Employment Agreement with Troy L. Eaden dated June 30, 1991, as
amended October 1, 1998 (Exhibit 10.08 to Form 10-K dated March 31,
1999)
10.09 Employment Agreement the Company and John W. Erwin dated January 1,
1996, as amended September 1, 1998 (Exhibit 10.03 to Form 10-Q dated
November 12, 1998, File No. 000-21771)
10.10 Stock Redemption Agreement, dated April 9, 1996, by and among John W.
Erwin, Gary L. West, Mary E. West and Troy L. Eaden (Exhibit 10.11 to
Registration Statement under Form S-1 (Amendment No. 1) dated November
12, 1996, File No. 333-13991)
10.11 Assignment and Assumption Agreement, dated as of November 12, 1996, by
and among Gary L. West, Mary E. West, Troy L. Eaden and the Company
(Exhibit 10.12 to Registration Statement under Form S-1 (Amendment No.
2) dated November 21, 1996, File No. 333-13991)
10.12 Personnel Company Subscription Service Agreement, dated as of November
12, 1996, between West Telemarketing Insurance Agency, Inc. and West
Telemarketing Corporation Outbound (Exhibit 10.13 to Registration
Statement under Form S-1 (Amendment No. 2) dated November 21, 1996,
File No. 333-13991)
10.13 Lease, dated September 1, 1994, by and between West Telemarketing
Corporation and 99-Maple Partnership (Exhibit 10.14 to Registration
Statement under Form S-1 (Amendment No. 1) dated November 12, 1996,
File No. 333-13991)
28
Exhibit
Number Description
------- -----------
10.14 Employment Agreement between the Company and Nancee S. Berger, dated
January 1, 1996 amended September 1, 1998 (Exhibit 10.05 to Form 10-Q
dated November 12, 1998, File No. 000-21771)
10.15 Employee Stock Purchase Plan dated July 1, 1997 (Exhibit 10.01 to Form
10-Q dated August 14, 1997, File No. 000-21771)
10.16 Employment Agreement between the Company and Mark V. Lavin dated July
1, 1996, as amended September 1, 1998 (Exhibit 10.04 to Form 10-Q
dated November 12, 1998, File No. 000-21771)
10.17 Employment Agreement between the Company and Steven M. Stangl dated
January 1, 1996, as amended September 1, 1998 (Exhibit 10.06 to Form
10-Q dated November 12, 1998, File No. 000-21771)
10.18 Employment Agreement between the Company and Michael M. Sturgeon,
dated March 17, 1997, as amended February 22, 1999 (Exhibit 10.18 to
Form 10-K dated March 31, 1999)
10.19 Employment Agreement between the Company and Jon R. (Skip) Hanson,
dated October 4, 1999
21.01 Subsidiaries of the Company (Exhibit 21.01 to Registration Statement
under Form S-1 (Amendment No. 2) dated November 21,1996, File No. 333-
13991)
23.01 Consent of Deloitte & Touche LLP
27 Financial Data Schedule for the year ended December 31, 1999
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WEST TELESERVICES CORPORATION
/s/ Thomas B. Barker
By: _________________________________
Thomas B. Barker
President and Chief Executive
Officer
(Principal Executive Officer)
March 15, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signatures Title Date
---------- ----- ----
/s/ Gary L. West Co-Chairman of the Board March 15, 2000
______________________________________ and Director
Gary L. West
/s/ Mary E. West Vice Chair of the Board March 15, 2000
______________________________________ and Director
Mary E. West
/s/ Troy L. Eaden Co-Chairman of the Board March 15, 2000
______________________________________ and Director
Troy L. Eaden
/s/ Thomas B. Barker President and Chief March 15, 2000
______________________________________ Executive Officer and
Thomas B. Barker Director (Principal
Executive Officer)
/s/ Michael A. Micek Chief Financial Officer, March 15, 2000
______________________________________ Executive Vice President-
Michael A. Micek Financial and Treasurer
(Principal Financial and
Accounting Officer)
/s/ William E. Fisher Director March 15, 2000
______________________________________
William E. Fisher
/s/ Greg T. Sloma Director March 15, 2000
______________________________________
Greg T. Sloma
30
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
West TeleServices Corporation
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of West
TeleServices Corporation and subsidiaries (the Company) as of December 31,
1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of West TeleServices Corporation and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
/s/ Deloitte & Touche LLP
Omaha, Nebraska
February 1, 2000
F-1
WEST TELESERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except per share amounts)
December 31,
-------------------
1999 1998
--------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 61,865 $ 6,928
Accounts receivable, net of allowance for doubtful
accounts of $4,717 and $1,870........................... 88,056 98,300
Notes receivable......................................... 18,604 3,462
Accounts receivable--financing........................... 267 2,637
Other.................................................... 16,348 14,798
--------- --------
Total current assets................................... 185,140 126,125
PROPERTY AND EQUIPMENT:
Land and improvements.................................... 5,355 5,183
Buildings................................................ 29,908 27,746
Telephone and computer equipment......................... 164,691 124,950
Office furniture and equipment........................... 30,748 25,982
Leasehold improvements................................... 41,372 34,703
Construction in process.................................. 6,731 7,117
--------- --------
Total property and equipment........................... 278,805 225,681
Accumulated depreciation and amortization................ (110,871) (81,542)
--------- --------
Total property and equipment, net...................... 167,934 144,139
GOODWILL, net of accumulated amortization of $5,222 and
$3,537................................................... 45,311 46,996
NOTES RECEIVABLE AND OTHER ASSETS......................... 10,604 8,879
--------- --------
TOTAL ASSETS.............................................. $ 408,989 $326,139
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable--bank...................................... $ -- $ 2,000
Notes payable--financing................................. -- 344
Accounts payable......................................... 33,745 12,857
Customer deposits and holdbacks.......................... 9,273 13,476
Accrued wages and benefits............................... 7,411 5,305
Accrued phone expense.................................... 5,245 9,052
Other current liabilities................................ 10,157 4,146
Current maturities of long-term obligations.............. 14,882 8,246
