UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
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 001-35846
West Corporation
(Exact name of registrant as specified in its charter)
DELAWARE | 47-0777362 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
11808 Miracle Hills Drive, Omaha, Nebraska | 68154 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (402) 963-1200
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 ¨ No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At April 26, 2013, 83,449,670 shares of the registrants common stock were outstanding.
In this report, West, the Company, we, us and our refers to West Corporation and subsidiaries.
2
Item 1. | Financial Statements |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
West Corporation and subsidiaries
Omaha, Nebraska
We have reviewed the accompanying condensed consolidated balance sheet of West Corporation and subsidiaries (the Company) as of March 31, 2013, and the related condensed consolidated statements of operations, comprehensive income (loss), stockholders deficit and cash flows for the three-month periods ended March 31, 2013 and 2012. These interim financial statements are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of West Corporation and subsidiaries as of December 31, 2012, and the related consolidated statements of operations, comprehensive income, stockholders deficit, and cash flows for the year then ended (not presented herein); and in our report dated February 8, 2013, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2012 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
April 29, 2013
3
WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
REVENUE |
$ | 660,224 | $ | 639,062 | ||||
COST OF SERVICES |
309,067 | 291,702 | ||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
257,867 | 233,118 | ||||||
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OPERATING INCOME |
93,290 | 114,242 | ||||||
OTHER INCOME (EXPENSE): |
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Interest expense, net of interest income of $63 and $102 |
(72,879 | ) | (62,062 | ) | ||||
Subordinated debt call premium |
(16,502 | ) | | |||||
Other, net |
979 | 2,730 | ||||||
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Other expense |
(88,402 | ) | (59,332 | ) | ||||
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INCOME BEFORE INCOME TAX EXPENSE |
4,888 | 54,910 | ||||||
INCOME TAX EXPENSE |
1,833 | 20,866 | ||||||
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NET INCOME |
$ | 3,055 | $ | 34,044 | ||||
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EARNINGS PER COMMON SHARE: |
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Basic Common |
$ | 0.05 | $ | 0.55 | ||||
Diluted Common |
$ | 0.05 | $ | 0.54 | ||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: |
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Basic Common |
63,918 | 61,368 | ||||||
Diluted Common |
65,366 | 63,529 |
The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
4
WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Three Months Ended March 31, |
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2013 | 2012 | |||||||
Net income |
$ | 3,055 | $ | 34,044 | ||||
Foreign currency translation adjustments, net of tax of $4,099 and $(4,736) |
(6,688 | ) | 7,728 | |||||
Reclassification of cash flow hedges into earnings, net of tax of $660 |
(1,076 | ) | | |||||
Unrealized gain on cash flow hedges, net of tax of $(1,287) and $(268) |
2,100 | 437 | ||||||
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Comprehensive income (loss) |
$ | (2,609 | ) | $ | 42,209 | |||
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The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
5
WEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
March 31, | December 31, | |||||||
2013 | 2012 | |||||||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ | 651,136 | $ | 179,111 | ||||
Trust and restricted cash |
14,886 | 14,518 | ||||||
Accounts receivable, net of allowance of $10,821 and $10,439 |
442,608 | 444,411 | ||||||
Deferred income taxes receivable |
21,691 | 13,148 | ||||||
Prepaid assets |
53,632 | 42,129 | ||||||
Deferred expenses |
41,397 | 38,442 | ||||||
Other current assets |
30,001 | 29,333 | ||||||
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Total current assets |
1,255,351 | 761,092 | ||||||
PROPERTY AND EQUIPMENT: |
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Property and equipment |
1,224,023 | 1,209,873 | ||||||
Accumulated depreciation and amortization |
(867,356 | ) | (844,977 | ) | ||||
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Total property and equipment, net |
356,667 | 364,896 | ||||||
GOODWILL |
1,812,253 | 1,816,851 | ||||||
INTANGIBLE ASSETS, net of accumulated amortization of $483,840 and $469,534 |
270,708 | 285,672 | ||||||
OTHER ASSETS |
245,953 | 219,642 | ||||||
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TOTAL ASSETS |
$ | 3,940,932 | $ | 3,448,153 | ||||
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LIABILITIES AND STOCKHOLDERS DEFICIT |
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CURRENT LIABILITIES: |
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Accounts payable |
$ | 102,662 | $ | 120,247 | ||||
Accrued expenses |
384,685 | 312,296 | ||||||
Current maturities of long-term debt |
470,159 | 25,125 | ||||||
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Total current liabilities |
957,506 | 457,668 | ||||||
LONG-TERM OBLIGATIONS, less current maturities |
3,587,435 | 3,992,531 | ||||||
DEFERRED INCOME TAXES |
128,913 | 132,398 | ||||||
OTHER LONG-TERM LIABILITIES |
117,236 | 115,242 | ||||||
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Total liabilities |
4,791,090 | 4,697,839 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 12) |
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STOCKHOLDERS DEFICIT: |
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Common stock $0.001 par value, 475,000 shares authorized, 83,541 and 62,178 shares issued and 83,449 and 62,086 shares outstanding |
83 | 62 | ||||||
Additional paid-in capital |
2,122,755 | 1,720,639 | ||||||
Retained deficit |
(2,938,893 | ) | (2,941,948 | ) | ||||
Accumulated other comprehensive loss (Note 10) |
(28,795 | ) | (23,131 | ) | ||||
Treasury stock at cost (92 and 92 shares) |
(5,308 | ) | (5,308 | ) | ||||
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Total stockholders deficit |
(850,158 | ) | (1,249,686 | ) | ||||
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TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT |
$ | 3,940,932 | $ | 3,448,153 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
6
WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Three Months Ended | ||||||||
March 31, | ||||||||
2013 | 2012 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
$ | 3,055 | $ | 34,044 | ||||
Adjustments to reconcile net income to net cash flows from operating activities: |
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Depreciation |
27,807 | 26,308 | ||||||
Amortization |
16,550 | 17,007 | ||||||
Asset impairment |
| 3,715 | ||||||
Provision for share-based compensation |
3,190 | 133 | ||||||
Deferred income tax expense |
4,343 | 11,518 | ||||||
Amortization of deferred financing costs |
4,654 | 3,393 | ||||||
Other |
27 | 79 | ||||||
Changes in operating assets and liabilities, net of business acquisitions: |
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Accounts receivable |
5,049 | (33,524 | ) | |||||
Other assets |
(16,214 | ) | (25,401 | ) | ||||
Accounts payable |
(7,711 | ) | 18,489 | |||||
Accrued wages and benefits |
21,224 | 10,956 | ||||||
Accrued subordinated debt call premium |
16,502 | | ||||||
Accrued interest |
20,871 | 8,732 | ||||||
Other liabilities and income tax payable |
(681 | ) | 16,214 | |||||
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Net cash flows from operating activities |
98,666 | 91,663 | ||||||
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CASH FLOWS USED IN INVESTING ACTIVITIES: |
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Business acquisitions, net of cash acquired of $0 and $1,350 |
(13 | ) | (76,579 | ) | ||||
Purchases of property and equipment |
(33,542 | ) | (34,073 | ) | ||||
Other |
(408 | ) | | |||||
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Net cash flows used in investing activities |
(33,963 | ) | (110,652 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from initial public offering, net of offering costs |
400,464 | | ||||||
Proceeds from revolving credit facilities |
50,000 | 71,100 | ||||||
Payments on revolving credit facilities |
| (47,200 | ) | |||||
Payment of deferred financing and other debt-related costs |
(29,972 | ) | (7 | ) | ||||
Principal repayments on long-term obligations |
(10,062 | ) | (3,856 | ) | ||||
Proceeds and net settlements from stock options exercised including excess tax benefits |
(689 | ) | 300 | |||||
Dividends paid |
(158 | ) | | |||||
Repurchase of common stock |
| (51 | ) | |||||
Other |
(2 | ) | (20 | ) | ||||
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Net cash flows from financing activities |
409,581 | 20,266 | ||||||
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EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
(2,259 | ) | 2,748 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
472,025 | 4,025 | ||||||
CASH AND CASH EQUIVALENTS, Beginning of period |
179,111 | 93,836 | ||||||
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CASH AND CASH EQUIVALENTS, End of period |
$ | 651,136 | $ | 97,861 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid during the period for interest |
$ | 47,248 | $ | 50,778 | ||||
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Cash paid during the period for income taxes, net of refunds of $114 and $1,733 |
$ | 16,195 | $ | 16,907 | ||||
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: |
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Accrued obligations for the purchase of property and equipment |
$ | 8,224 | $ | 5,329 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
7
WEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(AMOUNTS IN THOUSANDS, EXCEPT SHARES )
(UNAUDITED)
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common | Paid - in | Retained | Treasury | Comprehensive | Stockholders | |||||||||||||||||||
Stock | Capital | Deficit | Stock | Income (Loss) | Deficit | |||||||||||||||||||
BALANCE, January 1, 2013 |
$ | 62 | $ | 1,720,639 | $ | (2,941,948 | ) | $ | (5,308 | ) | $ | (23,131 | ) | $ | (1,249,686 | ) | ||||||||
Net income |
3,055 | 3,055 | ||||||||||||||||||||||
Foreign currency translation adjustment, net of tax of $4,099 |
(6,688 | ) | (6,688 | ) | ||||||||||||||||||||
Reclassification of cash flow hedge into earnings, net of tax of $660 |
(1,076 | ) | (1,076 | ) | ||||||||||||||||||||
Unrealized gain on cash flow hedges, net of tax of $(1,287) |
2,100 | 2,100 | ||||||||||||||||||||||
Executive Deferred Compensation Plan activity |
1,472 | 1,472 | ||||||||||||||||||||||
Issuance of common stock in connection with initial public offering (21,275,000 shares) |
21 | 401,012 | 401,033 | |||||||||||||||||||||
Initial public offering costs |
(2,860 | ) | (2,860 | ) | ||||||||||||||||||||
Stock options exercised including related tax benefits (19,761 shares) |
47 | 47 | ||||||||||||||||||||||
Share based compensation |
2,445 | 2,445 | ||||||||||||||||||||||
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BALANCE, March 31, 2013 |
$ | 83 | $ | 2,122,755 | $ | (2,938,893 | ) | $ | (5,308 | ) | $ | (28,795 | ) | $ | (850,158 | ) | ||||||||
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BALANCE, January 1, 2012 |
$ | 61 | $ | 1,695,830 | $ | (2,556,448 | ) | $ | (3,820 | ) | $ | (32,036 | ) | $ | (896,413 | ) | ||||||||
Net income |
34,044 | 34,044 | ||||||||||||||||||||||
Foreign currency translation adjustment, net of tax of $(4,736) |
7,728 | 7,728 | ||||||||||||||||||||||
Unrealized gain on cash flow hedges, net of tax of $(268) |
437 | 437 | ||||||||||||||||||||||
Executive Deferred Compensation Plan activity |
741 | 741 | ||||||||||||||||||||||
Stock options exercised including related tax benefits (64,914 shares) |
120 | 120 | ||||||||||||||||||||||
Share based compensation |
(129 | ) | (129 | ) | ||||||||||||||||||||
Purchase of stock at cost (1,500 shares) |
(51 | ) | (51 | ) | ||||||||||||||||||||
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BALANCE, March 31, 2012 |
$ | 61 | $ | 1,696,562 | $ | (2,522,404 | ) | $ | (3,871 | ) | $ | (23,871 | ) | $ | (853,523 | ) | ||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).
8
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF CONSOLIDATION AND PRESENTATION
Business Description: West Corporation (the Company or West) is a leading provider of technology-driven communication services. We, us and our also refer to West and its consolidated subsidiaries, as applicable. We offer a broad portfolio of services, including conferencing and collaboration, unified communications, alerts and notifications, emergency communications, business process outsourcing and telephony / interconnect services. The scale and processing capacity of our proprietary technology platforms, combined with our expertise in managing voice and data transactions, enable us to provide reliable, high-quality, mission-critical communications designed to maximize return on investment for our clients. Our clients include Fortune 1000 companies, along with small and medium enterprises in a variety of industries, including telecommunications, retail, financial services, public safety, technology and healthcare. We have sales and operations in the United States, Canada, Europe, the Middle East, Asia-Pacific, Latin America and South America.
We operate in two business segments:
| Unified Communications, including conferencing and collaboration, event services, Internet Protocol (IP)-based unified communications solutions, and alerts and notifications; and |
| Communication Services, including emergency communications, automated call processing, telephony / interconnect services and agent-based services. |
Unified Communications
| Conferencing & Collaboration. Operating under the InterCall® brand, we are the largest conferencing services provider in the world based on conferencing revenue, according to Wainhouse Research. We managed approximately 134 million conference calls in 2012, an 11% increase over 2011. We provide our clients with an integrated global suite of meeting services. |
| Event Services. InterCall offers multimedia platforms designed to give our clients the ability to create, manage, distribute and reuse content internally and externally. Through a combination of proprietary products and strategic partnerships, our clients have the tools to support all of their internal and external multimedia requirements. |
| IP-Based Unified Communications Solutions. We provide our clients with enterprise class IP-based communications solutions enabled by our technology. We offer hosted IP-private branch exchange (PBX) and enterprise call management, hosted and managed multi-protocol label switching (MPLS) network solutions, unified communications partner solution portfolio services, cloud-based security services, integrated conferencing/desktop messaging and presence tools, and professional services and systems integration expertise. |
| Alerts & Notifications. Our technology platforms allow clients to manage and deliver automated, proactive and personalized communications. We use multiple delivery channels (voice, text messaging, email, social media and fax), based on the preference of the recipient. For example, we deliver patient notifications and send and confirm appointments and prescription reminders on behalf of our healthcare clients; send and receive automated outage notifications on behalf of our utility clients; and transmit emergency evacuation notices on behalf of municipalities. |
9
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Communication Services
| Emergency Communications. We believe we are one of the largest providers of emergency communications services, based on the number of 9-1-1 calls that we and other participants in the industry facilitate. Our services are critical in facilitating public safety agencies ability to receive emergency calls from citizens. Our clients generally enter into long-term contracts and fund their obligations through monthly charges on users telephone bills. |
| Automated Call Processing. We believe we have developed a best-in-class automated customer service platform. Our services allow our clients to effectively communicate with their customers through inbound and outbound interactive voice response (IVR) applications using natural language speech recognition, automated voice prompts and network-based call routing services. In addition to these front-end customer service applications, we also provide analyses that help our clients improve their automated communications strategy. Our open standards-based platform allows the flexibility to integrate new capabilities, such as mobility, social media and cloud-based services. |
| Telephony / Interconnect Services. Our telephony / interconnect services support the merging of traditional telecom, mobile and IP technologies to service providers and enterprises. We are a leading provider of local and national tandem switching services to carriers throughout the United States. We leverage our proprietary customer traffic information system, sophisticated call routing and control facility to provide tandem interconnection services to the competitive marketplace, including wireless, wire-line, cable telephony and Voice over Internet Protocol (VoIP) companies. We entered this market through the acquisition of HyperCube LLC (HyperCube) in March 2012. |
| Agent-Based Services. We provide our clients with large-scale, agent-based services. We target opportunities that allow our agent-based services to be a part of larger strategic client engagements and with clients for whom these services can add value. We believe that we are known in the industry as a premium provider of these services. We offer a flexible model that includes on-shore, off-shore and virtual home-based agent capabilities to fit our clients needs. |
Basis of ConsolidationThe unaudited condensed consolidated financial statements include the accounts of West and our wholly-owned subsidiaries and reflect all adjustments (all of which are normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results, and cash flows for the interim periods. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with Managements Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the year ended December 31, 2012. All intercompany balances and transactions have been eliminated. Our results for the three months ended March 31, 2013 are not necessarily indicative of what our results will be for other interim periods or for the full fiscal year.
Reverse Stock SplitOn March 8, 2013, we completed a 1-for-8 reverse stock split and amended our Amended and Restated Certificate of Incorporation by filing an amendment with the Delaware Secretary of State. We also adjusted the share amounts under our executive incentive plan and nonqualified deferred compensation plan as a result of the 1-for-8 reverse stock split. All numbers of common shares and per common share data in the accompanying unaudited condensed consolidated financial statements and related notes have been retroactively adjusted to give effect to the reverse stock split and the changes to the Amended and Restated Certificate of Incorporation of the Company.
10
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Initial Public OfferingOn March 27, 2013, we completed an initial public offering (IPO) of 21,275,000 shares of common stock, par value $0.001 per share.
Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 RecognitionIn our Unified Communications segment, conferencing and event services are generally billed and revenue recognized on a per participant minute basis. Web services are generally billed and revenue recognized on a per participant minute basis or, in the case of operating license arrangements, generally billed in advance and revenue recognized ratably over the service life period, IP-based services are generally billed and revenue recognized on a per seat basis and alerts and notifications are generally billed, and revenue recognized, on a per message or per minute basis. We also charge clients for additional features, such as conference call recording, transcription services or professional services. Our Communication Services segment recognizes revenue for platform-based and agent-based services in the month that services are performed and services are generally billed based on call duration, hours of input, number of calls or a contingent basis. Emergency communications revenue within the Communication Services segment is generated primarily from monthly fees based on the number of billing telephone numbers and cell towers covered under contract. In addition, product sales and installations are generally recognized upon completion of the installation and client acceptance of a fully functional system or, for contracts that are completed in stages, recognized upon completion of such stages. Contracts for annual recurring services such as support and maintenance agreements are generally billed in advance and are recognized as revenue ratably (on a monthly basis) over the contractual periods.
Revenue for contingent collection services and overpayment identification and recovery services is recognized in the month collection payments are received based upon a percentage of cash collected or other agreed upon contractual parameters.
Revenue for telephony / interconnect services is recognized in the period the service is provided and when collection is reasonably assured. These telephony / interconnect services are primarily comprised of switched access charges for toll-free origination services, which are paid primarily by interexchange carriers.
Cash and Cash EquivalentsWe consider short-term investments with original maturities of three months or less at acquisition to be cash equivalents.
Trust and Restricted CashTrust cash represents cash collected on behalf of our clients that has not yet been remitted to them. A related liability is recorded in accounts payable until settlement with the respective clients. Restricted cash primarily represents cash held as collateral for certain letters of credit.
Foreign Currency and Translation of Foreign SubsidiariesThe functional currencies of the Companys foreign operations are the respective local currencies. All assets and liabilities of the Companys foreign operations are translated into U.S. dollars at fiscal period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal period. The resulting translation adjustments are recorded as a component of stockholders deficit and comprehensive income. Foreign currency transaction gains or losses are recorded in the statement of operations.
Subsequent EventsWe have evaluated subsequent events. On April 26, 2013, the 11% senior subordinated notes, related accrued interest and debt call premium were paid in full. See note 5 to these condensed consolidated financial statements for additional details. No subsequent events requiring recognition were identified and therefore none were incorporated into the condensed consolidated financial statements presented herein.
11
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recent Accounting PronouncementsIn July 2012, the FASB issued ASU No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02), allowing entities the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. If the qualitative assessment indicates it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no testing is required. ASU 2012-02 became effective for the Company January 1, 2013 and the adoption did not have an effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Topic 220)(ASU 2013-02), which adds additional disclosure requirements for items reclassified out of accumulated other comprehensive income. ASU 2013-02 became effective for the Company January 1, 2013 and the adoption did not have an effect on our financial position, results of operations or cash flows.
2. ACQUISITION
HyperCube
On March 23, 2012, we completed the acquisition of HyperCube, a provider of switching services to telecommunications carriers throughout the United States. HyperCube exchanges or interconnects communications traffic to all carriers, including wireless, wire-line, cable telephony and VoIP companies. The purchase price was $77.9 million and was funded by cash on hand and partial use of our asset securitization financing facility.
Factors that contributed to a purchase price resulting in the recognition of goodwill, partially deductible for tax purposes, for the purchase of HyperCube included the synergy related to telecommunication transport costs and new products and services related to IP and mobile communications.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date for HyperCube. The finite lived intangible assets are comprised of trade names, technology, non-competition agreements and customer relationships.
(Amounts in thousands) | March 23, | |||
2012 | ||||
Working Capital |
$ | 1,212 | ||
Property and equipment |
10,114 | |||
Other assets, net |
391 | |||
Intangible assets |
19,110 | |||
Goodwill |
49,723 | |||
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Total assets acquired |
80,550 | |||
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Non-current deferred taxes |
2,594 | |||
Long-term liabilities |
50 | |||
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Total liabilities assumed |
2,644 | |||
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Net assets acquired |
$ | 77,906 | ||
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12
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Assuming the acquisition of HyperCube occurred as of the beginning of the period presented, our unaudited pro forma results of operations for the three months ended March 31, 2012 would have been, in thousands (except per share amount), as follows:
Revenue |
$ | 655,438 | ||
Net Income |
$ | 33,991 | ||
Income per common sharebasic |
$ | 0.55 | ||
Income per common sharediluted |
$ | 0.54 |
The pro forma results above are not necessarily indicative of the operating results that would have actually occurred if the acquisition had been in effect on the date indicated, nor are they necessarily indicative of future results of the combined company.
The HyperCube acquisition was included in the consolidated results of operations since the completion of the acquisition, March 23, 2012, and included revenue of $22.4 million and $1.6 million for the three months ended March 31, 2013 and 2012, respectively. The net income for the three months ended March 31, 2013 and 2012 for HyperCube was not material.
Acquisition costs for the three months ended March 31, 2013 and 2012 were $0.5 million in each period and are included in selling, general and administrative expenses.