--------- --------
Total current liabilities.............................. 80,713 55,426
LONG-TERM OBLIGATIONS, less current maturities............ 30,314 22,706
DEFERRED INCOME TAXES..................................... 6,000 5,799
COMMITMENTS AND CONTINGENCIES (Note H).................... -- --
STOCKHOLDERS' EQUITY
Preferred stock $0.01 par value, 10,000 shares
authorized,no shares issued and outstanding............. -- --
Common stock $0.01 par value, 200,000 shares authorized,
63,330 shares issued and outstanding.................... 633 633
Additional paid-in capital............................... 157,647 157,647
Retained earnings........................................ 133,682 83,928
--------- --------
Total stockholders' equity............................. 291,962 242,208
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $ 408,989 $326,139
========= ========
The accompanying notes are an integral part of these financial statements.
F-2
WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Amounts)
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
REVENUE.......................................... $562,444 $482,823 $398,832
COST OF SERVICES................................. 288,503 256,494 220,858
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 194,433 152,838 118,878
-------- -------- --------
NET OPERATING INCOME............................. 79,508 73,491 59,096
OTHER INCOME (EXPENSE):
Interest income................................ 3,596 3,762 3,240
Interest expense--including interest expense--
financing of $490, $772 and $320.............. (3,373) (1,627) (1,049)
Other, net..................................... 627 (866) (475)
-------- -------- --------
Net other income (expense)................... 850 1,269 1,716
-------- -------- --------
INCOME BEFORE INCOME TAX EXPENSE................. 80,358 74,760 60,812
INCOME TAX EXPENSE:
Current income tax expense..................... 31,476 27,340 22,392
Deferred income tax expense.................... (872) 1,429 1,010
-------- -------- --------
Income tax expense........................... 30,604 28,769 23,402
-------- -------- --------
NET INCOME....................................... $ 49,754 $ 45,991 $ 37,410
======== ======== ========
EARNINGS PER COMMON SHARE:
Basic.......................................... $ 0.79 $ 0.73 $ 0.59
======== ======== ========
Diluted........................................ $ 0.77 $ 0.73 $ 0.59
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic common shares............................ 63,330 63,330 63,330
Dilutive impact of potential common shares from
stock options................................. 1,050 23 16
-------- -------- --------
Diluted common shares.......................... 64,380 63,353 63,346
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-3
WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------ -------- -------- -------------
BALANCE, January 1, 1997................ $633 $157,719 $ 527 $158,879
Stock registration costs.............. -- (72) -- (72)
Net income............................ -- -- 37,410 37,410
---- -------- -------- --------
BALANCE, December 31, 1997.............. 633 157,647 37,937 196,217
Net income............................ -- -- 45,991 45,991
---- -------- -------- --------
BALANCE, December 31, 1998.............. 633 157,647 83,928 242,208
Net income............................ -- -- 49,754 49,754
---- -------- -------- --------
BALANCE, December 31, 1999.............. $633 $157,647 $133,682 $291,962
==== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-4
WEST TELESERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 49,754 $ 45,991 $ 37,410
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization................ 37,343 27,284 20,635
Loss on sale of equipment.................... 170 58 238
Deferred income tax expense.................. (872) 1,429 1,010
Changes in operating assets and liabilities:
Accounts receivable.......................... 8,244 (36,699) (19,457)
Other assets and vendor receivables.......... (1,610) (11,139) (209)
Accounts payable............................. 20,888 (6,091) (4,323)
Other current liabilities and accrued
expenses.................................... 3,200 (637) 2,487
Income tax payable........................... 1,307 706 (2,472)
Customer deposits and holdbacks.............. (4,203) (8,999) 9,813
-------- -------- --------
Net cash flows from operating activities... 114,221 11,903 45,132
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............. (38,953) (44,551) (43,852)
Proceeds from disposal of property and
equipment..................................... 1,285 1,684 287
Issuance of notes receivable................... (15,401) (6,990) (7,442)
Proceeds from payments of notes receivable..... 1,471 6,338 1,430
-------- -------- --------
Net cash flows from investing activities... (51,598) (43,519) (49,577)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt................. 6,000 -- --
Payments of long-term obligations.............. (13,712) (5,954) (17,562)
Net change in line of credit agreement......... (2,000) 2,000 --
Net change in accounts receivable financing and
notes payable financing....................... 2,026 2,678 6,834
Payments for stock registration costs.......... -- -- (72)
-------- -------- --------
Net cash flows from financing activities... (7,686) (1,276) (10,800)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......... 54,937 (32,892) (15,245)
CASH AND CASH EQUIVALENTS, Beginning of period... 6,928 39,820 55,065
-------- -------- --------
CASH AND CASH EQUIVALENTS, End of period......... $ 61,865 $ 6,928 $ 39,820
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest....... $ 3,092 $ 1,627 $ 1,381
======== ======== ========
Cash paid during the period for income taxes... $ 29,842 $ 26,366 $ 24,877
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES:
Acquisition of property through assumption of
long-term obligations......................... $ 21,956 $ 15,220 $ 16,725
======== ======== ========
Reduction of accounts receivable through
issuance of notes receivable.................. $ 2,000 $ 2,724 $ 1,114
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-5
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description--West TeleServices Corporation (WTSC) and its direct
and indirect subsidiaries (West Telemarketing Corporation (WTC), West
Interactive Corporation (WIC), West Telemarketing Corporation Outbound (WTCO),
Interactive Billing Services, Inc. (IBS) and West Interactive Canada, Inc.
(WICI)) (the "Company") provide a full range of customized telecommunications-
based services to business clients on an outsourced basis. The Company is a
leading provider of inbound operator services, automated voice response
services and outbound direct teleservices through its call centers located
throughout the United States and in Canada. The Company's inbound operator
services ("Inbound") consist of live operator call-processing applications
such as order capture, customer service and product support. The Company's
automated voice response services ("Interactive") consist of computerized
call-processing applications, such as automated product information requests,
pre-paid call card services and secure automated credit card activation. The
Company's outbound direct teleservices ("Outbound") consist of live operator
direct marketing applications, such as product sales, customer acquisition and
retention campaigns. The Company has developed proprietary technology
platforms designed to provide a high degree of automation and reliability in
all three of its businesses.
The Company targets businesses in highly competitive, consumer-based
industries, including telecommunications, insurance, banking, pharmaceuticals,
public utilities, consumer goods and computer software services, that require
large volume applications.
Basis of Consolidation--The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany
transactions and balances have been eliminated in the consolidated financial
statements.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition--Inbound revenue is recognized at the time calls are
answered by a telemarketing representative based on the number of calls and/or
minutes received and processed on behalf of clients. Interactive revenue is
recognized at the time calls are received or sent by automated voice response
units and is billed based on call duration. Outbound revenue is generally
recognized on an hourly rate basis at the time the telemarketing
representatives place calls to consumers on behalf of its clients. The
customer is obligated to pay for these services when these activities have
been performed. Both Inbound and Outbound also generate revenue by providing
assistance to their clients in the design and programming of customized
applications which are generally recognized on a hourly basis at the time the
services are provided.
Cost of Services--Cost of services includes labor, telephone and other
expense directly related to teleservices activities.
Selling, General and Administrative Expenses--Selling, general and
administrative 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 goodwill, allowance for doubtful accounts, sales and marketing
activities, client support services and corporate management costs.
F-6
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
Cash and Cash Equivalents--For purposes of the statement of cash flows, the
Company considers short-term investments with maturities of three months or
less at acquisition to be cash equivalents.
Financial Instruments--Cash and cash equivalents, accounts receivable and
accounts payable are short-term in nature and the net values at which they are
recorded are considered to be reasonable estimates of their fair values. The
carrying values of notes payable and long-term obligations are deemed to be
reasonable estimates of their fair values. Interest rates that are currently
available to the Company for the reissuance of debt with similar terms and
remaining maturities are used to estimate fair values of the notes payable and
long-term obligations.
Property and Equipment--Property and equipment are recorded at cost.
Depreciation expense is based on the estimated useful lives of the assets and
is calculated on the straight-line method. The Company's buildings have
estimated useful lives of 31.5 years and the majority of the other assets have
estimated useful lives of five years.
Goodwill--Goodwill represents the excess of the value of Company stock
received by minority shareholders upon their exchange of stock in WTC and WTCO
over the book value of this stock. Goodwill is being amortized over 30 years.
Recoverability of these assets is evaluated periodically based on management's
estimate of future undiscounted operating income for each respective component
of goodwill.
Customer Deposits and Holdbacks--The Company obtains directly from the
billing and collection agent, revenue generated from its Interactive
customers' programs. The Company retains a specified amount of the revenue and
remits the remainder to its customers. The retained amount is based upon the
collection history of the customer's program success and is necessary to allow
for potential adjustments which may be filed within one year of the actual
transactions.
The Company obtains security deposits from certain customers, which are
refunded to the customers when the Company discontinues service to the
customers' programs.
Income Taxes--The Company and its wholly-owned subsidiaries file a
consolidated income tax return. The Company uses an asset and liability
approach for the financial reporting of income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Deferred income taxes arise from temporary differences between
financial and tax reporting.
Earnings Per Common Share--Basic earnings per share excludes dilution and is
computed by dividing income available to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in issuance of common stock that then shared in the earnings
of the entity.
Preferred Stock--The Board of Directors of the Company has the authority,
without any further vote or action by the stockholders, to provide for the
issuance of up to ten million shares of preferred stock from time to time in
one or more series with such designations, rights, preferences and limitations
as the Board of Directors may determine, including the consideration received
therefor. The Board also has the authority to determine the number of shares
comprising each series, dividend rates, redemption provisions, liquidation
preferences, sinking fund provisions, conversion rights and voting rights
without approval by the holders of common stock.