13
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the activity in goodwill by reporting segment, in thousands, for the year ended December 31, 2012 and the three months ended March 31, 2013:
Unified | Communication | |||||||||||
Communications | Services | Consolidated | ||||||||||
Balance at January 1, 2012 |
$ | 962,982 | $ | 837,328 | $ | 1,800,310 | ||||||
Accumulated impairment losses |
| (37,675 | ) | (37,675 | ) | |||||||
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Net balance at January 1, 2012 |
962,982 | 799,653 | 1,762,635 | |||||||||
Acquisitions |
| 49,723 | 49,723 | |||||||||
Acquisition accounting adjustments |
970 | 43 | 1,013 | |||||||||
Foreign currency translation adjustment |
3,383 | 97 | 3,480 | |||||||||
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Balance at December 31, 2012 |
967,335 | 887,191 | 1,854,526 | |||||||||
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Accumulated impairment losses |
| (37,675 | ) | (37,675 | ) | |||||||
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Net balance at December 31, 2012 |
$ | 967,335 | $ | 849,516 | $ | 1,816,851 | ||||||
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Unified | Communication | |||||||||||
Communications | Services | Consolidated | ||||||||||
Balance at January 1, 2013 |
$ | 967,335 | $ | 887,191 | $ | 1,854,526 | ||||||
Accumulated impairment losses |
| (37,675 | ) | (37,675 | ) | |||||||
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Net balance at January 1, 2013 |
967,335 | 849,516 | 1,816,851 | |||||||||
Foreign currency translation adjustment |
(4,614 | ) | 16 | (4,598 | ) | |||||||
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Balance at March 31, 2013 |
962,721 | 887,207 | 1,849,928 | |||||||||
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Accumulated impairment losses |
| (37,675 | ) | (37,675 | ) | |||||||
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Net balance at March 31, 2013 |
$ | 962,721 | $ | 849,532 | $ | 1,812,253 | ||||||
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14
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Other intangible assets
Below is a summary of the major intangible assets and weighted average amortization periods (in years) for each identifiable intangible asset, in thousands:
As of March 31, 2013 | Weighted Average |
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Intangible assets |
Acquired Cost |
Accumulated Amortization |
Net Intangible Assets |
Amortization Period (Years) |
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Customer lists |
$ | 541,848 | $ | (389,213 | ) | $ | 152,635 | 9.5 | ||||||||
Technology & Patents |
122,480 | (64,244 | ) | 58,236 | 8.7 | |||||||||||
Trade names |
47,110 | | 47,110 | Indefinite | ||||||||||||
Trade names (finite-lived) |
27,215 | (17,554 | ) | 9,661 | 4.3 | |||||||||||
Other intangible assets |
15,895 | (12,829 | ) | 3,066 | 4.3 | |||||||||||
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Total |
$ | 754,548 | $ | (483,840 | ) | $ | 270,708 | |||||||||
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As of December 31, 2012 | Weighted Average |
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Intangible assets |
Acquired Cost |
Accumulated Amortization |
Net Intangible Assets |
Amortization Period (Years) |
||||||||||||
Customer lists |
$ | 544,273 | $ | (382,359 | ) | $ | 161,914 | 9.5 | ||||||||
Technology & Patents |
120,606 | (57,768 | ) | 62,838 | 8.7 | |||||||||||
Trade names |
47,110 | | 47,110 | Indefinite | ||||||||||||
Trade names (finite-lived) |
27,319 | (16,760 | ) | 10,559 | 4.3 | |||||||||||
Other intangible assets |
15,898 | (12,647 | ) | 3,251 | 4.3 | |||||||||||
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Total |
$ | 755,206 | $ | (469,534 | ) | $ | 285,672 | |||||||||
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Amortization expense for finite-lived intangible assets was $14.0 million and $14.9 million for the three months ended March 31, 2013 and 2012, respectively. Estimated amortization expense for the intangible assets noted above for the entire year of 2013 and the next five years is as follows:
2013 |
$53.5 million | |
2014 |
$43.9 million | |
2015 |
$34.8 million | |
2016 |
$25.7 million | |
2017 |
$19.3 million | |
2018 |
$16.7 million |
15
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. ACCRUED EXPENSES
Accrued expenses, in thousands, consisted of the following as of:
March 31, | December 31, | |||||||
2013 | 2012 | |||||||
Deferred revenue and customer deposits, net of long-term deferred revenue of $30,602 and $33,286 |
$ | 87,732 | $ | 93,144 | ||||
Accrued wages |
68,754 | 47,240 | ||||||
Interest payable |
60,739 | 39,868 | ||||||
Accrued phone |
42,750 | 36,105 | ||||||
Accrued other taxes (non-income related) |
38,828 | 38,608 | ||||||
Sponsor management termination accrual (1) |
24,000 | | ||||||
Accrued subordinated debt call premium |
16,502 | | ||||||
Accrued employee benefit costs |
11,112 | 11,414 | ||||||
Accrued lease expense |
2,943 | 8,392 | ||||||
Income taxes payable |
| 4,336 | ||||||
Interest rate hedge position |
695 | 2,346 | ||||||
Other current liabilities |
30,630 | 30,843 | ||||||
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$ | 384,685 | $ | 312,296 | |||||
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(1) | In connection with the IPO, pursuant to the terms of that certain management agreement we entered into with affiliates of the investor group led by Thomas H. Lee Partners, L.P. and Quadrangle Group LLC (the Sponsors), dated October 24, 2006 and that certain management letter agreement we entered into with affiliates of the Sponsors, dated March 8, 2013, we expect to pay the Sponsors $24.0 million with any remaining net proceeds from the offering and cash on hand. |
5. LONG-TERM OBLIGATIONS
Long-term debt is carried at amortized cost. Long-term obligations, in thousands, consist of the following as of:
March 31, | December 31, | |||||||
2013 | 2012 | |||||||
11% Senior Subordinated Notes, called April 26, 2013 |
$ | 450,000 | $ | 450,000 | ||||
Asset Securitization Facility, due 2014 |
50,000 | | ||||||
Senior Secured Term Loan Facility, due 2016 |
316,862 | 1,452,506 | ||||||
Senior Secured Term Loan Facility, due 2018 |
2,090,732 | 965,150 | ||||||
8 5/8% Senior Notes, due 2018 |
500,000 | 500,000 | ||||||
7 7/8% Senior Notes, due 2019 |
650,000 | 650,000 | ||||||
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4,057,594 | 4,017,656 | |||||||
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Less: current maturities |
(470,159 | ) | (25,125 | ) | ||||
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Long-term obligations |
$ | 3,587,435 | $ | 3,992,531 | ||||
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On February 20, 2013, the Company, Wells Fargo Bank, National Association (Wells Fargo), as administrative agent, and the various lenders party thereto modified the Companys senior secured credit facilities (Senior Secured Credit Facilities) by entering into Amendment No. 3 to Amended and Restated Credit Agreement (the Third Amendment), amending the Companys Amended and Restated Credit Agreement, dated as of October 5, 2010, by and among West, Wells Fargo, as administrative agent, and the various lenders party thereto, as lenders (as previously amended by Amendment No. 1 to Amended and Restated Credit Agreement,
dated as of August 15, 2012, Amendment No. 2 to Amended and Restated Credit Agreement, dated as of October 24, 2012, and the Third Amendment, the Amended Credit Agreement).
16
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Amended Credit Agreement provides for a reduction in the applicable margins and interest rate floors of all term loans, extends the maturity of a portion of the term loans due July 2016 to June 2018; and adds a further step down to the applicable margins of all term loans upon satisfaction of certain conditions. As of the effective date of the Third Amendment, the Company had outstanding the following senior secured term loans:
| Term loans in an aggregate principal amount of approximately $2.1 billion (the 2018 Maturity Term Loans). The 2018 Maturity Term Loans will mature on June 30, 2018, and the interest rate margins applicable to the 2018 Maturity Term Loans are 3.25%, for LIBOR rate loans, and 2.25%, for base rate loans; and |
| Term loans in an aggregate principal amount of approximately $317.7 million (the 2016 Maturity Term Loans; and, together with the 2018 Maturity Term Loans, the Term Loans). The 2016 Maturity Term Loans will mature on July 15, 2016, and the interest rate margins applicable to the 2016 Maturity Term Loans are 2.75%, for LIBOR rate loans, and 1.75%, for base rate loans. |
The Amended Credit Agreement also provides for interest rate floors applicable to the Term Loans. The interest rate floors are 1.00%, for LIBOR rate loans, and 2.00%, for base rate loans. The Term Loans are subject to an additional step down to the applicable margins by 0.50% conditioned upon completion by the Company of an IPO and the Company attaining and maintaining a total leverage ratio less than or equal to 4.75:1.00.
The Amended Credit Agreement also provides for a soft call option applicable to the Term Loans. The soft call option provides for a premium equal to 1.0% of the amount of the repricing payment, in the event that, on or prior to the six month anniversary of the effective date of the Third Amendment, West or the subsidiary borrowers enter into certain repricing transactions.
In connection with the Third Amendment, the Company incurred refinancing expenses of approximately $24.2 million for the soft-call premium paid to holders of term loans outstanding prior to the effectiveness of the Third Amendment and $5.8 million for other fees and expenses. These costs were capitalized as deferred financing costs and will be amortized over the life of the Amended Credit Agreement.
On March 27, 2013, the Company instructed The Bank of New York Mellon Trust Company, N.A., as trustee for the Companys 11% Senior Subordinated Notes due 2016 (Senior Subordinated Notes), to deliver a notice of redemption to the holders of all of the outstanding $450.0 million principal amount of Senior Subordinated Notes. The redemption date is April 26, 2013 at a redemption price equal to 103.667% of the principal amount of the Senior Subordinated Notes. In addition, the Company will pay accrued and unpaid interest on the redeemed Senior Subordinated Notes up to, but not including, the Redemption Date. Following this redemption, none of the Senior Subordinated Notes will remain outstanding. Upon delivery of instruction to The Bank of New York Mellon Trust Company, N.A., the Company reclassified the Senior Subordinated Notes to current maturities of long-term debt and recorded the $16.5 million subordinated debt call premium in other non-operating expense. Upon completion of the redemption, the Company will record interest expense of $6.6 million for the remaining amortization of the balance of deferred financing costs associated with the Senior Subordinated Notes.
At March 31, 2013, we were in compliance with our debt covenants.
17
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. HEDGING ACTIVITIES
Periodically, we have entered into interest rate swaps to hedge the cash flows from our variable rate debt, which effectively converts the hedged portion under our outstanding senior secured term loan facility to fixed rate debt. The initial assessments of hedge effectiveness were performed using regression analysis. The periodic measurements of hedge ineffectiveness are performed using the change in variable cash flows method.
The cash flow hedges are recorded at fair value with a corresponding entry, net of taxes, recorded in other comprehensive income (OCI) until earnings are affected by the hedged item. At March 31, 2013, the notional amount of debt outstanding under interest rate swap agreements was $500.0 million. These swap agreements mature on June 3, 2013. The fixed interest rate on the interest rate swaps ranges from 1.685% to 1.6975%. During the three months ended March 31, 2012, three interest rate swaps with a notional value of $500.0 million matured. The interest rate on these three interest rate swaps ranged from 2.56% to 2.60%.
The following table presents, in thousands, the fair value of the Companys derivatives and consolidated balance sheet location.
Liability Derivatives | ||||||||||||
March 31, 2013 | December 31, 2012 | |||||||||||
Balance Sheet Location |
Fair Value | Balance Sheet Location |
Fair Value | |||||||||
Derivatives designated as hedging instruments: |
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Interest rate swaps |
Accrued expenses | $ | 695 | Accrued expenses | $ | 2,346 | ||||||
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Total derivatives |
$ | 695 | $ | 2,346 | ||||||||
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The following presents, in thousands the impact of interest rate swaps on the consolidated statement of operations for the three months ended March 31, 2013 and 2012, respectively.
Amount of gain (loss) | ||||||||||||||||||
Amount of gain (loss) | reclassified from OCI | |||||||||||||||||
recognized in OCI | Location of gain | into earnings for | ||||||||||||||||
Derivatives designated | for the three months | reclassified from OCI | the three months | |||||||||||||||
as hedging instruments | ended March 31, | into earnings | ended March 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||
Interest rate swaps |
$ | 1,024 | $ | 437 | Interest expense | $ | 1,736 | $ | | |||||||||
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18
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FAIR VALUE DISCLOSURES
Accounting Standards Codification 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 apply to other accounting pronouncements that require or permit fair value measurements. ASC 820:
| Defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and |
| Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. |
Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are defined as follows:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument. |
| Level 3 inputs are unobservable inputs for assets or liabilities. |
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.
Trading Securities (Asset). The assets held in the West Corporation Executive Retirement Savings Plan and the West Corporation Nonqualified Deferred Compensation Plan represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with the provisions of Accounting Standards Codification 320 InvestmentsDebt and Equity Securities (ASC 320) considering the employees ability to change the investment allocation of their deferred compensation at any time. Quoted market prices are available for these securities in an active market therefore, the fair value of these securities is determined by Level 1 inputs.
We evaluate classification within the fair value hierarchy at each period. There were no transfers between any levels of the fair value hierarchy during the periods presented.
Interest rate swaps. The effect of the interest rate swaps is to change a variable rate debt obligation to a fixed rate for that portion of the debt that is hedged. We record the interest rate swaps at fair value. The fair value of the interest rate swaps is based on a model whose inputs are observable (LIBOR swap rates); therefore, the fair value of these interest rate swaps is based on a Level 2 input.
19
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Assets and liabilities measured at fair value on a recurring basis, in thousands, are summarized below:
Fair Value Measurements at March 31, 2013 Using | ||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||
in Active | Other | Significant | Assets / | |||||||||||||||||
Markets for | Observable | Unobservable | Liabilities | |||||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | at Fair | ||||||||||||||||
Description |
Amount | (Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||||
Assets |
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Trading securities |
$ | 45,906 | $ | 45,906 | $ | | $ | | $ | 45,906 | ||||||||||
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Liabilities |
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Interest rate swaps |
$ | 695 | $ | | $ | 695 | $ | | $ | 695 | ||||||||||
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Fair Value Measurements at December 31, 2012 Using | ||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||
in Active | Other | Significant | Assets / | |||||||||||||||||
Markets for | Observable | Unobservable | Liabilities | |||||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | at Fair | ||||||||||||||||
Description |
Amount | (Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||||
Assets |
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Trading securities |
$ | 46,144 | $ | 46,144 | $ | | $ | | $ | 46,144 | ||||||||||
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Liabilities |
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Interest rate swaps |
$ | 2,346 | $ | | $ | 2,346 | $ | | $ | 2,346 | ||||||||||
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The fair value of our 11% senior subordinated notes, 8 5/8% senior notes and 7 7/8% senior notes based on market quotes, which we determined to be Level 1 inputs, at March 31, 2013 was approximately $1,698.5 million compared to the carrying amount of $1,600.0 million. The fair value of our 11% senior subordinated notes, 8 5/8% senior notes and 7 7/8% senior notes based on market quotes, which we determined to be Level 1 inputs, at December 31, 2012 was approximately $1,705.6 million compared to the carrying amount of $1,600.0 million.
The fair value of our senior secured term loan facilities was estimated using current market quotes on comparable debt securities from various financial institutions. All of the inputs used to determine the fair market value of our senior secured term loan facilities are Level 2 inputs and obtained from an independent source. The fair value of our senior secured term loan facilities at March 31, 2013 was approximately $2,443.3 million compared to the carrying amount of $2,407.6 million. The fair value of our senior secured term loan facilities at December 31, 2012 was approximately $2,455.1 million compared to the carrying amount of $2,417.7 million
Certain assets are measured at fair value on a non-recurring basis using significant unobservable inputs (Level 3) as defined by and in accordance with the provisions of ASC Topic 820. As such, property and equipment with a net carrying amount totaling $3.7 million were written down to zero during the three months ended March 31, 2012. This write-down was the result of the abandonment of capitalized costs incurred during the development of an internally developed software payroll application and was recorded in Selling, General and Administrative (SG&A) expenses.
20
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. STOCK-BASED COMPENSATION
Stock options granted under the West Corporation 2006 Executive Incentive Plan (2006 EIP) prior to 2012 become exercisable over a period of five years, with 20% of the stock option becoming exercisable on each of the first through fifth anniversaries of the grant date. During 2012, a form of option certificate was adopted such that the 2012 grants become exercisable over a period of four years, with 25% of the stock option becoming exercisable on each of the first through fourth anniversaries of the grant date. Once an option has vested, it generally remains exercisable until the tenth anniversary of the grant date so long as the participant continues to provide services to the Company.
On August 15, 2012, our Board of Directors declared a special cash dividend of $8.00 per share to be paid to stockholders of record as of August 15, 2012. In addition, the Board of Directors authorized equivalent cash payments and/or adjustments to holders of outstanding stock options to reflect the payment of such dividend as required by the terms of our incentive plans. In addition, in connection with such payment, our Board of Directors accelerated the vesting of certain stock options that were granted in 2012 and scheduled to vest in 2013. The share-based compensation recorded as a result of the accelerated vesting was $6.8 million. For options granted in 2012 and scheduled to vest in 2014 through 2016, no dividend equivalent was paid but the option exercise price was reduced by $8.00 to $25.52. Options granted prior to 2012 and options granted in 2012 originally scheduled to vest in 2013 participated in the dividend equivalent payment with no modification to the option exercise price. In conjunction with the refinancing and dividend, an appraisal of the Company was performed by Corporate Valuation Advisors, Inc., and approved by management and the Board of Directors, of the fair market value of each respective stock option grant and the underlying share of common stock both before and immediately after the dividend and refinancing. An additional $1.5 million share-based compensation charge was recorded on option grants where the fair market value of the option and dividend equivalent paid, if any, exceeded the fair market value of the option before dividend and refinancing.
21
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2006 Executive Incentive PlanStock Options
The following table presents the stock option activity under the 2006 EIP for the three months ended March 31, 2012 and 2013, respectively:
Options Outstanding | ||||||||||||
Options | Weighted | |||||||||||
Available | Number | Average | ||||||||||
for Grant | of Options | Exercise Price | ||||||||||
Balance at January 1, 2012 |
3,429,260 | 315,563 | $ | 27.04 | ||||||||
Granted |
(2,613,750 | ) | 2,613,750 | 33.52 | ||||||||
Canceled |
4,375 | (4,375 | ) | 58.08 | ||||||||
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Balance at March 31, 2012 |
819,885 | 2,924,938 | $ | 32.80 | ||||||||
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Balance at January 1, 2013 |
850,448 | 2,870,413 | $ | 27.44 | ||||||||
Granted |
(69,373 | ) | 69,373 | 25.36 | ||||||||
Canceled |
10,120 | (10,120 | ) | 30.84 | ||||||||
Exercised |
| (3,125 | ) | 13.12 | ||||||||
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Balance at March 31, 2013 |
791,195 | 2,926,541 | $ | 27.42 | ||||||||
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At March 31, 2013, we expect that approximately 72% of options granted will vest over the vesting period.
At March 31, 2013, the intrinsic value of vested options with an exercise price below the closing market price was approximately $1.1 million.
The following table presents information regarding the options granted under the 2006 EIP at March 31, 2013:
Outstanding | Exercisable | |||||||||||||||||||||
WeightedAverage | Weighted | Weighted | ||||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||||
Range of | Number of | Contractual | Exercise | Number of | Exercise | |||||||||||||||||
Exercise Prices | Options | Life (years) | Price | Options | Price | |||||||||||||||||
$ | 13.12 | 185,970 | 3.69 | $ | 13.12 | 185,970 | $ | 13.12 | ||||||||||||||
25.36 | 69,373 | 9.83 | 25.36 | | | |||||||||||||||||
25.52 | 1,934,942 | 8.99 | 25.52 | | | |||||||||||||||||
28.88 | 24,686 | 5.75 | 28.88 | 19,750 | 28.88 | |||||||||||||||||
33.52 | 647,911 | 8.99 | 33.52 | 647,911 | 33.52 | |||||||||||||||||
50.88 | 25,625 | 4.83 | 50.88 | 25,625 | 50.88 | |||||||||||||||||
72.32 | 23,224 | 7.08 | 72.32 | 9,650 | 72.32 | |||||||||||||||||
84.80 | 14,810 | 7.83 | 84.80 | 6,000 | 84.80 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
$13.12 - $84.80 | 2,926,541 | 8.60 | $ | 27.42 | 894,906 | $ | 30.44 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
22
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Options Outstanding | ||||||||||||
Options | Weighted | |||||||||||
Available | Number | Average | ||||||||||
Executive Management Rollover Options |
for Grant | of Shares | Exercise Price | |||||||||
Balance at January 1, 2012 |
103 | 1,619,834 | $ | 5.54 | ||||||||
Canceled |
| | | |||||||||
Exercised |
| (73,591 | ) | 5.59 | ||||||||
|
|
|
|
|
|
|||||||
Balance at March 31, 2012 |
103 | 1,546,243 | $ | 5.54 | ||||||||
|
|
|
|
|
|
|||||||
Balance at January 1, 2013 |
103 | 287,578 | $ | 5.47 | ||||||||
Canceled |
23 | (23 | ) | 5.47 | ||||||||
Exercised |
| (33,172 | ) | 5.47 | ||||||||
|
|
|
|
|
|
|||||||
Balance at March 31, 2013 |
126 | 254,383 | $ | 5.47 | ||||||||
|
|
|
|
|
|
The executive management rollover options are fully vested.
The following table summarizes the outstanding and exercisable information on executive management rollover options granted under the 2006 EIP at March 31, 2013:
Outstanding and Exercisable | ||||||||||
Average | Weighted | |||||||||
Remaining | Average | |||||||||
Number of | Contractual | Exercise | ||||||||
Options | Life (years) | Price | ||||||||
254,383 | 1.3 | $ | 5.47 | |||||||
|
|
|
|
|
|
The aggregate intrinsic value of these options at March 31, 2013 was approximately $3.5 million.
We account for the stock option grants under the 2006 EIP in accordance with Accounting Standards Codification 718, Compensation-Stock Compensation (ASC 718). The fair value of option awards granted under the 2006 EIP during the three months ended March 31, 2013 and 2012 were $9.04 and $12.24, respectively. The fair value of the option awards on which vesting was accelerated in 2012 was $5.92. The fair value of the option awards on which the exercise price was reduced by the amount of the $8.00 dividend in 2012, was $8.96. We have estimated the fair value of 2006 EIP option awards on the grant date using a Black-Scholes option pricing model that uses the assumptions noted in the following table:
Three months ended March 31, | ||||||||||||||||
2013 | 2012 | 2012 | 2012 | |||||||||||||
Reduced | ||||||||||||||||
Accelerated | Exercise | |||||||||||||||
Initial grant | Vesting | Price | ||||||||||||||
Risk-free interest rate |
1.09 | % | 1.35 | % | 0.63 | % | 0.86 | % | ||||||||
Dividend yield |
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Expected volatility |
34.5 | % | 34.7 | % | 36.9 | % | 35.1 | % | ||||||||
Expected life (years) |
6.25 | 6.3 | 4.83 | 6.15 |
23
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The risk-free interest rate for periods within the expected life of the option is based on the zero-coupon U.S. government treasury strip with a maturity which approximates the expected life of the option at the time of grant.
There was approximately $13.9 million and $23.9 million of unrecorded and unrecognized compensation expense related to unvested stock options under the 2006 EIP at March 31, 2013 and 2012, respectively, which will be recognized over the remaining vesting period of approximately four years.
No further grants or awards are expected to be made under the 2006 EIP.
Restricted Stock
In connection with our recently completed IPO, our compensation committee accelerated the vesting of all remaining unvested shares subject to the restricted stock award and special bonus agreements and restricted stock award agreements entered into pursuant to the 2006 EIP. The acceleration resulted in the vesting of an aggregate of 42,562 shares of common stock. As a result of the accelerated vesting, $1.2 million of share-based compensation was recognized in SG&A during the three months ended March 31, 2013.
2013 Long-Term Incentive Plan
Prior to the completion of our IPO, we adopted a 2013 Long-Term Incentive Plan (LTIP) which is intended to provide our officers, employees, non-employee directors and consultants with added incentive to remain employed by or perform services for us and align such individuals interests with those of our stockholders. Under the terms of the LTIP 8,500,000 shares of common stock will be available for awards granted under the LTIP, subject to adjustment for stock splits and other similar changes in capitalization. The number of available shares will be reduced by the aggregate number of shares that become subject to outstanding awards granted under the LTIP. To the extent that shares subject to an outstanding award granted under the LTIP are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or by reason of the settlement of such award in cash, then such shares will again be available under the LTIP.
In accordance with the 2013 LTIP, upon consummation of our IPO we paid each of our non-employee directors who are not affiliated with our Sponsors fully vested 5,000 shares of common stock. The stock awards are subject to pro rata forfeiture if the director does not remain on the board for at least six months.
Stock-Based Compensation Expense
For the three months ended March 31, 2013 and 2012, stock-based compensation expense was $3.2 million and $0.1 million, respectively.
9. EARNINGS PER SHARE
Diluted earnings per share reflects the potential dilution that could result if options or other contingently issuable shares were exercised or converted into common stock and notional shares from the Nonqualified Deferred Compensation Plan were granted. Diluted earnings per common share assumes the exercise of stock options using the treasury stock method.
24
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three months ended March 31, |
||||||||
(In thousands, except per share amounts) | 2013 | 2012 | ||||||
Earnings per common share: |
||||||||
Basic-Common |
$ | 0.05 | $ | 0.55 | ||||
Diluted-Common |
$ | 0.05 | $ | 0.54 | ||||
Weighted average number of shares outstanding: |
||||||||
Basic- Common |
63,918 | 61,368 | ||||||
Dilutive impact of stock options: |
||||||||
Common Shares |
1,448 | 2,161 | ||||||
Diluted Common Shares |
65,366 | 63,529 |
Diluted earnings per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares result from the assumed exercise of outstanding stock options, by application of the treasury stock method, that have a dilutive effect on earnings per share. At March 31, 2013 and 2012, 2,740,571 and 2,684,375 stock options were outstanding with an exercise price equal to or exceeding the market value of our common stock that were therefore excluded from the computation of shares contingently issuable upon exercise of the options.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2013 and 2012, were as follows (net of tax):
Total Accumulated |
||||||||||||
Foreign | Cash | Other | ||||||||||
Currency | Flow | Comprehensive | ||||||||||
Translation | Hedges | Income (Loss) | ||||||||||
BALANCE, January 1, 2013 |
$ | (21,345 | ) | $ | (1,786 | ) | $ | (23,131 | ) | |||
Foreign currency translation adjustment, net of tax of $4,099 |
(6,688 | ) | (6,688 | ) | ||||||||
Reclassification of cash flow hedge into earnings, net of tax of $660 (1) |
(1,076 | ) | (1,076 | ) | ||||||||
Unrealized gain on cash flow hedges, net of tax of $(1,287) |
2,100 | 2,100 | ||||||||||
|
|
|
|
|
|
|||||||
BALANCE, March 31, 2013 |
$ | (28,033 | ) | $ | (762 | ) | $ | (28,795 | ) | |||
|
|
|
|
|
|
|||||||
BALANCE, January 1, 2012 |
$ | (27,300 | ) | $ | (4,736 | ) | $ | (32,036 | ) | |||
Foreign currency translation adjustment, net of tax of $(4,736) |
7,728 | 7,728 | ||||||||||
Unrealized gain on cash flow hedges, net of tax of $(268) |
437 | 437 | ||||||||||
|
|
|
|
|
|
|||||||
BALANCE, March 31, 2012 |
$ | (19,572 | ) | $ | (4,299 | ) | $ | (23,871 | ) | |||
|
|
|
|
|
|
(1) | Recorded as interest expense in the condensed consolidated statement of operations. |
25
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. BUSINESS SEGMENTS
We operate in two business segments:
Unified Communications, including conferencing and collaboration services, event services, IP-based unified communication solutions and alerts and notification services; and
Communication Services, including emergency communications, automated call processing, telephony / interconnect services and agent-based services.
26
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the three months ended March 31, | ||||||||
Amount in thousands |
2013 | 2012 | ||||||
Revenue: |
||||||||
Unified Communications |
$ | 367,568 | $ | 359,647 | ||||
Communication Services |
296,451 | 281,737 | ||||||
Intersegment Eliminations |
(3,795 | ) | (2,322 | ) | ||||
|
|
|
|
|||||
Total |
$ | 660,224 | $ | 639,062 | ||||
|
|
|
|
|||||
Operating Income: |
||||||||
Unified Communications |
$ | 77,865 | $ | 97,136 | ||||
Communication Services |
15,425 | 17,106 | ||||||
|
|
|
|
|||||
Total |
$ | 93,290 | $ | 114,242 | ||||
|
|
|
|
|||||
Depreciation and Amortization (Included in Operating Income): |
||||||||
Unified Communications |
$ | 21,672 | $ | 22,346 | ||||
Communication Services |
22,685 | 20,969 | ||||||
|
|
|
|
|||||
Total |
$ | 44,357 | $ | 43,315 | ||||
|
|
|
|
|||||
Capital Expenditures: |
||||||||
Unified Communications |
$ | 11,181 | $ | 9,109 | ||||
Communication Services |
11,221 | 11,535 | ||||||
Corporate |
899 | 3,232 | ||||||
|
|
|
|
|||||
Total |
$ | 23,301 | $ | 23,876 | ||||
|
|
|
|
|||||
As of March 31, | As of December 31, | |||||||
2013 | 2012 | |||||||
Assets: |
||||||||
Unified Communications |
$ | 1,629,471 | $ | 1,629,019 | ||||
Communication Services |
1,400,586 | 1,437,695 | ||||||
Corporate |
910,875 | 381,439 | ||||||
|
|
|
|
|||||
Total |
$ | 3,940,932 | $ | 3,448,153 | ||||
|
|
|
|
For the three months ended March 31, 2013 and 2012, our largest 100 clients represented 54% and 55% of our total revenue, respectively.
Platform-based service revenue includes services provided in both the Unified Communications and Communication Services segments, while agent-based service revenue is provided in the Communication Services segment. During the three months ended March 31, 2013 and 2012, revenue from platform-based services was $481.4 million and $448.8 million, respectively. During the three months ended March 31, 2013 and 2012, revenue from agent-based services was $181.4 million and $192.8 million, respectively.
27
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the three months ended March 31, 2013 and 2012, revenues from non-U.S. countries were approximately 19% of consolidated revenues in both periods. During these periods no individual foreign country accounted for greater than 10% of revenue. Revenue is attributed to an organizational region based on location of the billed customers account. Geographic information by organizational region, in thousands, is noted below:
For the three months ended March 31, | ||||||||
2013 | 2012 | |||||||
Revenue: |
||||||||
AmericasUnited States |
$ | 535,575 | $ | 517,514 | ||||
Europe, Middle East & Africa (EMEA) |
79,124 | 75,821 | ||||||
Asia Pacific |
39,723 | 39,934 | ||||||
AmericasOther |
5,802 | 5,793 | ||||||
|
|
|
|
|||||
Total |
$ | 660,224 | $ | 639,062 | ||||
|
|
|
|
|||||
As of March 31, | As of December 31, | |||||||
2013 | 2012 | |||||||
Long-Lived Assets: |
||||||||
AmericasUnited States |
$ | 2,462,573 | $ | 2,446,090 | ||||
Europe, Middle East & Africa (EMEA) |
193,066 | 210,902 | ||||||
Asia Pacific |
28,013 | 27,787 | ||||||
AmericasOther |
1,929 | 2,282 | ||||||
|
|
|
|
|||||
Total |
$ | 2,685,581 | $ | 2,687,061 | ||||
|
|
|
|
The aggregate loss on transactions denominated in currencies other than the functional currency of West Corporation or any of its subsidiaries was approximately $0.6 million and $1.6 million for the three months ended March 31, 2013 and 2012, respectively.
12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we and certain of our subsidiaries are defendants in various litigation matters and are subject to claims from our clients for indemnification, some of which may involve claims for damages that are substantial in amount. We do not believe the disposition of matters and claims currently pending will have a material effect on our financial position, results of operations or cash flows.
13. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND SUBSIDIARY NON- GUARANTORS
West Corporation and our U.S. based wholly owned subsidiary guarantors, jointly, severally, fully and unconditionally are responsible for the payment of principal, premium and interest on our senior notes and senior subordinated notes. Presented below, in thousands, is condensed consolidated financial information for West Corporation and our subsidiary guarantors and subsidiary non-guarantors for the periods indicated.
28
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(AMOUNTS IN THOUSANDS)
For the Three Months Ended March 31, 2013 | ||||||||||||||||||||
Parent / | Guarantor | Non-Guarantor | Eliminations and Consolidating |
|||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
REVENUE |
$ | | $ | 527,287 | $ | 132,937 | $ | | $ | 660,224 | ||||||||||
COST OF SERVICES |
| 238,425 | 70,642 | | 309,067 | |||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
1,605 | 213,343 | 42,919 | | 257,867 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
OPERATING INCOME (LOSS) |
(1,605 | ) | 75,519 | 19,376 | | 93,290 | ||||||||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||||||
Interest Expense, net of interest income |
(49,596 | ) | (28,521 | ) | 5,238 | | (72,879 | ) | ||||||||||||
Subordinated debt call premium |
(16,502 | ) | | | | (16,502 | ) | |||||||||||||
Subsidiary Income |
39,203 | 22,248 | | (61,451 | ) | | ||||||||||||||
Other, net |
2,319 | (17,051 | ) | 15,711 | | 979 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other income (expense) |
(24,576 | ) | (23,324 | ) | 20,949 | (61,451 | ) | (88,402 | ) | |||||||||||
INCOME (LOSS) BEFORE INCOME TAX EXPENSE |
(26,181 | ) | 52,195 | 40,325 | (61,451 | ) | 4,888 | |||||||||||||
INCOME TAX EXPENSE (BENEFIT) |
(29,236 | ) | 13,268 | 17,801 | | 1,833 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET INCOME |
3,055 | 38,927 | 22,524 | (61,451 | ) | 3,055 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation adjustments, net of tax of $4,099 |
(6,688 | ) | | (6,688 | ) | 6,688 | (6,688 | ) | ||||||||||||
Reclassification of a cash flow hedges into earnings net of tax of $660 |
(1,076 | ) | | | | (1,076 | ) | |||||||||||||
Unrealized gain on cash flow hedges, net of tax of $(1,287) |
2,100 | | | | 2,100 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) |
$ | (2,609 | ) | $ | 38,927 | $ | 15,836 | $ | (54,763) | $ | (2,609 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
29
WEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(AMOUNTS IN THOUSANDS)
For the Three Months Ended March 31, 2012 | ||||||||||||||||||||
Parent / | Guarantor | Non-Guarantor | Eliminations and Consolidating |
|||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
REVENUE |
$ | | $ | 500,074 | $ | 138,988 | $ | | $ | 639,062 | ||||||||||
COST OF SERVICES |
| 233,479 | 58,223 | | 291,702 | |||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
4,613 | 189,078 | 39,427 | | 233,118 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
OPERATING INCOME (LOSS) |
(4,613 | ) | 77,517 | 41,338 | | 114,242 | ||||||||||||||
OTHER INCOME (EXPENSE): |
||||||||||||||||||||
Interest Expense, net of interest income |
(40,933 | ) | (25,528 | ) | 4,399 | | (62,062 | ) | ||||||||||||
Subsidiary Income |
47,019 | 21,857 | | (68,876 | ) | | ||||||||||||||
Other, net |
5,080 | 4,006 | (6,356 | ) | | 2,730 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other income (expense) |
11,166 | 335 | (1,957 | ) | (68,876 | ) | (59,332 | ) | ||||||||||||
INCOME BEFORE INCOME TAX EXPENSE |
6,553 | 77,852 | 39,381 | (68,876 | ) | 54,910 | ||||||||||||||
INCOME TAX EXPENSE (BENEFIT) |
(27,491 | ) | 28,678 | 19,679 | | 20,866 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
NET INCOME |
34,044 | 49,174 | 19,702 | (68,876 | ) | 34,044 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation adjustments, net of tax of $(4,736) |
7,728 | | 7,728 | (7,728 | ) | 7,728 | ||||||||||||||
Unrealized gain (loss) on cash flow hedges, net of tax of $(268) |
437 | | | | 437 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 42,209 | $ | 49,174 | $ | 27,430 | $ | (76,604) | $ | 42,209 | ||||||||||
|
|
|
|
|
|
|
|
|
|
30
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
March 31, 2013 | ||||||||||||||||||||
Parent / | Guarantor | Non-Guarantor | Eliminations and Consolidating |
|||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 541,545 | $ | 310 | $ | 109,281 | $ | | $ | 651,136 | ||||||||||
Trust and restricted cash |
| 14,886 | | | 14,886 | |||||||||||||||
Accounts receivable, net |
| 44,299 | 398,309 | | 442,608 | |||||||||||||||
Intercompany receivables |
| 885,801 | | (885,801 | ) | | ||||||||||||||
Deferred income taxes receivable |
42,770 | 5,458 | 1,415 | (27,952 | ) | 21,691 | ||||||||||||||
Prepaid assets |
5,136 | 38,963 | 9,533 | | 53,632 | |||||||||||||||
Deferred expenses |
| 31,659 | 9,738 | | 41,397 | |||||||||||||||
Other current assets |
9,499 | 6,909 | 13,593 | | 30,001 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
598,950 | 1,028,285 | 541,869 | (913,753 | ) | 1,255,351 | ||||||||||||||
Property and equipment, net |
67,182 | 243,626 | 45,859 | | 356,667 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES |
1,651,378 | 392,918 | | (2,044,296 | ) | | ||||||||||||||
GOODWILL |
| 1,637,724 | 174,529 | | 1,812,253 | |||||||||||||||
INTANGIBLES, net |
| 245,164 | 25,544 | | 270,708 | |||||||||||||||
OTHER ASSETS |
151,042 | 81,365 | 13,546 | | 245,953 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
$ | 2,468,552 | $ | 3,629,082 | $ | 801,347 | $ | (2,958,049) | $ | 3,940,932 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Accounts payable |
$ | 10,200 | $ | 68,036 | $ | 24,426 | $ | | $ | 102,662 | ||||||||||
Intercompany payables |
652,407 | | 233,394 | (885,801 | ) | | ||||||||||||||
Accrued expenses |
128,249 | 209,349 | 75,039 | (27,952 | ) | 384,685 | ||||||||||||||
Current maturities of long-term debt |
456,962 | 13,197 | | | 470,159 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
1,247,818 | 290,582 | 332,859 | (913,753 | ) | 957,506 | ||||||||||||||
LONGTERM OBLIGATIONS, less current maturities |
1,974,533 | 1,562,902 | 50,000 | | 3,587,435 | |||||||||||||||
DEFERRED INCOME TAXES |
29,637 | 90,565 | 8,711 | | 128,913 | |||||||||||||||
OTHER LONG-TERM LIABILITIES |
66,722 | 35,547 | 14,967 | | 117,236 | |||||||||||||||
TOTAL STOCKHOLDERS EQUITY (DEFICIT) |
(850,158 | ) | 1,649,486 | 394,810 | (2,044,296 | ) | (850,158 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
$ | 2,468,552 | $ | 3,629,082 | $ | 801,347 | $ | (2,958,049) | $ | 3,940,932 | ||||||||||
|
|
|
|
|
|
|
|
|
|
31
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
December 31, 2012 | ||||||||||||||||||||
Parent / | Guarantor | Non-Guarantor | Eliminations and Consolidating |
|||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
ASSETS |
||||||||||||||||||||
CURRENT ASSETS: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 106,010 | $ | 1,821 | $ | 71,280 | $ | | $ | 179,111 | ||||||||||
Trust cash |
| 14,518 | | | 14,518 | |||||||||||||||
Accounts receivable, net |
| 67,959 | 376,452 | | 444,411 | |||||||||||||||
Intercompany receivables |
| 828,896 | | (828,896 | ) | | ||||||||||||||
Deferred income taxes receivable |
99,976 | 11,621 | 10,088 | (108,537 | ) | 13,148 | ||||||||||||||
Prepaid assets |
9,857 | 25,890 | 6,382 | | 42,129 | |||||||||||||||
Other current assets |
11,403 | 44,439 | 11,933 | | 67,775 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
227,246 | 995,144 | 476,135 | (937,433 | ) | 761,092 | ||||||||||||||
Property and equipment, net |
70,210 | 249,523 | 45,163 | | 364,896 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES |
1,477,884 | 373,665 | | (1,851,549 | ) | | ||||||||||||||
GOODWILL |
| 1,637,725 | 179,126 | | 1,816,851 | |||||||||||||||
INTANGIBLES, net |
| 249,112 | 36,560 | | 285,672 | |||||||||||||||
OTHER ASSETS |
126,873 | 88,491 | 4,278 | | 219,642 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL ASSETS |
$ | 1,902,213 | $ | 3,593,660 | $ | 741,262 | $ | (2,788,982) | $ | 3,448,153 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||||||||
Accounts payable |
$ | 14,627 | $ | 84,579 | $ | 21,041 | $ | | $ | 120,247 | ||||||||||
Intercompany payables |
550,799 | | 278,097 | (828,896 | ) | | ||||||||||||||
Accrued expenses |
48,524 | 319,480 | 52,829 | (108,537 | ) | 312,296 | ||||||||||||||
Current maturities of long-term debt |
8,677 | 16,448 | | | 25,125 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
622,627 | 420,507 | 351,967 | (937,433 | ) | 457,668 | ||||||||||||||
LONGTERM OBLIGATIONS, less current maturities |
2,426,293 | 1,566,238 | | | 3,992,531 | |||||||||||||||
DEFERRED INCOME TAXES |
40,457 | 81,440 | 10,501 | | 132,398 | |||||||||||||||
OTHER LONG-TERM LIABILITIES |
62,522 | 49,207 | 3,513 | | 115,242 | |||||||||||||||
TOTAL STOCKHOLDERS EQUITY (DEFICIT) |
(1,249,686 | ) | 1,476,268 | 375,281 | (1,851,549 | ) | (1,249,686 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
$ | 1,902,213 | $ | 3,593,660 | $ | 741,262 | $ | (2,788,982) | $ | 3,448,153 | ||||||||||
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|
32
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
Three Months Ended March 31, 2013 | ||||||||||||||||||||
Parent / | Guarantor | Non-Guarantor | Elimination and Consolidating |
|||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
NET CASH FLOWS FROM OPERATING ACTIVITIES: |
$ | | $ | 101,448 | $ | (2,782 | ) | $ | | $ | 98,666 | |||||||||
CASH FLOWS USED IN INVESTING ACTIVITIES: |
||||||||||||||||||||
Business acquisitions |
| | (13 | ) | | (13 | ) | |||||||||||||
Purchase of property and equipment |
(899 | ) | (22,519 | ) | (10,124 | ) | |
|
|
(33,542 | ) | |||||||||
Other |
| (408 | ) | | | (408 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flows used in investing activities |
(899 | ) | (22,927 | ) | (10,137 | ) | | (33,963 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Proceeds from initial public offering, net of offering costs |
400,464 | | | |
|
|
400,464 | |||||||||||||
Proceeds from revolving credit facilities |
| | 50,000 | | 50,000 | |||||||||||||||
Proceeds and net settlemfrom stock options exercised including excess tax benefits |
(689 | ) | | | |
|
|
(689 | ) | |||||||||||
Principal payments on long-term obligations |
(3,474 | ) | (6,588 | ) | | | (10,062 | ) | ||||||||||||
Payment of deferred financing and other debt-related costs |
(29,972 | ) | | | | (29,972 | ) | |||||||||||||
Dividends paid |
(158 | ) | | | | (158 | ) | |||||||||||||
Other |
(2 | ) | | | | (2 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flows from (used in) financing activities |
366,169 | (6,588 | ) | 50,000 | | 409,581 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Intercompany |
70,265 | (73,444 | ) | 3,179 | | | ||||||||||||||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
| | (2,259 | ) | | (2,259 | ) | |||||||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
435,535 | (1,511 | ) | 38,001 | | 472,025 | ||||||||||||||
CASH AND CASH EQUIVALENTS, Beginning of period |
106,010 | 1,821 | 71,280 | | 179,111 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS, End of period |
$ | 541,545 | $ | 310 | $ | 109,281 | $ | | $ | 651,136 | ||||||||||
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|
|
|
|
|
|
|
|
|
33
WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
Three Months Ended March 31, 2012 | ||||||||||||||||||||
Parent / | Guarantor | Non-Guarantor | Elimination and Consolidating |
|||||||||||||||||
Issuer | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
NET CASH FLOWS FROM OPERATING ACTIVITIES: |
$ | | $ | 75,850 | $ | 15,813 | $ | | $ | 91,663 | ||||||||||
CASH FLOWS USED IN INVESTING ACTIVITIES: |
||||||||||||||||||||
Business acquisitions |
| (76,564 | ) | (15 | ) | | (76,579 | ) | ||||||||||||
Purchase of property and equipment |
(3,232 | ) | (25,857 | ) | (4,984 | ) | | (34,073 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flows used in investing activities |
(3,232 | ) | (102,421 | ) | (4,999 | ) | | (110,652 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||||||||||
Proceeds from revolving credit facilities |
27,600 | | 43,500 | | 71,100 | |||||||||||||||
Payments on revolving credit facilities |
(27,600 | ) | | (19,600 | ) | | (47,200 | ) | ||||||||||||
Principal payments on long-term obligations |
(589 | ) | (3,267 | ) | | | (3,856 | ) | ||||||||||||
Payments on capital lease obligations |
| (9 | ) | (11 | ) | | (20 | ) | ||||||||||||
Other |
242 | | | | 242 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash flows from (used in) financing activities |
(347 | ) | (3,276 | ) | 23,889 | | 20,266 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Intercompany |
(4,912 | ) | 29,922 | (31,249 | ) | 6,239 | | |||||||||||||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
| | 2,748 | | 2,748 | |||||||||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
(8,491 | ) | 75 | 6,202 | 6,239 | 4,025 | ||||||||||||||
CASH AND CASH EQUIVALENTS, Beginning of period |
10,503 | | 89,572 | (6,239 | ) | 93,836 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
CASH AND CASH EQUIVALENTS, End of period |
$ | 2,012 | $ | 75 | $ | 95,774 | $ | | $ | 97,861 | ||||||||||
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34
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include estimates regarding:
| our competitive position within the market for voice and data services; |
| the cost, reliability and market acceptance of voice and data services; |
| our ability to keep pace with our clients needs for technology and systems; |
| the profitability of the solutions we provide and seek to develop; |
| the impact of integrating or completing mergers or strategic acquisitions, including any cost-savings or other synergies resulting there from; |
| the level and cost of our indebtedness, including changes in interest rates, and the adequacy of capital for future requirements; |
| our expectations of future capital expenditures and contractual obligations; |
| the impact of pending litigation and the regulatory environment; |
| our ability to protect our proprietary information or technology; |
| our ability to manage effectively operations outside of the United States; |
| the cost of labor and turnover rates; and |
| the impact of foreign currency fluctuations; |
as well as other statements regarding our future operations, financial condition and prospects, and business strategies.