F-7
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
Reclassifications--Certain reclassifications have been made to prior years'
financial statements to conform to the current year presentation.
B. ACCOUNTS RECEIVABLE FINANCING PROGRAM
The Company maintains a line of credit with three participating banks in the
amount of $10,000. Outstanding borrowings totaled $ -0- and $344 at December
31, 1999 and 1998, respectively. Borrowings bear interest at 1.0% below the
prime rate (actual rate 7.50% at December 31, 1999) to fund customer advances.
Substantially all current assets of WIC are pledged as collateral on the line
of credit, which expires June 28, 2000. The Company had advances to
Interactive customers through their accounts receivable financing programs
aggregating $267 and $2,637 at December 31, 1999 and 1998, respectively. Under
terms of the programs, advances are collateralized by the customer's accounts
receivable from unrelated national billing services. The Company charges
interest at the prime rate plus 3.0% (actual rate 11.50% at December 31,
1999).
C. LONG-TERM OBLIGATIONS AND CREDIT ARRANGEMENTS
The Company has a $25,000 unsecured revolving credit facility. Advances
under the revolving credit facility bear interest at the prime rate less 1.0%
(actual rate 7.5% at December 31, 1999). The revolving credit facility expires
on June 28, 2000. Outstanding borrowings under the revolving credit facility
totaled $ -0- and $2,000 at December 31, 1999 and 1998, respectively. The
Company's credit facility contains certain financial and other covenants which
contain current ratio and tangible net worth requirements and limitations on
indebtedness, among others. The financial covenants were met at December 31,
1999.
Long-term obligations consist of the following:
December 31,
---------------
1999 1998
------- -------
Mortgage note payable to bank, due in monthly installments
of $102 including interest at 7.63% with a balloon payment
at maturity at February 1, 2003............................ $11,977 $12,271
Notes payable to vendor, due in monthly installments of $215
including interest from 3.54% to 5.40% maturing from March
30, 2000 to January 1, 2002................................ 3,098 4,412
Notes payable to bank, due in monthly installments of $176
including interest at 6.20% maturing October 28, 2001...... 3,802 5,758
Notes payable to bank, due in monthly installments of $185
including interest at 6.75% maturing April 1, 2002......... 4,780 --
Capital lease obligations (See Note D)...................... 21,539 8,511
------- -------
45,196 30,952
Less current maturities:
Debt...................................................... 5,771 4,305
Capital lease obligations (See Note D).................... 9,111 3,941
------- -------
Current maturities of long-term obligations................. 14,882 8,246
------- -------
Long-term obligations....................................... $30,314 $22,706
======= =======
F-8
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
Substantially all assets of the Company and its direct and indirect
subsidiaries are pledged as collateral on their debt. The agreements contain
restrictive covenants, which, among other things, require the maintenance of
certain ratios and minimum tangible net worth, as defined in the agreements.
Scheduled maturities on long-term debt excluding capital lease obligations
described in Note D, are as follows:
2000...................................... $ 5,771
2001...................................... 5,718
2002...................................... 1,221
2003...................................... 10,947
D. LEASES
The Company leases certain land, buildings and equipment under operating and
capital leases, which expire at varying dates through September 2007. Rent
expense on operating leases was $4,595, $4,190 and $2,666 for the years ended
December 31, 1999, 1998 and 1997, respectively, exclusive of related party
lease expense as discussed in Note E. On all real estate leases, the Company
pays real estate taxes, insurance and maintenance associated with the leased
sites. Certain of the leases offer extension options ranging from month to
month to five-years. All of the capital leases call for transfer of ownership
or contain bargain purchase options at the end of the lease term. Amortization
of assets purchased through capital lease agreements is included in
depreciation expense.
December 31,
----------------
1999 1998
------- -------
Assets under capital leases consist of:
Telephone and computer equipment......................... $24,490 $17,012
Office furniture and equipment........................... 2,361 4,097
Lease/building improvements.............................. 633 633
------- -------
Total cost........................................... 27,484 21,742
Accumulated depreciation................................... (6,621) (5,463)
------- -------
Net book value............................................. $20,863 $16,279
======= =======
F-9
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
Future minimum payments under non-cancelable operating and capital leases
with initial or remaining terms of one year or more, minimum future lease
payments and present value of the net minimum lease payments are as presented
below exclusive of related party leases as discussed in Note E:
Operating Capital
Leases Leases
--------- -------
Year Ending December 31,
2000..................................................... $ 6,751 $10,339
2001..................................................... 5,915 10,084
2002..................................................... 5,515 3,032
2003..................................................... 4,965 --
2004..................................................... 3,077 --
2005 and thereafter...................................... 3,010 --
------- -------
Total minimum obligations.................................. $29,233 23,455
=======
Less interest at 6.10% to 8.10%............................ 1,916
-------
Present value of net minimum lease payments................ 21,539
Less current portion....................................... 9,111
-------
$12,428
=======
E. RELATED PARTY TRANSACTIONS
The Company leases certain office space owned by a partnership whose
partners are majority stockholders of the Company. The lease expires August
31, 2004, and is accounted for as an operating lease. Required lease payments
are as follows:
Year Ending December 31,
2000................................................................ $ 869
2001................................................................ 921
2002................................................................ 976
2003................................................................ 1,035
2004................................................................ 717
Lease expense was $820, $773 and $730 for the years ended December 31, 1999,
1998 and 1997, respectively.