Forward-looking statements can be identified by the use of words such as may, should, expects, plans, anticipates, believes, estimates, predicts, intends, continue, or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks discussed in Managements Discussion and Analysis of Financial Condition and Results of Operations, Risk Factors and elsewhere in this report.
All forward-looking statements included in this report are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements (unaudited) and the Notes thereto.
Business Overview
We are a leading provider of technology-driven, communication services. We offer a broad portfolio of services, including conferencing and collaboration, unified communications, alerts and notifications, emergency communications, business process outsourcing and telephony / interconnect services. The scale and processing capacity of our proprietary technology platforms, combined with our expertise in managing voice and data transactions, enable us to provide reliable, high-quality, mission-critical communications designed to maximize return on investment for our clients. Our clients include Fortune 1000 companies, along with small and medium enterprises in a variety of industries, including telecommunications, retail, financial services, public safety, technology and healthcare. We have sales and operations in the United States, Canada, Europe, the Middle East, Asia-Pacific, Latin America and South America.
35
Since our founding in 1986, we have invested significantly to expand our technology platforms and develop our operational processes to meet the complex and changing communications needs of our clients. We have evolved our business mix from labor-intensive communication services to predominantly diversified and platform-based, technology-driven voice and data services.
Investing in technology and developing specialized expertise in the industries we serve are critical components to our strategy of enhancing our services and our value proposition. In 2012, we managed approximately 28 billion telephony minutes and approximately 134 million conference calls, facilitated over 260 million 9-1-1 calls, and delivered over 1.2 billion notification calls and data messages. With approximately 730,000 telephony ports to handle conference calls, 9-1-1 public safety calls, alerts and notifications and customer service at March 31, 2013, we believe our platforms provide scale and flexibility to handle greater transaction volume than our competitors, offer superior service and develop new offerings. These ports include approximately 425,000 IP ports, which we believe provide us with the only large-scale proprietary IP-based global conferencing platform deployed and in use today. Our technology-driven platforms allow us to provide a broad range of complementary platform and agent-based service offerings to our diverse client base.
Financial Operations Overview
Revenue
In our Unified Communications segment, our conferencing and collaboration services, event services and IP-based unified communication solutions are generally billed on a per participant minute or per seat basis and our alerts and notifications services are generally billed on a per message or per minute basis. Billing rates for these services vary depending on participant geographic location, type of service (such as audio, video or web conferencing) and type of message (such as voice, text, email or fax). We also charge clients for additional features, such as conference call recording, transcription services or professional services. Since we entered the conferencing services business, the average rate per minute that we charge has declined while total minutes sold has increased. This is consistent with industry trends. We expect this trend to continue for the foreseeable future.
In our Communication Services segment, our emergency communications solutions are generally billed per month based on the number of billing telephone numbers or cell towers covered under each client contract. We also bill monthly for our premise-based database solution. In addition, we bill for sales, installation and maintenance of our communication equipment technology solutions. Our platform-based and agent-based customer service solutions are generally billed on a per minute or per hour basis. We are generally paid on a contingent fee basis for our receivables management and overpayment identification and recovery services as well as for certain other agent-based services. Our telephony / interconnect services are generally billed based on usage of toll-free origination services.
Cost of Services
The principal component of cost of services for our Unified Communications segment is our variable telephone expense. Significant components of our cost of services in this segment also include labor expense, primarily related to commissions for our sales force. Because the services we provide in this segment are largely platform-based, labor expense is less significant than the labor expense we experience in our Communication Services segment.
The principal component of cost of services for our Communication Services segment is labor expense. Labor expense in costs of services primarily reflects compensation and benefits for the agents providing our agent-based services, but also includes compensation for personnel dedicated to emergency communications database management, manufacturing and development of our premise-based public safety solution as well as commissions for our sales professionals. We generally pay commissions to sales professionals on both new sales and incremental revenue generated from existing clients. Significant components of our cost of services in this segment also include variable telephone expense.
36
Selling, General and Administrative Expenses
The principal component of our selling, general and administrative expenses (SG&A) is salary and benefits for our sales force, client support staff, technology and development personnel, senior management and other personnel involved in business support functions. SG&A also includes certain fixed telephone costs as well as other expenses that support the ongoing operation of our business, such as facilities costs, certain service contract costs, equipment depreciation and maintenance, impairment charges and amortization of finite-lived intangible assets.
Key Drivers Affecting Our Results of Operations
Factors Related to Our Indebtedness.
On March 27, 2013, we completed an initial public offering (IPO) of 21,275,000 shares of common stock of the Company, par value $0.001 per share, registered pursuant to a Registration Statement on Form S-1 (File No. 333-162292). Proceeds received from the offering, net of the underwriters discount were $401.0 million. The Company paid $1.0 million in Sponsor Management fees in the first quarter of 2013 and expects to pay an additional $24.0 million to an investor group led by Thomas H. Lee Partners, L.P. and Quadrangle Group LLC pursuant to that certain Management Agreement, dated October 24, 2006, and that certain Management Letter Agreement, dated March 8, 2013. The Management Agreement terminated in accordance with its terms immediately prior to completion of the IPO.
On March 27, 2013, the Company instructed the trustee for the Companys 11% senior subordinated notes due 2016, to deliver a notice of redemption to the holders of all of the outstanding $450.0 million principal amount of senior subordinated notes. The redemption date is April 26, 2013 at a redemption price equal to 103.667% of the principal amount of the senior subordinated notes. During the three months ended March 31, 2013, the Company recorded the $16.5 million subordinated debt call premium as a non-operating expense. In addition, the Company will pay accrued and unpaid interest on the redeemed senior subordinated notes up to April 26, 2013. Following this redemption, none of the senior subordinated notes will remain outstanding.
On February 20, 2013, West, certain domestic subsidiaries of West, as subsidiary borrowers, Wells Fargo Bank, National Association (Wells Fargo), as administrative agent, and the various lenders party thereto modified the Companys senior secured credit facilities (Senior Secured Credit Facilities) by entering into Amendment No. 3 to Amended and Restated Credit Agreement (the Third Amendment), amending the Companys Amended and Restated Credit Agreement, dated as of October 5, 2010, by and among West, Wells Fargo, as administrative agent, and the various lenders party thereto, as lenders (as previously amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated as of August 15, 2012, Amendment No. 2 to Amended and Restated Credit Agreement, dated as of October 24, 2012, and the Third Amendment, the Amended Credit Agreement).
The Amended Credit Agreement provides for a reduction in the applicable margins and interest rate floors of all term loans, extends the maturity of a portion of the term loans due July 2016 to June 2018; and adds a further step down to the applicable margins of all term loans upon satisfaction of certain conditions. As of the effective date of the Third Amendment, the Company had outstanding the following senior secured term loans:
| Term loans in an aggregate principal amount of approximately $2.1 billion (the 2018 Maturity Term Loans). The 2018 Maturity Term Loans will mature on June 30, 2018, and the interest rate margins applicable to the 2018 Maturity Term Loans are 3.25%, for LIBOR rate loans, and 2.25%, for base rate loans; and |
| Term loans in an aggregate principal amount of approximately $317.7 million (the 2016 Maturity Term Loans; and, together with the 2018 Maturity Term Loans, the Term Loans). The 2016 Maturity Term Loans will mature on July 15, 2016, and the interest rate margins applicable to the 2016 Maturity Term Loans are 2.75%, for LIBOR rate loans, and 1.75%, for base rate loans. |
The Amended Credit Agreement also provides for interest rate floors applicable to the Term Loans. The interest rate floors are 1.00%, for LIBOR rate loans, and 2.00%, for base rate loans. The Term Loans are subject to an additional step down to the applicable margins by 0.50% conditioned upon completion by the Company of an IPO and the Company attaining and maintaining a total leverage ratio less than or equal to 4.75:1.00.
37
Evolution to Predominately Platform-based Solutions Business. We have evolved into a diversified and platform-based technology-driven service provider. Since 2005, our revenue from platform-based services has grown from 37% of total revenue to 73% for the three months ended March 31, 2013 and our operating income from platform-based services has grown from 53% of total operating income to 95% over the same period. As in the past, we will continue to seek and invest in higher margin businesses, irrespective of whether the associated services are delivered to our customers through an agent-based or a platform-based environment. We expect our platform-based service lines to grow at a faster pace than agent-based services and as a result will continue to increase as a percentage of our total revenue. However, many of our customers require an integrated service offering that incorporates both agent-based and platform-based servicesfor example, an automated voice response system with the option for the clients customer to speak to an agent. Accordingly, we expect agent-based services will continue to represent a meaningful portion of our service offerings for the foreseeable future.
Acquisition Activities. Identifying and successfully integrating acquisitions of value-added service providers has been a key component of our business strategy. We will continue to seek opportunities to expand our suite of communication services across industries, geographies and end-markets. While we expect this will occur primarily through organic growth, we have and will continue to acquire assets and businesses that strengthen our value proposition to clients and drive value to us. We have developed an internal capability to source, evaluate and integrate acquisitions that we believe has created value for shareholders. Since 2005, we have invested approximately $2.0 billion in strategic acquisitions. We believe there are acquisition candidates that will enable us to expand our capabilities and markets and intend to continue to evaluate acquisitions in a disciplined manner and pursue those that provide attractive opportunities to enhance our growth and profitability.
Key Factors Related to Cash Flows
We expect to generate $180-$220 million in free cash flow, cash flows from operations less capital expenditures, in 2013. Our expectation is to return some portion of our free cash flow to shareholders each year through a regular quarterly dividend. We expect to use the remaining free cash flow to reduce leverage and fund acquisitions to accelerate growth. Our goal is to reduce net leverage to less than 4x adjusted EBITDA in less than 24 months through free cash flow generation and EBITDA growth.
Our pro forma adjusted interest expense for the first quarter of 2013 was $46.4 million compared to actual interest expense of $72.9 million. Pro forma adjusted interest reflects the impact of lower debt balances and lower interest rates post IPO. Approximately $12.4 million of the pro forma adjustment relates to the savings expected for the full quarter from the anticipated redemption of the $450 million senior subordinated notes and the remaining amount relates to the savings for the full quarter associated with the pricing of amendment number three to our senior secured term loan facilities as if these transactions had been completed January 1, 2013. The amendment of the $2.4 billion senior secured term loan facilities was completed on February 20, 2013. This amendment will reduce our annual cash interest expense run rate by $47 million and extend the maturity of $1.1 billion of term loans to June 2018.
On March 27, 2013, we instructed the Bank of New York Mellon Trust Company, N.A., as trustee to deliver a notice of redemption to the holders of the outstanding $450.0 million principal amount of the senior subordinated notes. The redemption price was 103.667% of the principal amount of the senior subordinated notes. The redemption date for the senior subordinated notes was April 26, 2013. This redemption will reduce our annual cash interest expense run rate by $49.5 million.
The completion or our senior term loan amendment on February 20, 2013, and redemption of the senior subordinated notes on April 26, 2013, provides us with annual run rate interest savings of $96.5 million and further benefits the Company with an improved capital structure, reduced leverage and greater overall financial flexibility.
Overview of 2013 Results
The following overview highlights the areas we believe are important in understanding our results of operations for the three months ended March 31, 2013. This summary is not intended as a substitute for the detail provided elsewhere in this quarterly report, or for our consolidated financial statements and notes thereto included elsewhere in this quarterly report.
| Our revenue increased $21.2 million, or 3.3% during the three months ended March 31, 2013 compared to revenue during the three months ended March 31, 2012. |
| Our operating income decreased $21.0 million, or 18.3%, during the three months ended March 31, 2013 compared to operating income during the three months ended March 31, 2012. This decrease in operating income is primarily the result of $28.0 million of expenses recorded in connection with our IPO. |
| On February 20, 2013, we amended our senior secured term loan facilities. The Amended Credit Agreement provides for a reduction in the applicable margins and interest rate floors of all term loans, extends the maturity of a portion of the term loans due July 2016 to June 2018; and adds a further step down to the applicable margins of all term loans upon satisfaction of certain conditions. |
| On March 8, 2013, we completed a 1-for-8 reverse stock split and amended our Amended and Restated Certificate of Incorporation by filing an amendment with the Delaware Secretary of State. We also adjusted the share amounts under our Executive Incentive Plan and Nonqualified Deferred Compensation Plan as a result of the 1-for-8 reverse stock split. |
| On March 27, 2013, we completed our IPO of 21,275,000 shares of common stock of the Company. Proceeds from the offering, net of the underwriting discounts and commissions were $401.0 million. |
| On March 27, 2013, we instructed the trustee to deliver a 30 day notice of redemption to redeem $450.0 million 11% senior subordinated notes. The redemption price is 103.667% of the principal amount of the senior subordinated notes. |
38
Results of Operations
Comparison of the Three Months Ended March 31, 2013 and 2012
Revenue: Total revenue for the three months ended March 31, 2013 increased approximately $21.2 million, or 3.3%, to $660.2 million from $639.1 million for the three months ended March 31, 2012. This increase during the three months ended March 31, 2013 included acquisition revenue of $22.4 million from the acquisition of HyperCube LLC (HyperCube), compared to $1.6 million for the three months ended March 31, 2012. The HyperCube acquisition closed on March 23, 2012 and its results have been included in the Communication Services segment since that date.
For the three months ended March 31, 2013 and 2012, our largest 100 clients represented 54% and 55% of total revenue, respectively.
Revenue by business segment:
For the three months ended March 31, |
||||||||||||||||||||||||
2013 | % of Total Revenue |
2012 | % of Total Revenue |
Change | % Change | |||||||||||||||||||
Revenue in thousands: |
||||||||||||||||||||||||
Unified Communications |
$ | 367,568 | 55.7 | % | $ | 359,647 | 56.3 | % | $ | 7,921 | 2.2 | % | ||||||||||||
Communication Services |
296,451 | 44.9 | % | 281,737 | 44.1 | % | 14,714 | 5.2 | % | |||||||||||||||
Intersegment eliminations |
(3,795 | ) | -0.6 | % | (2,322 | ) | -0.4 | % | (1,473 | ) | 63.4 | % | ||||||||||||
|
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|
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Total |
$ | 660,224 | 100.0 | % | $ | 639,062 | 100.0 | % | $ | 21,162 | 3.3 | % | ||||||||||||
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|
For the three months ended March 31, 2013, Unified Communications revenue increased $7.9 million, or 2.2%, to $367.6 million from $359.6 million for the three months ended March 31, 2012. The increase in revenue for the three months ended March 31, 2013 was entirely organic. The increase was attributable primarily to the addition of new customers as well as an increase in usage of our web and audio-based conferencing services by our existing customers. Revenue attributable to increased usage and new customer usage was partially offset by a decline in the rates charged to existing customers for those services. The volume of minutes used for our reservationless conferencing services, which accounts for the majority of our conferencing revenue, grew approximately 5.6%, for the three months ended March 31, 2013 over the three months ended March 31, 2012. When adjusted for the same number of business days in the first three months of 2013 compared to the first three months of 2012, reservationless volume of minutes grew 10%. For the three months ended March 31, 2013, the average rate per minute for reservationless services declined by approximately 6.1%. Since we entered the conferencing services business, the average rate per minute that we charge has declined while total minutes sold has increased. This is consistent with industry trends which we expect to continue for the foreseeable future. Our Unified Communications international revenue grew to $117.1 million, an increase of 2.5% over the three months ended March 31, 2012.
For the three months ended March 31, 2013, Communication Services revenue increased $14.7 million, or 5.2%, to $296.5 million from $281.7 million for the three months ended March 31, 2012. The increase for the three months ended March 31, 2013 included acquisition revenue of $22.4 million from the HyperCube acquisition, compared to $1.6 million for the three months ended March 31, 2012. Revenue from agent-based services for the three months ended March 31, 2013, decreased $11.4 million compared with the three months ended March 31, 2012 including a $5.2 million decline in direct response revenue. Revenue from platform-based services within Communication Services increased $26.1 million compared with the three months ended March 31, 2012.
Cost of services: Cost of services consists of direct labor, telephone expense, commissions and other costs directly related to providing services to our clients. Cost of services increased approximately $17.4 million, or 6.0%, in the three months ended March 31, 2013, to $309.1 million, from $291.7 million for the three months ended March 31, 2012. As a percentage of revenue, cost of services increased to 46.8% in the three months ended March 31, 2013 compared to 45.6% for the three months ended March 31, 2012.
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Cost of services by business segment:
For the three months ended March 31, | ||||||||||||||||||||||||
2013 | % of Revenue | 2012 | % of Revenue | Change | % Change | |||||||||||||||||||
Cost of services in thousands: |
||||||||||||||||||||||||
Unified Communications |
$ | 157,106 | 42.7 | % | $ | 148,740 | 41.4 | % | $ | 8,366 | 5.6 | % | ||||||||||||
Communication Services |
155,391 | 52.4 | % | 144,742 | 51.4 | % | 10,649 | 7.4 | % | |||||||||||||||
Intersegment eliminations |
(3,430 | ) | NM | (1,780 | ) | NM | (1,650 | ) | NM | |||||||||||||||
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Total |
$ | 309,067 | 46.8 | % | $ | 291,702 | 45.6 | % | $ | 17,365 | 6.0 | % | ||||||||||||
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NM | Not meaningful |
Unified Communications cost of services for the three months ended March 31, 2013 increased $8.4 million, or 5.6%, to $157.1 million from $148.7 million for the three months ended March 31, 2012. The increase is primarily driven by increased service volume. As a percentage of this segments revenue, Unified Communications cost of services increased to 42.7% for the three months ended March 31, 2013 from 41.4% for the three months ended March 31, 2012. The increase in cost of services as a percentage of revenue is due primarily to changes in the product mix, geographic mix and declines in the average rate per minute for reservationless services.
Communication Services cost of services increased $10.6 million, or 7.4%, for the three months ended March 31, 2013 to $155.4 million from $144.7 million for the three months ended March 31, 2012. The increase in cost of services for the three months ended March 31, 2013 was primarily the result of $12.6 million of incremental cost of services from the HyperCube acquisition. As a percentage of this segments revenue, Communication Services cost of services increased to 52.4% for the three months ended March 31, 2013 from 51.4%, for the three months ended March 31, 2012. This increase in cost of services as a percentage of this segments revenue is due to the impact of the HyperCube acquisition.
Selling, general and administrative (SG&A) expenses: SG&A expenses increased by approximately $24.7 million, or 10.6%, to $257.9 million for the three months ended March 31, 2013 from $233.1 million for the three months ended March 31, 2012. SG&A expenses in the first quarter of 2013 included $25.0 million for Sponsor management fees and related termination of the management agreement in connection with the IPO and $3.0 million of IPO related bonuses. As a percentage of revenue, SG&A expenses increased to 39.1% for the three months ended March 31, 2013 from 36.5% for the three months ended March 31, 2012. The Sponsor management fee, related termination of the management agreement and IPO related bonuses had a 4.3% impact on SG&A expenses as a percentage of revenue. During the three months ended March 31, 2012, SG&A expenses included $5.3 million for an asset impairment and site closure expenses.
Selling, general and administrative expenses by business segment:
For the three months ended March 31, | ||||||||||||||||||||||||
2013 | % of Revenue | 2012 | % of Revenue | Change | % Change | |||||||||||||||||||
Selling, general and administrative expenses in thousands: |
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Unified Communications |
$ | 132,598 | 36.1 | % | $ | 113,770 | 31.6 | % | $ | 18,828 | 16.5 | % | ||||||||||||
Communication Services |
125,635 | 42.4 | % | 119,889 | 42.6 | % | 5,746 | 4.8 | % | |||||||||||||||
Intersegment eliminations |
(366 | ) | NM | (541 | ) | NM | 175 | NM | ||||||||||||||||
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Total |
$ | 257,867 | 39.1 | % | $ | 233,118 | 36.5 | % | $ | 24,749 | 10.6 | % | ||||||||||||
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NM | Not meaningful |
Unified Communications SG&A expenses for the three months ended March 31, 2013 increased $18.8 million, or 16.5%, to $132.6 million from $113.8 million for the three months ended March 31, 2012. As a percentage of this segments revenue, Unified Communications SG&A expenses was 36.1% for the three months ended March 31, 2013 compared to 31.6% for the three months ended March 31, 2012. The Sponsor management fee, related termination of the management agreement and IPO related bonuses allocated to Unified Communications was $17.7 million. The Sponsor management fee, related termination of the management agreement and IPO related bonuses had a 4.8% impact on SG&A expenses as a percentage of revenue for Unified Communications.
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Communication Services SG&A expenses increased $5.7 million, or 4.8%, to $125.6 million for the three months ended March 31, 2013 from $119.9 million for the three months ended March 31, 2012. Incremental SG&A expenses from an acquired entity were $6.6 million. As a percentage of this segments revenue, Communication Services SG&A expenses decreased to 42.4% for the three months ended March 31, 2013 from 42.6% for the three months ended March 31, 2012. The Sponsor management fee, related termination of the management agreement and IPO related bonuses allocated to Communication Services was $10.3 million. The Sponsor management fee, related termination of the management agreement and IPO related bonuses had a 3.5% impact on SG&A expenses as a percentage of revenue for Communication Services. During the three months ended March 31, 2012 SG&A expenses in Communication Services included $4.8 million for an asset impairment and site closure expenses.
Operating income: Operating income decreased $21.0 million, or 18.3%, to $93.3 million for the three months ended March 31, 2013 from $114.2 million for the three months ended March 31, 2012. As a percentage of revenue, operating income decreased to 14.1% for the three months ended March 31, 2013 from 17.9% for the three months ended March 31, 2012. This decrease in operating income included the Sponsor management fee, related termination of the management agreement and IPO related bonuses. The Sponsor management fee, related termination of the management agreement and IPO related bonuses had a 4.3% impact on operating income as a percentage of revenue.
Operating income by business segment:
For the three months ended March 31, | ||||||||||||||||||||||||
2013 | % of Revenue | 2012 | % of Revenue | Change | % Change | |||||||||||||||||||
Operating income in thousands: |
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Unified Communications |
$ | 77,865 | 21.2 | % | $ | 97,136 | 27.0 | % | $ | (19,271 | ) | -19.8 | % | |||||||||||
Communication Services |
15,425 | 5.2 | % | 17,106 | 6.1 | % | (1,681 | ) | -9.8 | % | ||||||||||||||
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Total |
$ | 93,290 | 14.1 | % | $ | 114,242 | 17.9 | % | $ | (20,952 | ) | -18.3 | % | |||||||||||
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Unified Communications operating income for the three months ended March 31, 2013 decreased approximately $19.3 million, to $77.9 million from $97.1 million for the three months ended March 31, 2012. As a percentage of this segments revenue, Unified Communications operating income decreased to 21.2% for the three months ended March 31, 2013 from 27.0% for the three months ended March 31, 2012. The Sponsor management fee, related termination of the management agreement and IPO related bonuses had a 4.8% impact on operating income as a percentage of revenue for Unified Communications.
Communication Services operating income decreased $1.7 million, or 9.8%, to $15.4 million for the three months ended March 31, 2013 from $17.1 million for the three months ended March 31, 2012. As a percentage of this segments revenue, Communication Services operating income decreased to 5.2% for the three months ended March 31, 2013 from 6.1% for the three months ended March 31, 2012. The Sponsor management fee, related termination of the management agreement and IPO related bonuses had a 3.5% impact on operating income as a percentage of revenue for Communication Services.
Other income (expense): Other income (expense) includes interest expense from borrowings under credit facilities and outstanding notes, the call premium on the redemption of our 11% senior subordinated debt, the aggregate foreign exchange gain (loss) on affiliate transactions denominated in currencies other than the functional currency and interest income from short-term investments. Other income (expense) for the three months ended March 31, 2013 was ($88.4) million compared to ($59.3) million for the three months ended March 31, 2012. Interest expense for the three months ended March 31, 2013 was ($72.9) million compared to ($62.2) million during the three months ended March 31, 2012. This increase in interest expense is due to higher effective interest rates and higher outstanding balances on our variable rate senior secured term loan facilities.
During the three months ended March 31, 2013, we recorded a $16.5 million accrual for the 3.667% subordinated debt call premium of our $450 million senior subordinated notes.
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During the three months ended March 31, 2013, we recorded a $1.7 million loss on foreign currency exchange rate changes on affiliate transactions. During the three months ended March 31, 2012, we recognized a $0.5 million loss on foreign currency exchange rate changes on affiliate transactions.
Net incomeNet income decreased $31.0 million for the three months ended March 31, 2013 to $3.1 million from $34.0 million for the three months ended March 31, 2012. Net income includes a provision for income tax expense at an effective rate of approximately 37.5% for the three months ended March 31, 2013, compared to 38.0% for the three months ended March 31, 2012. The Sponsor management fee, related termination of the management agreement, IPO related bonuses and subordinated debt call premium had a $27.8 million negative impact on net income.
Earnings per common share: Earnings per common share-basic and diluted for the three months ended March 31, 2013 were $0.05. Earnings per common share-basic and diluted for the three months ended March 31, 2012 were $0.55 and $0.54, respectively. The Sponsor management fee, related termination of the management agreement, IPO related bonuses and subordinated debt call premium had a $0.43 and $0.42 impact on earnings per common share-basic and diluted, respectively.
Liquidity and Capital Resources
We have historically financed our operations and capital expenditures primarily through cash flows from operations supplemented by borrowings under our senior secured credit and asset securitization facilities.
On March 27, 2013, we completed our IPO of 21,275,000 shares of common stock of the Company. Proceeds from the offering, net of the underwriting discounts and commissions were $401.0 million. Also on March 27, 2013 we instructed the trustee to deliver a 30 day notice of redemption to redeem $450.0 million 11% senior subordinated notes. The redemption price is 103.667% of the principal amount of the senior subordinated notes.
Our current and anticipated uses of our cash, cash equivalents and marketable securities are to fund operating expenses, acquisitions, capital expenditures, interest payments, tax payments, quarterly dividends and the repayment of principal on debt.
The following table summarizes our cash flows by category for the periods presented (dollars in thousands):
For the Three Months Ended March 31, | ||||||||||||||||
2013 | 2012 | Change | % Change | |||||||||||||
Cash flows from operating activities |
$ | 98,666 | $ | 91,663 | $ | 7,003 | 7.6 | % | ||||||||
Cash flows used in investing activities |
$ | (33,963) | $ | (110,652 | ) | $ | 76,689 | -69.3 | % | |||||||
Cash flows from financing activities |
$ | 409,581 | $ | 20,266 | $ | 389,315 | NM |
NM | Not meaningful. |
Net cash flows from operating activities increased $7.0 million, or 7.6%, to $98.7 million for the three months ended March 31, 2013, compared to net cash flows from operating activities of $91.7 million for the three months ended March 31, 2012. The increase in net cash flows from operating activities is primarily due to changes in working capital and the timing of interest payments and customer receipts.
Days sales outstanding (DSO), a key performance indicator that we utilize to monitor the accounts receivable average collection period and assess overall collection risk, was 60 days at March 31, 2013, compared to 63 days at March 31, 2012, when adjusted for the HyperCube acquisition.
Net cash flows used in investing activities decreased $76.7 million to $34.0 million for the three months ended March 31, 2013, compared to net cash flows used in investing activities of $110.7 million for the three months ended March 31, 2012. Cash used for business acquisitions, net of cash acquired, during the three months
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ended March 31, 2012 was $76.6 million. Cash used for business acquisitions during the three months ended March 31, 2013 were less than $0.1 million. We invested $33.5 million in capital expenditures during the three months ended March 31, 2013 compared to $34.1 million for the three months ended March 31, 2012.
Net cash flows from financing activities increased $389.3 million to $409.6 million for the three months ended March 31, 2013, compared to net cash flows from financing activities of $20.3 million for the three months ended March 31, 2012. During the three months ended March 31, 2013, proceeds from our IPO, net of related offering costs were $400.5 million. During the three months ended March 31, 2013, we had net proceeds of $50.0 million from our revolving credit facility compared to $23.9 million during the three months ended March 31, 2012. During the three months ended March 31, 2013, deferred financing and other debt related costs of $30.0 million were paid in connection with February 20, 2013, Amended and Restated Credit Agreement. Principal repayments on long-term obligations made during the three month ended March 31, 2013 were $10.1 million compared to $3.9 million during the three months ended March 31, 2012.
As of March 31, 2013, the amount of cash and cash equivalents held by our foreign subsidiaries was $88.6 million. We have accrued U.S. taxes on $226.8 million of unremitted foreign earnings and profits. Our intent is to permanently reinvest a portion of these funds outside the U.S. for acquisitions and capital expansion, and to repatriate a portion of these funds. Based on our current projected capital needs and the current amount of cash and cash equivalents held by our foreign subsidiaries, we do not anticipate incurring any material tax costs beyond our accrued tax position in connection with such repatriation, but we may be required to accrue for unanticipated additional tax costs in the future if our expectations or the amount of cash held by our foreign subsidiaries change.
Subject to legally available funds, we intend to pay a quarterly cash dividend at a rate initially equal to approximately $18.75 million per quarter (or an annual rate of $75.0 million). Based on approximately 83.4 million shares of common stock outstanding, this implies a quarterly dividend of approximately $0.225 per share (or an annual dividend of approximately $0.90 per share). We anticipate funding our dividend with cash generated by our operations. The declaration and payment of all future dividends, if any, will be at the sole discretion of our Board of Directors. On April 25, 2013, we announced a $0.225 per common share quarterly dividend. The dividend is payable May 16, 2013, to shareholders of record as of the close of business on May 6, 2013.
Given the Companys current levels of cash on hand, anticipated cash flows from operations and available borrowing capacity, the Company believes it has sufficient liquidity to conduct its normal operations and pursue its business strategy in the ordinary course.
Senior Secured Term Loan Facility
On February 20, 2013, we modified our senior secured credit facilities by entering into Amendment No. 3 thereto (the Third Amendment). The senior secured credit facilities, as modified by the Third Amendment, provide for a reduction in the applicable margins and interest rate floors of all term loans, extend the maturity of a portion of the term loans due July 2016 to June 2018 and add a further step down to the applicable margins of all term loans upon satisfaction of certain conditions. As of the effective date of the Third Amendment, the Company had outstanding the following senior secured term loans:
| Term loans due June 2018 in an aggregate principal amount of approximately $2.1 billion; and |
| Term loans due July 2016 in an aggregate principal amount of approximately $317.7 million ($316.9 million at March 31, 2013). |
In connection with the Third Amendment, we incurred refinancing expenses of approximately $24.2 million for the soft-call premium paid to holders of term loans outstanding prior to the effectiveness of the Third Amendment and $5.8 million for other fees and expenses.
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After giving effect to the Third Amendment, the interest rate margins for the term loans due 2016 are 2.75% for LIBOR rate loans, and 1.75% for base rate loans, the interest rate margins for the term loans due 2018 are 3.25% for LIBOR rate loans, and 2.25% for base rate loans and the interest rate floor is 1.00% for the LIBOR component of the LIBOR rate loans and 2.00% for the base rate component of the base rate loans. The applicable margins for each of the term loan tranches are subject to a step down of 0.50% conditioned upon completion by the Company of an initial public offering and the Company attaining and maintaining a total leverage ratio less than or equal to 4.75:1.00. The Third Amendment also provides for a soft call option applicable to all of the outstanding term loans. The soft call option provides for a premium equal to 1.0% of the amount of the repricing payment, in the event that, on or prior to the six month anniversary of the effective date of the amendment, we or our subsidiary borrowers enter into certain repricing transactions.
Our senior secured term loan facility and senior secured revolving credit facility bear interest at variable rates. The amended and restated senior secured term loan facility, after giving effect to the Third Amendment, requires annual principal payments of approximately $24.1 million, paid quarterly with balloon payments at maturity dates of July 15, 2016 and June 30, 2018 of approximately $306.5 million and $1,989.8 million respectively. The effective annual interest rates, inclusive of debt amortization costs, on the senior secured term loan facility for the three months ended March 31, 2013 and 2012 were 5.92% and 5.04%, respectively.
Senior Secured Revolving Credit Facility
Our senior secured revolving credit facilities provide senior secured financing of up to $201 million and matures on January 15, 2016. The senior secured revolving credit facility pricing is based on our total leverage ratio and the grid ranges from 2.75% to 3.50% for LIBOR rate loans (LIBOR plus 3.0% at March 31, 2013), and the margin ranges from 1.75% to 2.50% for base rate loans (base rate plus 2.0% at March 31, 2013). We are required to pay each non-defaulting lender a commitment fee of 0.50% in respect of any unused commitments under the senior secured revolving credit facility. The commitment fee in respect of unused commitments under the senior secured revolving credit facility is subject to adjustment based upon our total leverage ratio.
The highest balance outstanding on the senior secured revolving credit facility during the three months ended March 31, 2013 and 2012 was $0.0 million and $11.5 million, respectively. The average daily balance outstanding of the senior secured revolving credit facility during the three months ended March 31, 2013 and 2012 was $0.0 million and $0.8 million, respectively. The senior secured revolving credit facility was undrawn at March 31, 2013 and 2012.
Subsequent to March 31, 2013, the Company may request additional tranches of term loans or increases to the revolving credit facility in an aggregate amount not to exceed $357.4 million, including the aggregate amount of $126.4 million of principal payments previously made in respect of the term loan facility. Availability of such additional tranches of term loans or increases to the revolving credit facility is subject to the absence of any default and pro forma compliance with financial covenants and, among other things, the receipt of commitments by existing or additional financial institutions.
2016 Senior Subordinated Notes
On March 27, 2013 we instructed the Bank of New York Mellon Trust Company, N.A., as trustee to deliver a notice of redemption to the holders of the outstanding $450.0 million principal amount of the senior subordinated notes. The redemption price is 103.667% of the principal amount of the senior subordinated notes.
2018 Senior Notes
On October 5, 2010, we issued $500 million aggregate principal amount of 8 5/8% senior notes that mature on October 1, 2018 (the 2018 Senior Notes).
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At any time prior to October 1, 2014, we may redeem all or a part of the 2018 Senior Notes at a redemption price equal to 100% of the principal amount of 2018 Senior Notes redeemed plus the applicable premium (as defined in the indenture governing the 2018 Senior Notes) as of, and accrued and unpaid interest to the date of redemption, subject to the right of holders of 2018 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.
On and after October 1, 2014, we may redeem the 2018 Senior Notes in whole or in part at the redemption prices (expressed as percentages of principal amount of the 2018 Senior Notes to be redeemed) set forth below plus accrued and unpaid interest thereon to the applicable date of redemption, subject to the right of holders of 2018 Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on October 1 of each of the years indicated below:
Year |
Percentage | |||
2014 |
104.313 | |||
2015 |
102.156 | |||
2016 and thereafter |
100.000 |
At any time (which may be more than once) before October 1, 2013, we can choose to redeem up to 35% of the outstanding notes with money that we raise in one or more equity offerings, as long as we pay 108.625% of the face amount of the notes, plus accrued and unpaid interest; we redeem the notes within 90 days after completing the equity offering; and at least 65% of the aggregate principal amount of the applicable series of notes issued remains outstanding afterwards.
2019 Senior Notes
On November 24, 2010, we issued $650.0 million aggregate principal amount of 7 7/8% senior notes that mature January 15, 2019 (the 2019 Senior Notes).
At any time prior to November 15, 2014, we may redeem all or a part of the 2019 Senior Notes at a redemption price equal to 100% of the principal amount of 2019 Senior Notes redeemed plus the applicable premium (as defined in the indenture governing the 2019 Senior Notes) as of, and accrued and unpaid interest to, the date of redemption, subject to the right of holders of 2019 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.
On and after November 15, 2014, we may redeem the 2019 Senior Notes in whole or in part at the redemption prices (expressed as percentages of principal amount of the 2019 Senior Notes to be redeemed) set forth below plus accrued and unpaid interest thereon to the applicable date of redemption, subject to the right of holders of 2019 Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on November 15 of each of the years indicated below:
Year |
Percentage | |||
2014 |
103.938 | |||
2015 |
101.969 | |||
2016 and thereafter |
100.000 |
At any time (which may be more than once) before November 15, 2013, we can choose to redeem up to 35% of the outstanding notes with money that we raise in one or more equity offerings, as long as we pay 107.875% of the face amount of the notes, plus accrued and unpaid interest; we redeem the notes within 90 days after completing the equity offering; and at least 65% of the aggregate principal amount of the applicable series of notes issued remains outstanding afterwards.
We and our subsidiaries, affiliates or significant shareholders may from time to time, in our sole discretion, purchase, repay, redeem or retire any of our outstanding debt or equity securities (including any publicly issued debt or equity securities), in privately negotiated or open market transactions, by tender offer or otherwise.
45
Amended and Extended Asset Securitization
On September 12, 2011, the revolving trade accounts receivable financing facility between West Receivables LLC, a wholly-owned, bankruptcy-remote direct subsidiary of West Receivables Holdings LLC and Wells Fargo Bank, National Association, was amended and extended. The amended and extended facility provides for $150.0 million in available financing and was extended to September 12, 2014, reduced the unused commitment fee to 0.50% and lowered the LIBOR spread grid on borrowings, based on our total leverage ratio to 1.50% to 2.0% (LIBOR plus 1.75% at March 31, 2013). Under the amended and extended facility, West Receivables Holdings LLC sells or contributes trade accounts receivables to West Receivables LLC, which sells undivided interests in the purchased or contributed accounts receivables for cash to one or more financial institutions. The availability of the funding is subject to the level of eligible receivables after deducting certain concentration limits and reserves. The proceeds of the facility are available for general corporate purposes. West Receivables LLC and West Receivables Holdings LLC are consolidated in our condensed consolidated financial statements included elsewhere in this report. At March 31, 2013, $50.0 million was outstanding under the amended and extended asset securitization facility. At March 31, 2012, this facility was undrawn. The highest balance outstanding during the three months ended March 31, 2013 and 2012 was $50.0 million and $39.0 million, respectively.
Debt Covenants
Senior Secured Term Loan Facility and Senior Secured Revolving Credit FacilityThe Company is required to comply on a quarterly basis with a maximum total leverage ratio covenant and a minimum interest coverage ratio covenant. Pursuant to the Amended Credit Agreement, the total leverage ratio of consolidated total debt to Adjusted EBITDA may not exceed 6.75 to 1.0 at March 31, 2013, and the interest coverage ratio of Adjusted EBITDA to the sum of consolidated interest expense must be not less than 1.85 to 1.0. The total leverage ratio will become more restrictive over time (adjusted periodically until the maximum leverage ratio reaches 6.00 to 1.0 in 2015). Both ratios are measured on a rolling four-quarter basis. We were in compliance with these financial covenants at March 31, 2013. We believe that for the foreseeable future we will continue to be in compliance with our financial covenants. The senior secured credit facilities also contain various negative covenants, including limitations on indebtedness, liens, mergers and consolidations, asset sales, dividends and distributions or repurchases of our capital stock, investments, loans and advances, capital expenditures, payment of other debt, including the senior subordinated notes, transactions with affiliates, amendments to material agreements governing our subordinated indebtedness, including the senior subordinated notes, and changes in our lines of business.
The senior secured credit facilities include certain customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the documentation with respect to the senior secured credit facilities, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of our subordinated debt and a change of control of us. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take certain actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.
2016 Senior Subordinated Notes, 2018 Senior Notes and 2019 Senior NotesThe 2016 Senior Subordinated Notes, the 2018 Senior Notes and the 2019 Senior Notes indentures contain covenants limiting, among other things, our ability and the ability of our restricted subsidiaries to: incur additional debt or issue certain preferred shares, pay dividends on or make distributions in respect of our capital stock or make other restricted payments, make certain investments, sell certain assets, create liens on certain assets to secure debt, consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets, enter into certain transactions with our affiliates and designate our subsidiaries as unrestricted subsidiaries.
Our failure to comply with these debt covenants may result in an event of default which, if not cured or waived, could accelerate the maturity of our indebtedness. If our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned. If our cash flows and capital resources are insufficient to fund our debt service obligations and keep us in compliance with the covenants under our senior secured credit facilities or to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness including the notes. We cannot ensure that we would be able to take any of these
46
actions, that these actions would be successful and would permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including our senior secured credit facilities and the indentures that govern the notes. Our senior secured credit facilities documentation and the indentures that govern the notes restrict our ability to dispose of assets and use the proceeds from the disposition. As a result, we may not be able to consummate those dispositions or use the proceeds to meet our debt service or other obligations, and any proceeds that are available may not be adequate to meet any debt service or other obligations then due.
If we cannot make scheduled payments on our debt, we will be in default, and as a result:
| our debt holders could declare all outstanding principal and interest to be due and payable; |
| the lenders under our senior secured credit facilities could terminate their commitments to lend us money and foreclose against the assets securing our borrowings; and |
| we could be forced into bankruptcy or liquidation. |
Amended and Extended Asset SecuritizationThe amended and extended asset securitization facility contains various customary affirmative and negative covenants and also contains customary default and termination provisions, which provide for acceleration of amounts owed under the program upon the occurrence of certain specified events, including, but not limited to, failure to pay yield and other amounts due, defaults on certain indebtedness, certain judgments, changes in control, certain events negatively affecting the overall credit quality of collateralized accounts receivable, bankruptcy and insolvency events and failure to meet financial tests requiring maintenance of certain leverage and coverage ratios, similar to those under our senior secured credit facility.
Contractual Obligations
We have contractual obligations that may affect our financial condition. However, based on managements assessment of the underlying provisions and circumstances of our material contractual obligations, there is no known trend, demand, commitment, event or uncertainty that is reasonably likely to occur which would have a material effect on our financial condition or results of operations.