F-10
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
F. INCOME TAXES
Components of the actual income tax expense are as follows:
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
Current income tax expense:
Federal......................................... $29,582 $24,450 $20,417
State........................................... 1,894 2,890 1,975
------- ------- -------
31,476 27,340 22,392
------- ------- -------
Deferred income tax expense:
Federal......................................... (687) 1,088 966
State........................................... (185) 341 44
------- ------- -------
(872) 1,429 1,010
------- ------- -------
$30,604 $28,769 $23,402
======= ======= =======
A reconciliation of income tax computed at statutory tax rates compared to
effective income tax rates is as follows:
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
Statutory rate.................................... 35.0% 35.0% 35.0%
State income tax effect........................... 2.5% 2.3% 1.6%
Other............................................. 0.6% 1.2% 1.9%
------- ------- -------
38.1% 38.5% 38.5%
======= ======= =======
Significant temporary differences between reported financial and taxable
earnings that give rise to deferred tax assets and liabilities are as follows:
December 31,
-------------------------
1999 1998 1997
------- ------- -------
Deferred tax assets:
Allowance for doubtful accounts................. $ 1,792 $ 720 $ 162
Deferred tax liabilities:
Depreciation.................................... 6,000 5,799 3,684
------- ------- -------
Net deferred tax liability........................ $ 4,208 $ 5,079 $ 3,522
======= ======= =======
G. EMPLOYEE BENEFITS AND INCENTIVE PLANS
The Company has a 401(k) plan, which covers substantially all employees.
Under the plan, the Company will match 50% of employee contributions up to 14%
of their gross salary. The Company matching contributions are 100% vested
after the employee has attained five years of service. Total contributions
under the plan were $2,841, $1,208 and $816 for the years ended December 31,
1999, 1998 and 1997, respectively.
F-11
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
The Company's 1996 Stock Incentive Plan (the Plan) authorized granting to
officers and directors the right to purchase shares of Common Stock of the
Company (Common Shares) at the fair market value determined on the date of
grant. Options generally vest over a three to seven year period and expire ten
years after grant date. Options to purchase a maximum of 9,499,500 Common
Shares may be granted under the Plan.
During May 1997, the Company amended the options granted during November
1996. The options to purchase the 3,601,000 Common Shares at $18.00 were
surrendered by option holders in June of 1997 and new options to purchase
4,707,400 Common Shares at $15.625 were issued. Ten percent of the options
granted to employees vest on the first and second anniversaries of the grant
date. An additional fifteen percent of the options granted to employees vest
on each of the third, fourth, fifth and sixth anniversaries of the grant date.
The final twenty percent of the options granted to employees vest on the
seventh anniversary of the grant date. All options expire ten years after the
date of the grant.
During December 1998, the Company amended all outstanding options granted.
The options to purchase the Common Shares at prices ranging from $15.625 to
$17.75 were surrendered by option holders in December of 1998 and replacement
options of 5,185,700 Common Shares with an exercise price, equal to the
current market price, of $9.6875 were issued including replacement options of
44,000 Common Shares held by non-employee directors. All replacement options
retain their original vesting schedules but are subject to a 382 day period in
which exercises are prohibited. During December 1998, additional options to
purchase 1,810,000 Common Shares at $9.6875 were issued. Twenty-five percent
of the additional options vest on the first, second, third and fourth
anniversaries of January 1, 1999. All options expire ten years after the date
of the grant. No options were exercisable at December 31, 1999, 1998 and 1997.
F-12
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
The following table presents the activity of the stock options for each of
the fiscal years ended December 31, 1999, 1998 and 1997 and the stock options
outstanding at the end of the respective fiscal years.
Stock Option Weighted Average Aggregate
Shares Exercise Price Amount
------------ ---------------- ---------
Outstanding at January 1, 1997...... 3,601,000 $18.0000 $64,818
---------- -------- -------
Surrendered and replaced by plan
amendment........................ (3,601,000) 18.0000 (64,818)
Granted........................... 4,735,400 15.6375 74,050
Canceled.......................... (177,100) 15.6250 (2,767)
---------- -------- -------
Outstanding at December 31, 1997.... 4,558,300 15.6381 71,283
---------- -------- -------
Granted........................... 7,760,800 10.2726 79,724
Surrendered and replaced by plan
amendment........................ (5,185,700) 15.6361 (81,084)
Canceled.......................... (137,700) 15.6250 (2,152)
---------- -------- -------
Outstanding at December 31, 1998.... 6,995,700 9.6875 67,771
---------- -------- -------
Granted........................... 515,000 10.7693 5,546
Canceled.......................... (499,300) 9.7443 (4,865)
---------- -------- -------
Outstanding at December 31, 1999.... 7,011,400 $ 9.7634 $68,452
========== ======== =======
Shares available for future grants
at December 31, 1999............... 2,488,100
==========
The following table summarizes information about the Company's stock options
outstanding at December 31, 1999:
Average Weighted
Stock Option Remaining Average
Exercise Shares Contractual Exercise
Price Outstanding Life in Years Price
-------- ------------ ------------- --------
$ 8.0000 8,000 9.36 $ 8.0000
$ 9.6875 6,521,400 8.95 $ 9.6875
$10.8130 482,000 9.58 $10.8130
--------- ---- --------
7,011,400 9.00 $ 9.7634
=========
During May 1997, the Company and its stockholders adopted the 1997 Employee
Stock Purchase Plan (the Stock Purchase Plan). The Stock Purchase Plan
provides employees an opportunity to purchase Common Shares through annual
offerings to be made during the five-year period commencing July 1, 1997. Each
employee participating in any offering is granted an option to purchase as
many full or fractional Common Shares as the participating employee may elect
so long as the purchase price for such Common Shares does not exceed 10% of
the compensation received by such employee from the Company during the annual
offering period or 1,000 Common Shares. The purchase price is to be paid
through payroll deductions. The purchase price for each Common Share is equal
to 100% of the fair market value of the Common Share on the date of the grant,
determined by the average of the high and low NASDAQ National Market quoted
market price ($9.50 at July 1,
F-13
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
1999). On the last day of the offering period, the option to purchase Common
Shares becomes exercisable. If at the end of the offering the fair market
value of the Common Shares is less than 100% of the fair market value at the
date of grant, then the options will not be deemed exercised and the payroll
deductions made with respect to the options will be applied to the next
offering unless the employee elects to have the payroll deductions withdrawn
from the Stock Purchase Plan. The maximum number of Common Shares available
for sale under the Stock Purchase Plan is 2,000,000 shares. No options were
exercisable at December 31, 1999 and 1998.
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 years ended December 31,
1999, 1998 and 1997.
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 Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation; 1999,
1998 and 1997 net income and earnings per share would have been reduced to the
following pro forma amounts:
1999 1998 1997
------- ------- -------
Net Income:
As reported.................................... $49,754 $45,991 $37,410
Pro forma...................................... $41,782 $39,885 $31,751
Earnings per common share:
Basic as reported.............................. $ 0.79 $ 0.73 $ 0.59
Diluted as reported............................ $ 0.77 $ 0.73 $ 0.59
Pro forma basic................................ $ 0.66 $ 0.63 $ 0.50
Pro forma diluted.............................. $ 0.65 $ 0.63 $ 0.50
The weighted average fair value per share of options granted in 1999, 1998,
and 1997 was $6.80, $3.45 and $7.65, respectively. The fair value for options
granted under the above described plans were estimated at the date of grant
using the Black Scholes pricing model with the following assumptions:
1999 1998 1997
------- ------- -------
Risk-free interest rate.......................... 5.3% 4.7% 6.5%
Dividend yield................................... 0.0% 0.0% 0.0%
Expected volatility.............................. 60.0% 55.0% 45.0%
Expected life (years)............................ 4.1 4.1 5.4
H. 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 for which
F-14
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
the Company is currently unable to predict the outcome, the disposition of
claims currently pending will not have a material adverse effect on the
Company's financial position or results of operations.
Richard Carney, et al. v. West TeleServices, Inc., West Telemarketing
Corporation, West Telemarketing Corporation Outbound, West Telemarketing
Insurance Agency, Inc., Hal Morris, Matt Mazzarella and John Erwin (Cause No.
97-CI-15780) was filed on October 31, 1997, in the 131st Judicial District
Court of Bexar County, Texas. Plaintiffs seek certification of a class
consisting of all hourly employees of the Company, Inbound, Outbound, and West
Telemarketing Insurance Agency, Inc. Plaintiffs allege that they were not paid
for all compensable work performed by them during their employment. Plaintiffs
seek recovery under the theories of quantum meruit, common law fraud, common
law debt, conversion and civil theft. The Court conducted hearings on West's
motion for summary judgment and Plantiff's class certification motion on
November 8, 1999. No ruling has yet been issued.
Outbound is a defendant in a case filed on July 28, 1997, entitled Schurman,
Bowers, et al., individually and on behalf of a class of all other persons
similarly situated v. Horry Telephone Cooperative, Inc.; AT&T Corp.; AT&T
Communications, Inc.; AT&T Communications of the Southern States, Inc.; and
West Telemarketing Outbound Corporation, pending in the United States District
Court for the District of South Carolina (Civil Action No. 4:97-2635-12).
Outbound is also named as a defendant in a Fourth Amended Complaint filed on
October 26, 1998, in the case of Chris Bone, et al., individually and as class
representatives, vs. Horry Telephone Cooperative, Inc.; AT&T Corp.; AT&T
Communications, Inc.; AT&T Communications of Southern States, Inc.; and West
Telemarketing Outbound Corporation, which is also pending in United States
District Court for the District of South Carolina (Civil Action No. 4:96-3527-
22). Plaintiffs in both cases allege claims of negligent misrepresentation,
fraud, breach of contract and statutory violations in connection with offers
by AT&T of rate programs and long distance services which were allegedly
either unavailable or not provided to plaintiffs. Outbound provided
telemarketing services to AT&T in connection with AT&T's marketing of its
programs and services. Plaintiffs seek monetary damages, punitive damages,
attorney's fees, costs and injunctive relief. No class has been certified in
either case. The federal judge to whom both cases are assigned has
consolidated the cases and referred all issues in both cases to the FCC. The
judge also stayed both cases pending the outcome of the FCC referral.