The following table summarizes our contractual obligations at March 31, 2013 (amounts in thousands):
Payment due by period | ||||||||||||||||||||
Contractual | Less than | After 5 | ||||||||||||||||||
Obligations |
Total | 1 year | 1 - 3 years | 4 - 5 years | years | |||||||||||||||
Senior Secured Term Loan Facility, due 2016 |
$ | 316,862 | $ | 3,177 | $ | 6,353 | $ | 307,332 | $ | | ||||||||||
Asset Securitization Facility, due 2014 |
50,000 | | 50,000 | | | |||||||||||||||
Senior Secured Term Loan Facility, due 2018 |
2,090,732 | 16,982 | 42,000 | 42,000 | 1,989,750 | |||||||||||||||
11% Senior Suborninated Notes, called April 26, 2013 |
450,000 | 450,000 | | | | |||||||||||||||
Subordinated Notes call premium |
16,502 | 16,502 | | | | |||||||||||||||
8 5/8% Senior Notes, due 2018 |
500,000 | | | | 500,000 | |||||||||||||||
7 7/8% Senior Notes, due 2019 |
650,000 | | | | 650,000 | |||||||||||||||
Interest payments on fixed rate debt |
588,214 | 120,576 | 188,626 | 188,626 | 90,386 | |||||||||||||||
Estimated interest payments on variable rate debt (1) |
505,367 | 104,345 | 202,965 | 176,680 | 21,377 | |||||||||||||||
Contractual minimums under telephony agreements (2) |
63,000 | 47,700 | 15,300 | | | |||||||||||||||
Operating leases |
122,672 | 35,205 | 44,889 | 21,199 | 21,379 | |||||||||||||||
Purchase obligations (3) |
97,856 | 81,195 | 13,327 | 3,334 | | |||||||||||||||
Interest rate swaps |
695 | 695 | | | | |||||||||||||||
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Total contractual cash obligations |
$ | 5,451,900 | $ | 876,377 | $ | 563,460 | $ | 739,171 | $ | 3,272,892 | ||||||||||
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(1) | Interest rate assumptions based on April 3, 2013, LIBOR U.S. dollar swap rate curves for the next five years. |
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(2) | Based on projected telephony minutes through 2014. The contractual minimum is usage based and could vary based on actual usage. |
(3) | Represents future obligations for capital and expense projects that are in progress or are committed. |
The table above excludes amounts to be paid for taxes and long-term obligations under our Nonqualified Executive Retirement Savings Plan and Nonqualified Executive Deferred Compensation Plan. The table also excludes amounts to be paid for income tax contingencies because the timing thereof is highly uncertain. At March 31, 2013, we have accrued $20.4 million, including interest and penalties for uncertain tax positions.
Capital Expenditures
Our operations continue to require significant capital expenditures for technology, capacity expansion and upgrades. Capital expenditures were $23.3 million for the three months ended March 31, 2013, compared to $23.9 million for the three months ended March 31, 2012. We currently estimate our capital expenditures for the remainder of 2013 to be between $106.7 million to $116.7 million, primarily for equipment and upgrades at existing facilities.
Our senior secured term loan facility discussed above includes covenants which allow us the flexibility to issue additional indebtedness that is pari passu with or subordinated to our debt under our existing credit facilities in an aggregate principal amount not to exceed $357.4 million including the aggregate amount of principal payments made in respect of the senior secured term loan, incur capital lease indebtedness, finance acquisitions, construction, repair, replacement or improvement of fixed or capital assets, incur asset securitization indebtedness and non-recourse indebtedness; provided we are in pro forma compliance with our total leverage ratio and interest coverage ratio financial covenants. We or any of our affiliates may be required to guarantee any existing or additional credit facilities.
Off-Balance Sheet Arrangements
We utilize standby letters of credit to support primarily workers compensation policy requirements and certain operating leases. Performance obligations of several of our subsidiaries are supported by performance bonds and letters of credit. These obligations will expire at various dates through February 2014 and are renewed as required. The outstanding commitment on these obligations at March 31, 2013 was $18.6 million.
Effects of Inflation
We do not believe that inflation has had a material effect on our financial position or results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires the use of estimates and assumptions on the part of management. The estimates and assumptions used by management are based on our historical experiences combined with managements understanding of current facts and circumstances. Certain of our accounting policies are considered critical as they are both important to the portrayal of our financial condition and results of operations and require significant or complex judgment on the part of management. The accounting policies we consider critical are our accounting policies with respect to revenue recognition, allowance for doubtful accounts, goodwill and other intangible assets, and income taxes.
For additional discussion of these critical accounting policies, see Managements Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2012. There have not been any significant changes with respect to these policies during the three months ended March 31, 2013.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market Risk Management
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of investments. The effect of inflation on our variable interest rate debt is discussed below in Interest Rate Risk.
Interest Rate Risk
As of March 31, 2013, we had $2,407.6 million outstanding under our senior secured term loan facility $50.0 million outstanding under our Asset Securitization Facility, $450.0 million outstanding under our 2016 Senior Subordinated Notes, $500.0 million outstanding under our 2018 Senior Notes and $650.0 million outstanding under our 2019 Senior Notes.
Due to the interest rate floors, our long-term obligations at variable interest rates would be subject to interest rate risk only if current LIBOR rates exceed the interest rate floors. A 50 basis point change in the variable interest rate at March 31, 2013, would have no impact on our variable interest rate. At March 31, 2013, the 30 and 90 day LIBOR rates were approximately 0.2037% and 0.2826%, respectively. As a result of the interest rate floors and prevailing LIBOR rates, rate increases on our variable debt in the immediate and near term is unlikely.
Foreign Currency Risk
Our Unified Communications segment conducts business in countries outside of the United States. Revenue and expenses from these foreign operations are typically denominated in local currency, thereby creating exposure to changes in exchange rates. Generally, we do not hedge the foreign currency transactions. Changes in exchange rates may positively or negatively affect our revenue and net income attributed to these subsidiaries.
Based on our level of operating activities in foreign operations during the three months ended March 31, 2013, a five percent change in the value of the U.S. dollar relative to the Euro and British Pound Sterling would have positively or negatively affected our net operating income by less than one percent.
On March 31, 2013 and 2012, the Communication Services segment had no material revenue outside the United States. Our facilities in Canada, Jamaica, Mexico and the Philippines receive calls only from customers in North America under contracts denominated in U.S. dollars and therefore our foreign currency exposure is primarily for expenses incurred in the respective country.
For the three months ended March 31, 2013 and 2012, revenues from non-U.S. countries were approximately 19% of consolidated revenues. During these periods no individual foreign country accounted for greater than 10% of revenue. At March 31, 2013 and December 31, 2012, long-lived assets from non-U.S. countries were approximately 8% and 9%, respectively. We have generally not entered into forward exchange or option contracts for transactions denominated in foreign currency to hedge against foreign currency risk. We are exposed to translation risk because our foreign operations are in local currency and must be translated into U.S. dollars. As currency exchange rates fluctuate, translation of our Statements of Operations of non-U.S. businesses into U.S. dollars affects the comparability of revenue, expenses, and operating income between periods.
Investment Risk
In 2010, we entered into three three-year interest rate swap agreements (cash flow hedges) to convert variable long-term debt to fixed rate debt. These swaps carried interest rates ranging from 1.685% to 1.6975% and expire in June 2013. At March 31, 2013, the notional amount of debt outstanding under these interest rate swap agreements was $500.0 million of the outstanding $2,407.6 million senior secured term loan facility.
Item 4. | Controls and Procedures |
Evaluation of disclosure controls and procedures. Our management team continues to review our internal controls and procedures and the effectiveness of those controls. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our
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Chief Executive Officer and Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer and Treasurer concluded that, as of March 31, 2013, our disclosure controls and procedures are effective in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms and (ii) that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting or in other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. No corrective actions were required or taken.
Item 1. | Legal Proceedings |
In the ordinary course of business, we and certain of our subsidiaries are defendants in various litigation matters and are subject to claims from our clients for indemnification, some of which may involve claims for damages that are substantial in amount. We do not believe the disposition of claims currently pending will have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. | Risk Factors |
We may not be able to compete successfully in our highly competitive industries, which could adversely affect our business, results of operations and financial condition.
We face significant competition in many of the markets in which we do business and expect that this competition will intensify. The principal competitive factors in our business are range of service offerings, global capabilities and price and quality of services. In addition, we believe there has been an industry trend to move agent-based operations toward offshore sites. This movement could result in excess capacity in the United States, where most of our current capacity exists. The trend toward international expansion by foreign and domestic competitors and continuous technological changes may erode profits by bringing new competitors into our markets and reducing prices. Our competitors products, services and pricing practices, as well as the timing and circumstances of the entry of additional competitors into our markets, could adversely affect our business, results of operations and financial condition.
Our Unified Communications segment faces technological advances, which have contributed to pricing pressures and could result in the loss of customer relationships. Competition in the web and video conferencing services arenas continues to increase as new vendors enter the marketplace and offer a broader range of conferencing solutions through new technologies, including, without limitation, VoIP, on-premise solutions, PBX solutions, unified communications solutions and equipment and handset solutions.
Our Communication Services segments agent-based business and growth depend in large part on United States businesses automating and outsourcing call handling activities. Such automation and outsourcing may not continue, or may continue at a slower pace, as organizations may elect to perform these services themselves. In addition, our Communication Services segment faces risks from technological advances that we may not be able to successfully address. We compete with third-party collection agencies, other financial service companies and credit originators. Some of these companies have substantially greater personnel and financial resources than we do. In addition, companies with greater financial resources than we have may elect in the future to enter the consumer debt collection business.
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There are services in both of our business segments that are experiencing pricing declines. If we are unable to offset pricing declines through increased transaction volume and greater efficiency, our business, results of operations and financial condition could be adversely affected.
We depend on third parties for certain services we provide, and increases in the cost of voice and data services or significant interruptions in these services could adversely affect our business, results of operations and financial condition.
We depend on voice and data services provided by various telecommunications providers. Because of this dependence, any change to the telecommunications market that would disrupt these services or limit our ability to obtain services at favorable rates could adversely affect our business, results of operations and financial condition. While we have entered into long-term contracts with many of our telecommunications providers, there is no obligation for these vendors to renew their contracts with us or to offer the same or lower rates in the future. In addition, these contracts are subject to termination or modification for various reasons outside of our control. An adverse change in the pricing of voice and data services that we are unable to recover through price increases of our services, or any significant interruption in voice or data services, could adversely affect our business, results of operations and financial condition.
Our business depends on our ability to keep pace with our clients needs for rapid technological change and systems availability.
Technology is a critical component of our business. We have invested in sophisticated and specialized computer and telephone technology and we anticipate that it will be necessary for us to continue to select, invest in and develop new and enhanced technology on a timely basis in the future in order to remain competitive. Our future success depends in part on our ability to continue to develop technology solutions that keep pace with evolving industry standards and changing client demands. Introduction of new methods and technologies brings corresponding risks associated with effecting change to a complex operating environment and, in the case of adding third party services, results in a dependency on an outside technology provider. With respect to third party technology we use to support our services, some of which is provided by our competitors, the failure of such technology or the third party becoming unable or unwilling to continue to provide the technology could interfere with our ability to satisfy customer demands and may require us to make investments in a replacement technology, which could adversely affect our business, financial condition and results of operations.
Growth in our IP-Based UC Solutions and Emergency Communications businesses depends in large part on continued deployment and adoption of emerging technologies.
Growth in our IP-based UC Solutions business and our next generation 9-1-1 solution offering is largely dependent on customer acceptance of communications services over IP-based networks, which is still in its early stages. Continued growth depends on a number of factors outside of our control. Customers may delay adoption and deployment of IP-based UC Solutions for several reasons, including available capacity on legacy networks, internal commitment to in-house solutions and customer attitudes regarding security, reliability and portability of IP-based solutions. In the Emergency Communications business, adoption may be hindered by, among other factors, continued reliance by customers on legacy systems, the complexity of implementing new systems and budgetary constraints. If customers do not deploy and adopt IP-based network solutions at the rates we expect, for these or other reasons, our business results of operations and financial condition could be adversely affected.
A large portion of our revenue is generated from a limited number of clients, and the loss of one or more key clients would result in the loss of revenue.
Our 100 largest clients by revenue represented approximately 54% of our total revenue for the three months ended March 31, 2013. If we fail to retain a significant amount of business from any of our significant clients, our business, results of operations and financial condition could be adversely affected.
We serve clients and industries that have experienced a significant level of consolidation in recent years. Additional consolidation could occur in which our clients could be acquired by companies that do not use our services. The loss of any significant client would result in a decrease in our revenue and could adversely affect our business, results of operations and financial condition.
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Security and privacy breaches of the systems we use to protect personal data could adversely affect our business, results of operations and financial condition.
Our databases contain personal data of our clients customers, including credit card and healthcare information. Any security or privacy breach of these databases, whether from human error or fraud or malice on the part of employees or third parties or accidental technical failure, could expose us to liability, increase our expenses relating to the resolution of these breaches and deter our clients from selecting our services. Certain of our client contracts do not contractually limit our liability for the loss of confidential information. Migration of our emergency communications business to IP-based communication increases this risk. Our data security procedures may not effectively counter evolving security risks, address the security and privacy concerns of existing or potential clients or be compliant with federal, state, and local laws and regulations in all respects. For our international operations, we are obligated to implement processes and procedures to comply with local data privacy regulations. Any failures in our security and privacy measures could adversely affect our business, financial condition and results of operations.
Growth in our IP-Based UC Solutions and other new services may provide alternatives to our services which could adversely affect our business, results of operations and financial condition.
Our IP-Based UC Solutions and other new services and enhancements to existing services may compete with our current conferencing and collaboration services. Continued growth in such emerging technologies may result in the availability of feature rich alternatives to our existing services with a more attractive pricing model. These developments could reduce the attractiveness to customers of our existing product offerings and reduce the price which we can receive from customers with respect to such services, which could adversely affect our business, results of operations and financial condition.
Global economic conditions could adversely affect our business, results of operations and financial condition, primarily through disrupting our clients businesses.
Uncertain and changing global economic conditions, including disruption of financial markets, could adversely affect our business, results of operations and financial condition, primarily through disruptions of our clients businesses. Higher rates of unemployment and lower levels of business generally adversely affect the level of demand for certain of our services. In addition, continuation or worsening of general market conditions in the United States, Europe or other markets important to our businesses may adversely affect our clients level of spending, ability to obtain financing for purchases and ability to make timely payments to us for our services, which could require us to increase our allowance for doubtful accounts, negatively impact our days sales outstanding and adversely affect our results of operations.
Our contracts generally are not exclusive and typically do not provide for revenue commitments.
Contracts for many of our services generally enable our clients to unilaterally terminate the contract or reduce transaction volumes upon written notice and without penalty, in many cases based on our failure to attain certain service performance levels. The terms of these contracts are often also subject to renegotiation at any time. In addition, most of our contracts are not exclusive and do not ensure that we will generate a minimum level of revenue. Many of our clients also retain multiple service providers with whom we must compete. As a result, the profitability of each client program may fluctuate, sometimes significantly, throughout the various stages of a program.
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Pending and future litigation may divert managements time and attention and result in substantial costs of defense, damages or settlement, which could adversely affect our business, results of operations and financial condition.
We face uncertainties related to pending and potential litigation. We may not ultimately prevail or otherwise be able to satisfactorily resolve this litigation. In addition, other material suits by individuals or certified classes, claims, or investigations relating to our business may arise in the future. Furthermore, we generally indemnify our clients against third-party claims asserting intellectual property violations and data security breaches, which may result in litigation. Regardless of the outcome of any of these lawsuits or any future actions, claims or investigations relating to the same or any other subject matter, we may incur substantial defense costs and these actions may cause a diversion of managements time and attention. Also, we may be required to alter our business practices or pay substantial damages or settlement costs as a result of these proceedings, which could adversely affect our business, results of operations and financial condition. Finally, certain of the outcomes of such litigation may directly affect our business model, and thus our profitability.
Our technology and services may infringe upon the intellectual property rights of others. Intellectual property infringement claims would be time-consuming and expensive to defend and may result in limitations on our ability to use the intellectual property subject to these claims.
Third parties have asserted in the past and may assert claims against us in the future alleging that we are violating or infringing upon their intellectual property rights. Any claims and any resulting litigation could subject us to significant liability for damages. An adverse determination in any litigation of this type could require us to design around a third partys patent, license alternative technology from another party or reduce or modify our product and service offerings. In addition, litigation is time-consuming and expensive to defend and could result in the diversion of our time and resources. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims.
We are subject to extensive regulation, which could limit or restrict our activities and impose financial requirements or limitations on the conduct of our business.
The United States Congress, the Federal Communications Commission (FCC) and the states and foreign jurisdictions where we provide services have promulgated and enacted rules and laws that govern personal privacy, the provision of telecommunication services, telephone solicitations, the collection of consumer debt, the provision of emergency communication services and data privacy. As a result, we may be subject to proceedings alleging violation of these rules and laws in the future. Additional rules and laws may regulate the pricing for our offerings or require us to modify our operations or service offerings in order to meet our clients service requirements effectively, and these regulations may limit our activities or significantly increase the cost of regulatory compliance.
There are numerous state statutes and regulations governing telemarketing activities that do or may apply to us. For example, some states 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. Some states also require that telemarketers register in the state before conducting telemarketing business in the state. Such registration can be time consuming and costly. Compliance with all federal and state telemarketing regulations is costly and time consuming. In addition, notwithstanding our compliance efforts, any failure on our part to comply with the registration and other legal requirements applicable to companies engaged in telemarketing activities could have an adverse impact on our business. We could become subject to litigation by private parties and governmental bodies alleging a violation of applicable laws or regulations, which could result in damages, regulatory fines, penalties and possible other relief under such laws and regulations and the accompanying costs and uncertainties of such litigation and enforcement actions.
In addition, the FCC recently adopted rules revising the manner in which regulated service providers compensate each other for the termination of interstate, intrastate, and local traffic, as well as intercarrier compensation between wireline carriers and wireless providers. The rules adopted by the FCC provide for a multi-year transition to a national uniform terminating charge of zero, which is known as bill-and-keep. Carriers were required to cap all current rate elements as of December 29, 2011 and to begin reducing their termination and transport rates in annual steps, culminating with a bill-and-keep system by July 2018. In a Further Notice, the FCC
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is considering changes to rates charged for origination of toll-free traffic, which is a major type of traffic carried by Wests subsidiary, HyperCube. These rules are currently being challenged by several states, industry groups and telecommunications carriers, and there are other initiatives by state regulators to address intrastate access rates. We are unable to predict the outcome of these rulemaking efforts, and any resulting regulations could limit our ability to determine how we charge for our services and have an adverse effect on our profitability.
We may not be able to adequately protect our proprietary information or technology.
Our success depends in part upon our proprietary information and technology. We rely on a combination of copyright, patent, trademark and trade secret laws, as well as on confidentiality procedures and non-compete agreements, to establish and protect our proprietary rights in each of our businesses. Third parties may infringe or misappropriate our patents, trademarks, trade names, trade secrets or other intellectual property rights, which could adversely affect our business, results of operations and financial condition, and litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. The steps we have taken to deter misappropriation of our proprietary information and technology or client data may be insufficient to protect us, and we may be unable to prevent infringement of our intellectual property rights or misappropriation of our proprietary information. Any infringement or misappropriation could harm any competitive advantage we currently derive or may derive from our proprietary rights. In addition, because we operate in many foreign jurisdictions, we may not be able to protect our intellectual property in the foreign jurisdictions in which we operate.
Our data and operation centers are exposed to service interruption, which could adversely affect our business, results of operations and financial condition.
Our outsourcing operations depend on our ability to protect our data and operation centers against damage that may be caused by fire, natural disasters, pandemics, power failure, telecommunications failures, computer viruses, Trojan horses, other malware, failures of our software, acts of sabotage or terrorism, riots and other emergencies. In addition, for some of our services, we are dependent on outside vendors and suppliers who may be similarly affected. In the past, natural disasters such as hurricanes have caused significant employee dislocation and turnover in the areas impacted. If we experience temporary or permanent employee dislocation or interruption at one or more of our data or operation centers through casualty, operating malfunction, data loss, system failure or other events, we may be unable to provide the services we are contractually obligated to deliver. As a result, we may experience a reduction in revenue or be required to pay contractual damages to some clients or allow some clients to terminate or renegotiate their contracts. Failure of our infrastructure due to the occurrence of a single event may have a disproportionately large impact on our business results. Any interruptions of this type could result in a prolonged interruption in our ability to provide our services to our clients, and our business interruption and property insurance may not adequately compensate us for any losses we may incur. These interruptions could adversely affect our business, results of operations and financial condition.
While we maintain insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses.
Our future success depends on our ability to retain key personnel. Our inability to continue to attract and retain a sufficient number of qualified employees could adversely affect our business, results of operations and financial condition.
Our future success depends on the experience and continuing efforts and abilities of our management team and on the management teams of our operating subsidiaries. The loss of the services of one or more of these key employees could adversely affect our business, results of operations and financial condition. A large portion of our operations also require specially trained employees. From time to time, we must recruit and train qualified personnel at an accelerated rate in order to keep pace with our clients demands and our resulting need for specially trained employees. If we are unable to continue to hire, train and retain a sufficient labor force of qualified employees, our business, results of operations and financial condition could be adversely affected.
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Increases in labor costs as a result of state and federal laws and regulations, market conditions or turnover rates could adversely affect our business, results of operations and financial condition.
Portions of our Communication Services segments agent-based services are very labor intensive and experience high personnel turnover. Significant increases in the employee turnover rate could increase recruiting and training costs and decrease operating effectiveness and productivity. In addition, increases in our labor costs, costs of employee benefits or employment taxes could adversely affect our business, results of operations and financial condition. In particular, the implementation of the Patient Protection and Affordable Care Act and the amendments thereto contain provisions relating to mandatory minimum health insurance coverage for employees which could materially impact our future healthcare costs for our predominantly United States-based workforce. While the legislations ultimate impact is not yet known, it is possible that these changes could significantly increase our compensation costs. In addition, many of our employees are hired on a part-time basis, and a significant portion of our costs consists of wages to hourly workers. From time to time, federal and state governments consider legislation to increase the minimum wage rate in their respective jurisdictions. Increases in the minimum wage or labor regulation could increase our labor costs.