Glenn K. Jackson and Elsie Jackson v. West Telemarketing Corporation
Outbound and Does 1 through 100, inclusive, was filed in the United States
District Court for the Central District of California (No. CV-97-8281 TJH
(AIJx)), on August 12, 1997, and transferred to the United States District
Court for the Northern District of Texas, Dallas Division, where it is pending
(Civil Action No. 3:98-CV-0960-H). The complaint contains several causes of
action, all of which deal with the purchase by Outbound of two pieces of
property from the Resolution Trust Corporation ("RTC") during 1993 and 1994.
The plaintiffs contend that they also bid on the property, that Outbound
learned the amount of their bids, used that information to out-bid them and,
ultimately, purchase the property. The complaint seeks general damages,
special damages, equitable injunctive and restitutionary relief, including
restitution of the property involved, punitive damages, attorneys' fees, and
litigation costs. Pre-trial discovery, including discovery on plaintiffs'
damage claims and theories, actively began in the second quarter of 1999.
Outbound filed preliminary motions for summary judgment on August 16,
F-15
WEST TELESERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in Thousands Except Per Share Amounts)
1999. The Court assigned all preliminary matters to a U.S. magistrate who
heard all pending motions, except the motion for summary judgment, on
September 24, 1999. The court denied Outbound's motion requesting plaintiffs
be required to join RTC, Old Stone Bank and a bank employee as defendants and
dismissed, without prejudice, all of plaintiff's motions related to discovery
issues. On November 19, 1999, the U.S. magistrate granted West's motion for
summary judgment in full. On December 9, 1999, the plaintiffs appealed to the
Appellate Court Fifth Circuit the summary judgment granted Outbound by the
United States District Court for the Northern District of Texas, Dallas
Division. The briefing schedule has not yet been set.
I. SIGNIFICANT CUSTOMERS AND SERVICE LINES
For the years ended December 31, 1999, through December 31, 1997, the
Company had 41 to 47 major customers who accounted for approximately 80% of
total revenues. The Company had one customer who accounted for 32% of total
revenue for the year ended December 31, 1999 and 33% of total revenue for the
year ended December 31, 1998, and two customers, accounted for 25% and 12% for
the year ended December 31,1997.
The following is revenue by service lines for years ending December 31,
1999, 1998 and 1997:
For the Year Ending
December 31,
--------------------------
1999 1998 1997
-------- -------- --------
Inbound........................................... $251,663 $186,454 $130,469
Interactive....................................... 131,720 122,601 138,874
Outbound.......................................... 179,061 173,768 129,489
-------- -------- --------
Total revenue..................................... $562,444 $482,823 $398,832
======== ======== ========
J. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is the summary of the quarterly results of operations for the
two years ended December 31:
Three Months Ended
--------------------------------------------
March
31, June 30, September 30, December 31,
1999 1999 1999 1999
-------- -------- ------------- ------------
Revenue................... $137,992 $138,085 $143,071 $143,295
Net operating income...... 21,802 17,612 19,650 20,444
Net income before income
taxes.................... 22,180 17,935 19,778 20,464
Net income................ 13,909 11,066 12,160 12,619
Earnings per common share:
Basic................... $ 0.22 $ 0.17 $ 0.19 $ 0.20
Diluted................. $ 0.22 $ 0.17 $ 0.19 $ 0.19
Three Months Ended
--------------------------------------------
March
31, June 30, September 30, December 31,
1998 1998 1998 1998
-------- -------- ------------- ------------
Revenue................... $116,075 $118,004 $123,294 $125,450
Net operating income...... 19,985 17,570 18,013 17,923
Net income before income
taxes.................... 20,223 17,916 18,438 18,183
Net income................ 12,412 11,016 11,355 11,208
Earnings per common share:
Basic................... $ 0.20 $ 0.17 $ 0.18 $ 0.18
Diluted................. $ 0.20 $ 0.17 $ 0.18 $ 0.18
F-16
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
West TeleServices Corporation
We have audited the consolidated financial statements of West TeleServices
Corporation and subsidiaries (the Company) as of December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, and
have issued our report thereon dated February 1, 2000; such report is included
elsewhere in this Form 10-K. Our audits also included the consolidated
financial statement schedule of West TeleServices Corporation and
subsidiaries, listed in Item 14. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
/S/ DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 1, 2000
S-1
SCHEDULE II
WEST TELESERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED VALUATION ACCOUNTS
Three Years Ended December 31, 1999
(Amounts In Thousands)
Additions-
Balance Charged to Deductions-
Beginning Cost and Amounts Balance
Description of Year Expenses Charged-Off End of Year
----------- --------- ---------- ----------- -----------
December 31, 1999--Allowance for
doubtful accounts................ $1,870 $8,381 $5,534 $4,717
------ ------ ------ ------
December 31, 1998--Allowance for
doubtful accounts................ $ 447 $3,484 $2,061 $1,870
------ ------ ------ ------
December 31, 1997--Allowance for
doubtful accounts................ $ 244 $1,027 $ 824 $ 447
------ ------ ------ ------
S-2
EXHIBIT INDEX
Exhibits identified in parentheses below, on file with the United States
Securities and Exchange Commission are incorporated herein by reference as
exhibits hereto.