Because we have operations in countries outside of the United States, we may be subject to political, economic and other conditions affecting these countries that could result in increased operating expenses and regulation.
We operate or rely upon businesses in numerous countries outside the United States. We may expand further into additional countries and regions. There are risks inherent in conducting business internationally, including the following:
| difficulties in staffing and managing international operations; |
| accounting (including managing internal control over financial reporting in our non-U.S. subsidiaries), tax and legal complexities arising from international operations; |
| burdensome regulatory requirements and unexpected changes in these requirements, including data protection requirements; |
| data privacy laws that may apply to the transmission of our clients and employees data to the United States; |
| localization of our services, including translation into foreign languages and associated expenses; |
| longer accounts receivable payment cycles and collection difficulties; |
| political and economic instability; |
| fluctuations in currency exchange rates; |
| potential difficulties in transferring funds generated overseas to the United States in a tax efficient manner; |
| seasonal reductions in business activity during the summer months in Europe and other parts of the world; |
| differences between the rules and procedures associated with handling emergency communications in the United States and those related to IP emergency communications originated outside of the United States; and |
| potentially adverse tax consequences. |
If we cannot manage our international operations successfully, our business, results of operations and financial condition could be adversely affected.
Changes in foreign exchange rates may adversely affect our revenue and net income attributed to foreign subsidiaries.
We conduct business in countries outside of the United States. Revenue and expense from our foreign operations are typically denominated in local currencies, thereby creating exposure to changes in exchange rates. Revenue and profit generated by our international operations will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. Adverse changes to foreign exchange rates could decrease the value of revenue we receive from our international operations and have a material adverse impact on our business. Generally, we do not attempt to hedge our foreign currency transactions.
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Our failure to repatriate cash from our foreign subsidiaries, or the costs incurred to do so, could harm our liquidity.
As of March 31, 2013, the amount of cash and cash equivalents held by our foreign subsidiaries was $88.6 million. From time to time we may seek to repatriate funds held by these subsidiaries, and our ability to withdraw cash from foreign subsidiaries will depend upon the results of operations of these subsidiaries and may be subject to legal, contractual or other restrictions and other business considerations. Our foreign subsidiaries may enter into financing arrangements that limit their ability to make loans or other payments to fund payments of our debt. In addition, dividend and interest payments to us from our foreign subsidiaries may be subject to foreign withholding taxes, which could reduce the amount of funds we receive from our foreign subsidiaries. Dividends and other distributions from our foreign subsidiaries may also be subject to fluctuations in currency exchange rates and legal and other restrictions on repatriation, which could further reduce the amount of funds we receive from our foreign subsidiaries.
In general, when an entity in a foreign jurisdiction repatriates cash to the United States, the amount of such cash is treated as a dividend taxable at current U.S. tax rates. Accordingly, upon the distribution of cash to us from our foreign subsidiaries, we will be subject to U.S. income taxes. Although foreign tax credits may be available to reduce the amount of the additional tax liability, these credits may be limited based on our tax attributes. Therefore, to the extent that we use cash generated in foreign jurisdictions, there may be a cost associated with repatriating cash to the United States or other limitations that could adversely affect our liquidity.
If we are unable to complete future acquisitions or if we incur unanticipated acquisition liabilities, our business strategy and earnings may be negatively affected.
Our ability to identify and take advantage of attractive acquisitions or other business development opportunities is an important component in implementing our overall business strategy. We may be unable to identify, finance or complete acquisitions or to do so at attractive valuations. In addition, we incur significant transaction costs associated with our acquisitions, including substantial fees for attorneys, accountants and other advisors. Any acquisition could result in our assumption of unknown and/or unexpected, and perhaps material, liabilities. Additionally, in any acquisition agreement, the negotiated representations, warranties and agreements of the selling parties may not entirely protect us, and liabilities resulting from any breaches could exceed negotiated indemnity limitations. These factors could impair our growth and ability to compete; divert resources from other potentially more profitable areas; or otherwise cause a material adverse effect on our business, financial position and results of operations.
If we are unable to integrate or achieve the objectives of our recent and future acquisitions, our overall business may suffer.
Our business strategy depends on successfully integrating the assets, operations and corporate functions of businesses we have acquired and any additional businesses we may acquire in the future. The acquisition of additional businesses involves integration risks, including:
| the diversion of managements time and attention away from operating our business to acquisition and integration challenges; |
| the unanticipated loss of key employees of the acquired businesses; |
| the potential need to implement or remediate controls, procedures and policies appropriate for a larger company at businesses that prior to the acquisition lacked these controls, procedures and policies; |
| the need to integrate accounting, information management, human resources, contract and intellectual property management and other administrative systems at each business to permit effective management; and |
| our entry into markets or geographic areas where we may have limited or no experience. |
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We may be unable to effectively or efficiently integrate businesses we have acquired or may acquire in the future without encountering the difficulties described above. Failure to integrate these businesses effectively could adversely affect our business, results of operations and financial condition. In addition to this integration risk, our business, results of operations and financial condition could be adversely affected if we are unable to achieve the planned objectives of an acquisition including cost savings and synergies. The inability to achieve our planned objectives could result from:
| the financial underperformance of these acquisitions; |
| the loss of key clients of the acquired business, which may drive financial underperformance; |
| the loss of key personnel at the acquired company; and |
| the occurrence of unanticipated liabilities or contingencies for which we are unable to receive indemnification from the prior owner of the business. |
Potential future impairments of our substantial goodwill, intangible assets, or other long-lived assets could adversely affect our business, results of operations and financial condition.
As of March 31, 2013, we had goodwill of approximately $1.8 billion and intangible assets, net of accumulated amortization, of $270.7 million, respectively. Management is required to exercise significant judgment in identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating results, competition and general economic conditions. Any changes in key assumptions about the business units and their prospects or changes in market conditions or other externalities could result in an impairment charge, and such a charge could have an adverse effect on our business, results of operations and financial condition.
Our ability to recover consumer receivables on behalf of our clients may be limited under federal and state laws, which could limit our ability to recover on consumer receivables regardless of any act or omission on our part.
Federal and state consumer protection, privacy and related laws and regulations extensively regulate the relationship between debt collectors and debtors. Federal and state laws may limit our ability to recover on our clients consumer receivables regardless of any act or omission on our part. In addition, in March 2011, we entered into a Stipulated Order as part of a settlement agreement with the Federal Trade Commission (FTC) that imposes duties upon us beyond those of current federal and state laws. For example, for a period of five years from the date of entry of the Order, we must include a special disclosure on all written communications sent to consumers in connection with the collection of debts. The disclosure advises the consumer of certain rights they have under the Federal Fair Debt Collection Practices Act (FDCPA), provides a phone number and address at West to which the consumer can direct a complaint, and also provides contact information for the FTC if the consumer wishes to file a complaint with the Commission. In addition, for a period of five years, we must provide a special notice to all employees that advises them of certain requirements under the FDCPA including notice that individual collectors can be liable for violations of the FDCPA. Each employee must sign an acknowledgement that he or she has received and read the notice and we must maintain copies of the acknowledgements to verify our compliance. Additional consumer protection and privacy protection laws may be enacted that would impose additional or more stringent requirements on the enforcement of and collection on consumer receivables. In addition, federal and state governments are considering, and may consider in the future, other legislative proposals that would further regulate the collection of consumer receivables. The recently created Consumer Financial Protection Bureau (CFPB) has broad regulatory authority over consumer protection issues pertaining to financial products and services in the United States. The primary focus of the CFPB is on banks, but it also has authority over non-bank servicing agencies such as debt collection companies. The CFPB has the authority to conduct compliance examinations of any company within its jurisdiction and may bring enforcement actions when necessary to enforce consumer protection statutes. The CFPB is also authorized to promulgate regulations under consumer protection statutes that may impact the Company. Any failure to comply with any current or future laws applicable to us could limit our ability to collect on our clients charged-off consumer receivable portfolios, which could adversely affect our business, results of operations and financial condition.
57
We may not be able to generate sufficient cash to service all of our indebtedness and fund our other liquidity needs, and we may be forced to take other actions, which may not be successful, to satisfy our obligations under our indebtedness.
At March 31, 2013, our aggregate long-term indebtedness, including the current portion, was $4,057.6 million. During the three months ended March 31, 2013 our consolidated interest expense was approximately $72.9 million. Our ability to make scheduled payments or to refinance our debt obligations and to fund our other liquidity needs depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot make assurances that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and to fund our other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations and to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures or declared dividends, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot make assurances that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including our senior secured credit facilities or the indentures that govern our outstanding notes. Our senior secured credit facilities documentation and the indentures that govern the notes restrict our ability to dispose of assets and use the proceeds from the disposition. As a result, we may not be able to consummate those dispositions or use the proceeds to meet our debt service or other obligations, and any proceeds that are available may not be adequate to meet any debt service or other obligations then due. If we cannot make scheduled payments on our debt, we will be in default of such debt and, as a result:
| our debt holders could declare all outstanding principal and interest to be due and payable; |
| our debt holders under other debt subject to cross default provisions could declare all outstanding principal and interest on such other debt to be due and payable; |
| the lenders under our senior secured credit facilities could terminate their commitments to lend us money and foreclose against the assets securing our borrowings; and |
| we could be forced into bankruptcy or liquidation. |
Our current or future indebtedness could impair our financial condition and reduce the funds available to us for other purposes, including dividend payments, and our failure to comply with the covenants contained in our senior secured credit facilities documentation or the indentures that govern our outstanding notes could result in an event of default that could adversely affect our results of operations.
Our current or future indebtedness could adversely affect our business, results of operations or financial condition, including the following:
| our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, product development, general corporate purposes, refinancing of our existing obligations or other purposes may be impaired; |
| a significant portion of our cash flow from operations may be dedicated to the payment of interest and principal on our indebtedness, which will reduce the funds available to us for our operations, capital expenditures, future business opportunities or other purposes; |
| the debt service requirements of our other indebtedness could make it more difficult for us to satisfy our financial obligations; |
| because we may be more leveraged than some of our competitors, our debt may place us at a competitive disadvantage; |
| our leverage will increase our vulnerability to economic downturns and limit our ability to withstand adverse events in our business by limiting our financial alternatives; |
| our ability to capitalize on significant business opportunities and to plan for, or respond to, competition and changes in our business may be limited; and |
| limit our ability to declare or pay dividends. |
Our debt agreements contain, and any agreements to refinance our debt likely will contain, financial and restrictive covenants that limit our ability to incur additional debt, including to finance future operations or other capital needs, and to engage in other activities that we may believe are in our long-term best interests, including to
58
dispose of or acquire assets. Our failure to comply with these covenants may result in an event of default, which, if not cured or waived, could accelerate the maturity of our indebtedness or result in modifications to our credit terms. If our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned.
We had a negative net worth as of March 31, 2013, which may make it more difficult and costly for us to obtain financing in the future and may otherwise negatively impact our business.
As of March 31, 2013, we had a negative net worth of $850.2 million. Our negative net worth primarily resulted from the incurrence of indebtedness to finance our Recapitalization in 2006. As a result of our negative net worth, we may face greater difficulty and expense in obtaining future financing than we would face if we had a greater net worth, which may limit our ability to meet our needs for liquidity or otherwise compete effectively in the marketplace.
Despite our current indebtedness levels and the restrictive covenants set forth in agreements governing our indebtedness, we and our subsidiaries may still incur significant additional indebtedness, including secured indebtedness. Incurring additional indebtedness could increase the risks associated with our substantial indebtedness.
Subject to the restrictions in our debt agreements, we and certain of our subsidiaries may incur significant additional indebtedness, including additional secured indebtedness. Although the terms of our debt agreements contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be significant. At March 31, 2013, under the terms of our debt agreements, we would be permitted to incur up to approximately $357.4 million of additional tranches of term loans or increases to the revolving credit facility.
Item 2. | Sale of Unregistered Securities |
(a) Sales of Unregistered Securities
During the three months ended March 31, 2013, 58,679 shares of our common stock were distributed from the West Corporation Deferred Compensation Plan and 17,338 shares of our common stock were issued as a result of stock option exercises for an aggregate consideration of $41,000. The shares of common stock issued upon exercise of options or from the West Corporation Deferred Compensation Plan referenced in the foregoing were issued pursuant to written compensatory plans or arrangements in reliance on the exemptions provided by either Section 4(2) of the Securities Act or Rule 701 promulgated under Section 3(b) of the Securities Act.
(b) Use of Proceeds
On March 27, 2013, our Registration Statement on Form S-1 (File No. 333-162292) was declared effective by the Securities and Exchange Commission for its initial public offering pursuant to which we registered 24,466,250 shares of our common stock, par value $0.001 per share, with the proposed maximum offering price of $ 611,656,250. Pursuant to the Registration Statement, we sold an aggregate of 21,275,000 shares of our common stock at a price to the public of $20.00 per share. Goldman, Sachs & Co., Morgan Stanley & Co., LLC, Merrill Lynch Pierce, Fenner & Smith Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Wells Fargo Securities, LLC acted as book runners. The offering commenced as of March 21, 2013 and closed on March 27, 2013. The initial public offering resulted in net proceeds to us of $398.1 million after deducting underwriting discounts and commissions of approximately $24.5 million and other estimated offering expenses of approximately $2.9 million.
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In connection with the offering, our board of directors had approved transaction-based IPO bonuses of $2.9 million under our Executive Incentive Compensation Plan, of which $750,000 was granted to Mr. Thomas B. Barker and $250,000 was granted to each of Ms. Berger and Messrs. Mendlik, Stangl and Strubbe on March 21, 2013. Also in connection with the offering, our compensation committee accelerated vesting of all remaining unvested shares subject to the Restricted Stock Award and Special Bonus Agreements and Restricted Stock Award Agreements entered into pursuant to the 2006 Executive Incentive Plan. The acceleration resulted in the vesting of an aggregate of 42,562 shares of common stock, including the acceleration of 40,001 shares of common stock previously granted to Todd B. Strubbe.
On March 27, 2013, we delivered a notice of redemption to The Bank of New York Mellon Trust Company, N.A., as trustee of our intention to redeem all of the outstanding $450.0 million principal amount of the 11% Senior Subordinated Notes due 2016. The redemption price is 103.667% of the principal amount of the senior subordinated notes. We intend to use net proceeds from the offering as well as cash on hand to fund the redemption of the senior subordinated notes. There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the Securities and Exchange Commission on March 22, 2013 pursuant to Rule 424(b).
Also in connection with the offering, pursuant to the terms of that certain management agreement we entered into with affiliates of the investor group led by Thomas H. Lee Partners, L.P. and Quadrangle Group LLC (the Sponsors), dated October 24, 2006 and that certain management letter agreement we entered into with affiliates of the Sponsors, dated March 8, 2013, we expect to pay the Sponsors $24.0 million with any remaining net proceeds from the offering and cash on hand.
(c) Issuer Purchases of Equity Securities
None.
Item 5. | Other Information |
Change in Control Severance Agreements
On April 29, 2013, as previously approved by the Board of Directors, the Company entered into Change in Control Severance Agreements with certain executive officers and other key employees of the Company (the Change in Control Agreements). The following summary is qualified in its entirety by reference to the form of the Change in Control Agreement, a copy of which is filed as Exhibit 10.02 hereto.
An employee who enters into a Change in Control Agreement is entitled to the following severance benefits if the employees employment with the Company terminates during the two-year period following the consummation of a Change in Control (as defined in the Change in Control Agreement) for any reason other than cause, resignation without good reason, death or disability, as described in the Change in Control Agreement, or if the employees employment is terminated by the Company without cause prior to the consummation of a Change in Control at the direction or request of the person or group contemplating the Change in Control:
| any unpaid base salary and bonus; |
| a prorated bonus for the year in which the termination occurs, based on the higher of the target bonus for the year of termination or the target bonus in effect immediately prior to the consummation of the Change in Control; |
| a lump sum payment equal to (i) the sum of the employees highest annual base salary in effect during the 12 months prior to the termination date plus the employees target annual bonus in effect immediately prior to the termination date (or, if higher, the average of the employees bonuses during the three years prior to the date of the Change in Control) if the employee is a Tier 3 employee, (ii) a lump sum payment equal to two times such sum if the employee is a Tier 2 employee or (iii) a lump sum payment equal to three times such sum if the employee is a Tier 1 employee; |
| continued benefit coverage for the employee and his or her dependents for a period of (i) one year after the date of termination if the employee is a Tier 3 employee, (ii) two years after the date of termination if the employee is a Tier 2 employee or (iii) three years after the date of termination if the employee is a Tier 1 employee; |
| accelerated vesting of any long-term incentive award (including, without limitation, any option, restricted stock, restricted stock unit, and other equity-based award) held by the employee, with any applicable performance goals deemed satisfied at the target level; and |
| outplacement assistance for a period of (i) six months if the employee is a Tier 3 employee or (ii) 12 months if the employee is a Tier 1 or 2 employee, but having a cost not in excess of $15,000 per employee. |
Mr. Barker is a Tier 1 employee and Ms. Berger, Messrs. Mendlik, Stangl and Strubbe are Tier 2 employees.
The severance benefits under the Change in Control Agreement are in lieu of any severance and consulting compensation paid under the employees existing employment agreement; except that, if the cash severance and consulting compensation payable under the employees existing employment agreement exceeds the cash severance under the Change in Control Agreement, then the employee will receive the cash severance and consulting compensation payable under such employment agreement rather than the cash severance payable under the Change in Control Agreement. If the payments to the employee would cause the employee to be subject to an excise tax under section 4999 of the Internal Revenue Code of 1986, as amended (the Code), then the employee may elect to reduce the payments to the largest amount that could be payable without causing any payment to be (i) subject to the excise tax or (ii) nondeductible by the Company by reason of Section 280G of the Code.
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Item 6. | Exhibits |
10.01 | Waiver Letters, effective as of March 21, 2013, by and among West Corporation, Thomas H. Lee Equity Fund VI, L.P. and certain of its affiliates, Putnam Investments Holdings, LLC, Quadrangle Capital Partners II and certain of its affiliates, and SONJ Private Opportunties Fund, L.P. | |
10.02 | Form of Change in Control Severance Agreement (1) | |
10.03 | Amendment Number One to the West Corporation Nonqualified Deferred Compensation Plan (1) | |
31.01 | Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.02 | Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.01 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.02 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | Financial statements from the quarterly report on Form 10-Q of West Corporation for the quarter ended March 31, 2013, filed on April 29, 2013, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss); (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; (v) the Condensed Consolidated Statements of Stockholders Deficit and (vi) the Notes to Condensed Consolidated Financial Statements furnished herewith. |
(1) | Indicates management contract or compensation plan or arrangement. |
61
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WEST CORPORATION | ||
By: | /s/ Thomas B. Barker | |
Thomas B. Barker | ||
Chief Executive Officer | ||
By: | /s/ Paul M. Mendlik | |
Paul M. Mendlik | ||
Chief Financial Officer and Treasurer | ||
By: | /s/ R. Patrick Shields | |
R. Patrick Shields | ||
Senior Vice President - | ||
Chief Accounting Officer |
Date: April 29, 2013
62
Exhibit |
||
10.01 | Waiver Letters, effective as of March 21, 2013, by and among West Corporation, Thomas H. Lee Equity Fund VI, L.P. and certain of its affiliates, Putnam Investments Holdings, LLC, Quadrangle Capital Partners II and certain of its affiliates, and SONJ Private Opportunties Fund, L.P. | |
10.02 | Form of Change in Control Severance Agreement (1) | |
10.03 | Amendment Number One to the West Corporation Nonqualified Deferred Compensation Plan (1) | |
31.01 | Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.02 | Certification pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.01 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.02 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101 | Financial statements from the quarterly report on Form 10-Q of West Corporation for the quarter ended March 31, 2013, filed on April 29, 2013, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss); (iii) the Condensed Consolidated Balance Sheets; (iv) the Condensed Consolidated Statements of Cash Flows; (v) the Condensed Consolidated Statements of Stockholders Deficit and (vi) the Notes to Condensed Consolidated Financial Statements furnished herewith. |
(1) | Indicates management contract or compensation plan or arrangement. |
63
Exhibit 10.01
Thomas H. Lee Equity Fund VI, L.P. Thomas H. Lee Parallel Fund VI, L.P. Thomas H. Lee Parallel (DT) Fund VI, L.P. THL Equity Fund VI Investors (West), L.P. THL Coinvestment Partners, L.P. Putnam Investments Holdings, LLC Putnam Investments Employees Securities Company III LLC THL Fund VI Bridge Corp. THL Parallel Fund VI Bridge Corp. THL DT Fund VI Bridge Corp. c/o Thomas H. Lee Partners, L.P. 100 Federal Street Boston, MA 02110 |
West Corporation Drive 68154 Attention: General Counsel |
Quadrangle Capital Partners II LP, Quadrangle Capital Partners II-A LP and Quadrangle Select Partners II LP c/o Quadrangle Group LLC 1065 Avenue of the Americas New York, NY 10018 |
March 21, 2013
To Whom It May Concern,
Reference is made to that certain Amended and Restated Stockholder Agreement, dated as of March 8, 2013 (the Agreement), by and among West Corporation, Thomas H. Lee Equity Fund VI, L.P., Thomas H. Lee Parallel Fund VI, L.P., Thomas H. Lee Parallel (DT) Fund VI, L.P., THL Equity Fund VI Investors (West), L.P., THL Coinvestment Partners, L.P., Putnam Investments Holdings, LLC, Putnam Investments Employees Securities Company III LLC, THL Fund VI Bridge Corp., THL Parallel Fund VI Bridge Corp., THL DT Fund VI Bridge Corp. and each other Person executing this Agreement and listed as a THL Investor on the signature pages hereto (collectively, with their permitted transferees, the THL Investors), Quadrangle Capital Partners II LP, Quadrangle Capital Partners II-A LP and Quadrangle Select Partners II LP and each other Person executing this Agreement and listed as a Quadrangle Investor on the signature pages hereto (collectively, with their permitted transferees, the Quadrangle Investors), any other Persons who from time to time become party hereto by executing a counterpart signature page hereof and are designated by the Board as Other Investors, including SONJ Private Opportunities Fund, L.P. (the Company), Gary West CRT1 LLC, Gary West CRT2 LLC, Gary West CRT3 LLC, Gary West CRT4 LLC and Gary West CRT5 LLC as permitted transferees of Gary L. West, Mary West CRT1 LLC, Mary West CRT2 LLC, Mary West CRT3 LLC, Mary West CRT4 LLC and Mary West CRT5 LLC as permitted transferees of Mary E. West (collectively, the Founders), and the other parties thereto (if any).