Sequential
Exhibit Page
Number Description Number
------- ----------- ----------
3.01 Restated Certificate of Incorporation of the Company
(Exhibit 3.01 to Registration Statement under Form S-1
(Amendment No. 2) dated November 21, 1996, File No. 333-
13991) *
3.02 Restated Bylaws of the Company (Exhibit 3.02 to
Registration Statement under Form S-1 (Amendment No. 2)
dated November 21, 1996, File No. 333-13991) *
10.01 Form of Registration Rights Agreement (Exhibit 10.01 to
Registration Statement under Form S-1 (Amendment No. 1)
dated November 12, 1996, File No. 333-13991) *
10.02 Bill of Sale & Assignment, dated October 30, 1996, from
West Telemarketing Corp. to Troy L. Eaden (Exhibit 10.02
to Registration Statement under Form S-1 (Amendment No.
1) dated November 12, 1996, File No. 333-13991) *
10.03 Purchase Agreement, dated March 14, 1996, between West
Telemarketing Corporation and Executive Jet Sales, Inc.
(Exhibit 10.03 to Registration Statement under Form S-1
(Amendment No. 1) dated November 12, 1996, File No. 333-
13991) *
10.04 1996 Stock Incentive Plan (Exhibit 10.04 to Registration
Statement under Form S-1 (Amendment No. 1) dated
November 12, 1996, File No. 333-13991) *
10.05 Agreement and Plan of Reorganization (Exhibit 10.05 to
Registration Statement under Form S-1 (Amendment No. 2)
dated November 21, 1996, File No. 333-13991) *
10.06 Employment Agreement between the Company and Thomas B.
Barker dated January 1, 1996, as amended September 1,
1998 (Exhibit 10.01 to Form 10-Q dated November 12,
1998, File No. 000-21771) *
10.07 Employment Agreement between the Company and Michael A.
Micek dated January 1, 1996, as amended September 1,
1998 (Exhibit 10.02 to Form 10-Q dated November 12,
1998, File No. 000-21771) *
10.08 Employment Agreement with Troy L. Eaden dated June 30,
1991, as amended October 1, 1998 (Exhibit 10.08 to Form
10-K dated March 31, 1999) *
10.09 Employment Agreement between the Company and John W.
Erwin dated January 1, 1996, as amended September 1,
1998 (Exhibit 10.03 to Form 10-Q dated November 12,
1998, File No. 000-21771) *
10.10 Stock Redemption Agreement, dated April 9, 1996, by and
among John W. Erwin, Gary L. West, Mary E. West and Troy
L. Eaden (Exhibit 10.11 to Registration Statement under
Form S-1 (Amendment No. 1) dated November 12, 1996, File
No. 333-13991) *
10.11 Assignment and Assumption Agreement, dated as of
November 12, 1996, by and among Gary L. West, Mary E.
West, Troy L. Eaden and the Company (Exhibit 10.12 to
Registration Statement under Form S-1 (Amendment No. 2)
dated November 21, 1996, File No. 333-13991) *
10.12 Personnel Company Subscription Service Agreement, dated
as of November 12, 1996, between West Telemarketing
Insurance Agency, Inc. and West Telemarketing
Corporation Outbound (Exhibit 10.13 to Registration
Statement under Form S-1 (Amendment No. 2) dated
November 21, 1996, File No. 333-13991) *
10.13 Lease, dated September 1, 1994, by and between West
Telemarketing Corporation and 99-Maple Partnership
(Exhibit 10.14 to Registration Statement under Form S-1
(Amendment No. 1) dated November 12, 1996, File No. 333-
13991) *
10.14 Employment Agreement between the Company and Nancee S.
Berger, dated January 1, 1996 amended September 1, 1998
(Exhibit 10.05 to Form 10-Q dated November 12, 1998,
File No. 000-21771) *
Sequential
Exhibit Page
Number Description Number
------- ----------- ----------
10.15 Employee Stock Purchase Plan dated July 1, 1997 (Exhibit
10.01 to Form 10-Q dated August 14, 1997, File No. 000-
21771) *
10.16 Employment Agreement between the Company and Mark V.
Lavin dated July 1, 1996, as amended September 1, 1998
(Exhibit 10.04 to Form 10-Q dated November 12, 1998,
File No. 000-21771) *
10.17 Employment Agreement between the Company and Steven M.
Stangl dated January 1, 1996, as amended September 1,
1998 (Exhibit 10.06 to Form 10Q dated November 12, 1998,
File No. 000-21771) *
10.18 Employment Agreement between the Company and Michael M.
Sturgeon, dated March 17, 1997, as amended February 22,
1999 (Exhibit 10.18 to Form 10-K dated March 31, 1999) *
10.19 Employment Agreement between the Company and Jon R.
(Skip) Hanson, dated October 4, 1999 **
21.01 Subsidiaries of the Company (Exhibit 21.01 to
Registration Statement under Form S-1 (Amendment No. 2)
dated November 21,1996, File No. 333-13991) *
23.01 Consent of Deloitte & Touche LLP **
27 Financial Data Schedule for the year ended December 31,
1999 **
- -------
* Indicates that the page number for such item is not applicable.
** Filed herewith