Further to our previous discussions, the Company hereby confirms its desire to no longer be a party to the Agreement and acknowledges and agrees that following its execution of this letter, as of the date first written above, it will no longer be a party to the Agreement or have any rights or obligations under the Agreement with respect to the 57,948 shares of common stock of West Corporation, par value $0.001 per share, beneficially owned by the Company on March 21, 2013. By executing this letter, the undersigned acknowledges and agrees that as of the date first written above, the Company is no longer a party to the Agreement and no longer has any rights or obligations under the Agreement.
Sincerely, | ||
SONJ Private Opportunities Fund, L.P. | ||
By: | BlackRock DivPEP III, LLC, its general partner | |
By: | BlackRock Private Equity III, L.P., its managing member | |
By: | Portfolio Administration & Management, Ltd., its general partner | |
/s/ Steven Baumgarten | ||
Name: Steven Baumgarten Title: Vice President |
2
IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement (or caused this Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) under seal as of the date first above written.
THE COMPANY: | WEST CORPORATION | |||
/s/ David C. Mussman | ||||
Name: David C. Mussman Title: EVP, Secretary and General Counsel |
3
THL INVESTORS: | THOMAS H. LEE EQUITY FUND VI, L.P. | |||
By: THL Equity Advisors VI, LLC, its general partner | ||||
By: Thomas H. Lee Partners, L.P., its sole member | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director | ||||
THOMAS H. LEE PARALLEL FUND VI, L.P. | ||||
By: THL Equity Advisors VI, LLC, its general partner | ||||
By: Thomas H. Lee Partners, L.P., its sole member | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director | ||||
THOMAS H. LEE PARALLEL (DT) FUND VI, L.P. | ||||
By: THL Equity Advisors VI, LLC, its general partner | ||||
By: Thomas H. Lee Partners, L.P., its sole member | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director | ||||
THL COINVESTMENT PARTNERS, L.P. | ||||
By: Thomas H. Lee Partners, L.P., its general partner | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director |
4
THL EQUITY FUND VI INVESTORS (WEST), L.P. |
By: THL Equity Advisors VI, LLC, its general partner |
By: Thomas H. Lee Partners, L.P., its sole member |
By: Thomas H. Lee Advisors, LLC, its general partner |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
PUTNAM INVESTMENTS HOLDINGS, LLC |
By: Putnam Investments, LLC, its managing member |
By: Thomas H. Lee Advisors, LLC, its attorney-in-fact |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
PUTNAM INVESTMENTS EMPLOYEES SECURITIES COMPANY III, LLC |
By: Putnam Investment Holdings, LLC, its managing member |
By: Putnam Investments, LLC, its managing member |
By: Thomas H. Lee Advisors, LLC, its attorney-in-fact |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
THL EQUITY FUND VI INVESTORS (WEST) HL, L.P. |
By: THL Equity Advisors VI, LLC, its general partner |
By: Thomas H. Lee Partners, L.P., its sole member |
By: Thomas H. Lee Advisors, LLC, its general partner |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
5
QUADRANGLE INVESTORS: | QUADRANGLE CAPITAL PARTNERS II LP | |
By: Quadrangle GP Investors II LP, its general partner | ||
By: QCP GP Investors II LLC, its general partner |
/s/ Michael Huber |
Name: Michael Huber Title: President and Managing Principal |
QUADRANGLE CAPITAL PARTNERS II-A LP |
By: Quadrangle GP Investors II LP, its general partner |
By: QCP GP Investors II LLC, its general partner |
/s/ Michael Huber |
Name: Michael Huber Title: President and Managing Principal |
QUADRANGLE SELECT PARTNERS II LP |
By: Quadrangle GP Investors II LP, its general partner |
By: QCP GP Investors II LLC, its general partner |
/s/ Michael Huber |
Name: Michael Huber Title: President and Managing Principal |
6
Thomas H. Lee Equity Fund VI, L.P. Thomas H. Lee Parallel Fund VI, L.P. Thomas H. Lee Parallel (DT) Fund VI, L.P. THL Equity Fund VI Investors (West), L.P. THL Coinvestment Partners, L.P. Putnam Investments Holdings, LLC Putnam Investments Employees Securities Company III LLC THL Fund VI Bridge Corp. THL Parallel Fund VI Bridge Corp. THL DT Fund VI Bridge Corp. c/o Thomas H. Lee Partners, L.P. 100 Federal Street Boston, MA 02110 |
West Corporation Attention: General Counsel |
Quadrangle Capital Partners II LP, Quadrangle Capital Partners II-A LP and Quadrangle Select Partners II LP c/o Quadrangle Group LLC 1065 Avenue of the Americas New York, NY 10018 |
March 21, 2013
To Whom It May Concern,
Reference is made to that certain Amended and Restated Registration Rights and Coordination Agreement, dated as of March 8, 2013 (the Agreement), by and among West Corporation, Thomas H. Lee Equity Fund VI, L.P., Thomas H. Lee Parallel Fund VI, L.P., Thomas H. Lee Parallel (DT) Fund VI, L.P., THL Equity Fund VI Investors (West), L.P., THL Coinvestment Partners, L.P., Putnam Investments Holdings, LLC, Putnam Investments Employees Securities Company III LLC, THL Fund VI Bridge Corp., THL Parallel Fund VI Bridge Corp., THL DT Fund VI Bridge Corp. and each other Person executing this Agreement and listed as a THL Investor on the signature pages hereto (collectively, with their permitted transferees, the THL Investors), Quadrangle Capital Partners II LP, Quadrangle Capital Partners II-A LP and Quadrangle Select Partners II LP and each other Person executing this Agreement and listed as a Quadrangle Investor on the signature pages hereto (collectively, with their permitted transferees, the Quadrangle Investors), any other Persons who from time to time become party hereto by executing a counterpart signature page hereof and are designated by the Board as Other Investors, including SONJ Private Opportunities Fund, L.P. (the Company), Gary West CRT1 LLC, Gary West CRT2 LLC, Gary West CRT3 LLC, Gary West CRT4 LLC and Gary West CRT5 LLC as permitted transferees of Gary L. West, Mary West CRT1 LLC, Mary West CRT2 LLC, Mary West CRT3 LLC, Mary West CRT4 LLC and Mary West CRT5 LLC as permitted transferees of Mary E. West (collectively, the Founders), and the other parties thereto (if any).
Further to our previous discussions, the Company hereby confirms its desire to no longer be a party to the Agreement and acknowledges and agrees that following its execution of this letter, as of the date first written above, it will no longer be a party to the Agreement or have any rights or obligations under the Agreement with respect to the 57,948 shares of common stock of West Corporation, par value $0.001 per share, beneficially owned by the Company on March 21, 2013. By executing this letter, the undersigned acknowledges and agrees that as of the date first written above, the Company is no longer a party to the Agreement and no longer has any rights or obligations under the Agreement.
Sincerely, | ||||
SONJ Private Opportunities Fund, L.P. | ||||
By: | BlackRock DivPEP III, LLC,its general partner | |||
By: | BlackRock Private Equity III, L.P.,its managing member | |||
By: | Portfolio Administration & Management, Ltd., its general partner |
/s/ Steven Baumgarten | ||
Name: | Steven Baumgarten | |
Title: | Vice President |
IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement (or caused this Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) under seal as of the date first above written.
THE COMPANY: | WEST CORPORATION | |||
/s/ David C. Mussman | ||||
Name: David C. Mussman Title: EVP, Secretary and General Counsel |
THL INVESTORS: | THOMAS H. LEE EQUITY FUND VI, L.P. | |||
By: THL Equity Advisors VI, LLC, its general partner | ||||
By: Thomas H. Lee Partners, L.P., its sole member | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director | ||||
THOMAS H. LEE PARALLEL FUND VI, L.P. | ||||
By: THL Equity Advisors VI, LLC, its general partner | ||||
By: Thomas H. Lee Partners, L.P., its sole member | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director | ||||
THOMAS H. LEE PARALLEL (DT) FUND VI, L.P. | ||||
By: THL Equity Advisors VI, LLC, its general partner | ||||
By: Thomas H. Lee Partners, L.P., its sole member | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director | ||||
THL COINVESTMENT PARTNERS, L.P. | ||||
By: Thomas H. Lee Partners, L.P., its general partner | ||||
By: Thomas H. Lee Advisors, LLC, its general partner | ||||
By: THL Holdco, LLC, its managing member | ||||
/s/ Charles P. Holden | ||||
Name: Charles P. Holden | ||||
Title: Managing Director |
[Signature Page to Amended and Restated Registration Rights and Coordination Agreement Letter Agreement]
THL EQUITY FUND VI INVESTORS (WEST), L.P. |
By: THL Equity Advisors VI, LLC, its general partner |
By: Thomas H. Lee Partners, L.P., its sole member |
By: Thomas H. Lee Advisors, LLC, its general partner |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
PUTNAM INVESTMENTS HOLDINGS, LLC |
By: Putnam Investments, LLC, its managing member |
By: Thomas H. Lee Advisors, LLC, its attorney-in-fact |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
PUTNAM INVESTMENTS EMPLOYEES SECURITIES COMPANY III, LLC |
By: Putnam Investment Holdings, LLC, its managing member |
By: Putnam Investments, LLC, its managing member |
By: Thomas H. Lee Advisors, LLC, its attorney-in-fact |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
THL EQUITY FUND VI INVESTORS (WEST) HL, L.P. |
By: THL Equity Advisors VI, LLC, its general partner |
By: Thomas H. Lee Partners, L.P., its sole member |
By: Thomas H. Lee Advisors, LLC, its general partner |
By: THL Holdco, LLC, its managing member |
/s/ Charles P. Holden |
Name: Charles P. Holden |
Title: Managing Director |
[Signature Page to Amended and Restated Registration Rights and Coordination Agreement Letter Agreement]
QUADRANGLE INVESTORS: | QUADRANGLE CAPITAL PARTNERS II LP | |
By: Quadrangle GP Investors II LP, its general partner | ||
By: QCP GP Investors II LLC, its general partner |
/s/ Michael Huber |
Name: Michael Huber Title: President and Managing Principal |
QUADRANGLE CAPITAL PARTNERS II-A LP |
By: Quadrangle GP Investors II LP, its general partner |
By: QCP GP Investors II LLC, its general partner |
/s/ Michael Huber |
Name: Michael Huber Title: President and Managing Principal |
QUADRANGLE SELECT PARTNERS II LP |
By: Quadrangle GP Investors II LP, its general partner |
By: QCP GP Investors II LLC, its general partner |
/s/ Michael Huber |
Name: Michael Huber Title: President and Managing Principal |
[Signature Page to Amended and Restated Registration Rights and Coordination Agreement Letter Agreement]
EXHIBIT 10.02
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this Agreement) is entered into as of the day of , 2013 by and between West Corporation, a Delaware corporation (the Company), and [First Name] [Middle Initial] [Last Name] (the Executive) and shall be effective as of the date hereof.
W I T N E S S E T H
WHEREAS, the Executive currently serves as a key employee of the Company or one of its Affiliates and his or her services and knowledge are valuable to the Company in connection with the management of one or more of the Companys principal operating facilities, divisions, departments or subsidiaries;
WHEREAS, the Committee (as defined in Section 1) has determined that it is in the best interests of the Company and its stockholders to secure the Executives continued services and to ensure the Executives continued dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1) of the Company, without concern as to whether the Executive might be hindered or distracted by personal uncertainties and risks created by any such possible Change in Control, and to encourage the Executives full attention and dedication to the Company, and in order to further such interests the Committee has authorized the Company to enter into this Agreement; and
WHEREAS, this Agreement will operate in addition to the existing Employment Agreement (as defined in Section 1) between the Executive and the Company (or one of its Affiliates), except that the Executive will not be entitled to both the severance or consulting compensation payable under such Employment Agreement and the severance benefits provided under this Agreement, but in any event, will continue to be subject to all of the covenants set forth in the Employment Agreement, including those relating to confidentiality, noncompetition and developments.
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Executive hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below:
(a) Affiliate means, with respect to any specified Person, (i) any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person (for the purposes of this definition, control (including, with correlative meanings, the terms controlling, controlled by and under common control with), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise), and (ii) with respect to any natural Person, any member of the immediate family of such natural Person.
(b) Affiliated Fund means with respect to any Investors, each corporation, trust, limited liability company, general or limited partnership or other entity under common control with that Investor (including any such entity with the same general partner or principal investment advisor as that Investor or with a general partner or principal investment advisor that is an Affiliate of the general partner or principal investment advisor of that Investor).
(c) Board means the Board of Directors of the Company.
(d) Cause shall have the meaning set forth in the Employment Agreement; provided that if the Executive has no employment agreement with such definition, then Cause shall mean the occurrence of any of the following: (i) the Committee, in good faith, determines that the Executive has engaged, during the performance of his or her duties, in significant objective acts or omissions constituting dishonesty, willful misconduct or gross negligence relating to the business of the Company or (ii) a plea of guilty or nolo contendere by the Executive, or conviction of the Executive, for a felony.
(e) Change in Control means the occurrence of any of the following:
(1) a sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole;
(2) any consolidation or merger of the Company with or into any other corporation or other person, or any other corporate reorganization or transaction (including the acquisition of capital stock of the Company), whether or not the Company is a party thereto, in which the stockholders of the Company immediately prior to such consolidation, merger, reorganization or transaction, own capital stock and either:
(i) represent directly, or indirectly through one or more entities, less than fifty percent (50%) of the economic interests in or voting power of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction, or
(ii) do not directly, or indirectly through one or more entities, have the power to elect a majority of the entire board of directors of the Company or other surviving entity immediately after such consolidation, merger, reorganization or transaction; or
(3) any stock sale or other transaction or series of related transactions, whether or not the Company is a party thereto, after giving effect to which in excess of fifty percent (50%) of the Companys voting power is owned directly, or indirectly though one or more entities, by any person and its affiliates or associates (as such terms are defined in the rules adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), other than the Investors and their respective Affiliated Funds;
but excluding, in any case referred to in clause (2) or (3) of this definition the Initial Public Offering or any bona fide primary or secondary public offering following the occurrence of the Initial Public Offering.
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(f) Code means the Internal Revenue Code of 1986, as amended, including any regulations adopted thereunder.
(g) Committee means the Compensation Committee of the Board.
(h) Date of Termination means the date on which the Executive separates from service, within the meaning of Section 409A of the Code.
(i) Employment Agreement means the Employment Agreement, if any, between the Executive and the Company.
(j) Good Reason means, without the Executives express written consent, the occurrence of any of the following events after a Change in Control:
(1) either (i) a reduction in any material respect in the Executives position(s), duties or responsibilities with the Company, as in effect during the 90-day period immediately prior to such Change in Control, or (ii) an adverse material change in the Executives reporting responsibilities, titles or offices with the Company as in effect immediately prior to the such Change in Control;
(2) a reduction of 20 percent (20%) or more in the Executives rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter;
(3) any requirement of the Company that the Executive be based more than 50 miles from the facility where the Executive is based immediately prior to such Change in Control;
(4) the failure of the Company to provide the Executive with target bonus opportunities and employee benefits (excluding equity-based compensation, equity-based benefits and nonqualified deferred compensation) that are substantially comparable in the aggregate to the target bonus opportunities and employee benefits provided to the Executive by the Company and its Affiliates immediately prior to such Change in Control; or
(5) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 10(b) or any other material breach of this Agreement or the Employment Agreement;
provided, however, that (x) the Executive provides written notice to the Company of the occurrence of any of the events set forth in clauses (1) (5) of this definition within 90 days after the Executive has knowledge of the circumstances constituting such event; (y) the Company fails to correct the circumstances resulting in any of the events set forth in clauses (1) (5) within 30 days after such notice; and (z) the Executive resigns within six months after the initial existence of such circumstances. For purposes of this Agreement, an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company or any of its Affiliates promptly after receipt of notice thereof given by the Executive shall not constitute Good Reason.
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(k) Initial Public Offering means the initial public offering of the Company registered on Form S-1 (or any successor form under the Securities Act of 1933, as amended).
(l) Investors means the Other Investors, Quadrangle Investors and THL Investors.
(m) Nonqualifying Termination means a termination of the Executives employment:
(1) by the Company or any of its Affiliates for Cause;
(2) by the Executive for any reason other than a Good Reason;
(3) as a result of the Executives death; or
(4) by the Company or any of its Affiliates due to the Executives failure to perform his or her duties with the Company or its Affiliates on a full-time basis for at least 180 consecutive days as a result of the Executives incapacity due to physical or mental illness.
(n) Other Investors means SONJ Private Opportunities Fund, L.P. and its Affiliates.
(o) Person means any individual, partnership, corporation, company, association, trust, joint venture, limited liability company, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof.
(p) Quadrangle Investors means Quadrangle Capital Partners II LP, Quadrangle Capital Partners II-A LP, Quadrangle Select Partners II LP, and their respective Affiliates.
(q) Termination Period means the period of time beginning with a Change in Control and ending on the earlier to occur of:
(1) two years following such Change in Control; and
(2) the Executives death.
(r) THL Investors means Thomas H. Lee Equity Fund VI, L.P., Thomas H. Lee Parallel Fund VI, L.P., Thomas H. Lee Parallel (DT) Fund VI, L.P., THL Equity Fund VI Investors (West), L.P., THL Coinvestment Partners, L.P., Putnam Investments Holdings, LLC, Putnam Investments Employees Securities Company III LLC, THL Fund VI Bridge Corp., THL Parallel Fund VI Bridge Corp., THL DT Fund VI Bridge Corp. and their respective Affiliates.
2. Obligations of the Executive. The Executive agrees that in the event any person or group attempts a Change in Control, the Executive shall not voluntarily leave the employ of the Company or its Affiliates without Good Reason:
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(a) until such attempted Change in Control terminates; or
(b) if a Change in Control shall occur, until 90 days following such Change in Control.
For purposes of this Section 2, Good Reason shall be determined as if a Change in Control had occurred when such attempted Change in Control became known to the Board.
3. Payments upon Termination of Employment.
(a) If, during the Termination Period, the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Executive shall be entitled to the following payments and benefits:
(1) The Company shall pay to the Executive (or the Executives beneficiary or estate) within 30 days after the Date of Termination (except as otherwise provided for in Section 14), as compensation for services rendered to the Company and its Affiliates:
(i) a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) equal to the sum of (x) the Executives base salary from the Company and its Affiliates through the Date of Termination, to the extent not theretofore paid, (y) the Executives annual bonus under the Companys or its Affiliates annual bonus plan earned with respect to the fiscal year immediately prior to the fiscal year in which the Date of Termination occurs, to the extent not theretofore paid and (z) an amount equal to the Executives target annual bonus (without regard to any amounts that would otherwise be deferred) immediately prior to the Change in Control (or if higher, the Executives target annual bonus in respect of the fiscal year in which the Date of Termination occurs), multiplied (in the case of clause (z) only) by a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365 or 366, as applicable; plus
(ii) a lump sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 4) equal to the sum of [one (1)] [two (2)] [three (3)] times the Executives highest annual base salary from the Company and its Affiliates (without regard to any amounts that would otherwise be deferred) in effect during the 12-month period prior to the Date of Termination and [one (1)] [two (2)] [three (3)] times the Executives target annual bonus (without regard to any amounts that would otherwise be deferred) immediately prior to the Date of Termination (or, if higher, the average of the annual bonuses earned by the Executive in respect of the three fiscal years of the Company (or such portion thereof during which the Executive performed services for the Company if the Executive shall have been employed by the Company for less than such three fiscal year period) immediately preceding the fiscal year in which the Change in Control occurs).
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(iii) In the event that the aggregate cash severance and consulting compensation payable under the Employment Agreement would exceed the amounts payable to the Executive pursuant to this Section 3(a)(1), then the Executive shall be entitled to the cash severance and consulting compensation payable under the Employment Agreement in lieu of the amounts payable pursuant to this Section 3(a)(1). Subject to Sections 3(d) and 14 of this Agreement, such amounts shall be paid by the Company to the Executive within 30 days after the Date of Termination.
(2) For a period of [one] [two] [three] years commencing on the Date of Termination, the Company and its Affiliates shall, to the extent permitted under the applicable plans, continue to keep in full force and effect all medical, accident, disability and life insurance benefits with respect to the Executive and the Executives dependents with substantially the same level of coverage, upon substantially the same terms and otherwise to the same extent as such benefits shall have been in effect immediately prior to the Change in Control or, if more favorable to the Executive, as provided generally with respect to other peer employees of the Company and its Affiliates, and the Company and the Executive shall share the costs of the continuation of such benefit coverage in the same proportion as such costs were shared immediately prior to the Change in Control. To the extent the Company is unable to provide such benefit coverage for reasons other than cost, the Company shall reimburse the Executive for the amount necessary for the Executive to acquire comparable benefit coverage, reduced by the portion of the applicable premiums otherwise payable by the Executive, with such reimbursement to be made not later than 90 days after the date on which the Executive submits to the Company all required documentation evidencing the reimbursable expense, but in no event later than the end of the calendar year following the calendar year in which the expense was incurred. After the expiration of such [one] [two] [three]-year period, the Executive shall be entitled to continue the Executives medical coverage under applicable law (COBRA), at Executives expense.
(3) Each long-term incentive award granted to the Executive, including without limitation each option, restricted stock, restricted stock unit and other equity-based award, shall become fully vested, and to the extent any such award is subject to the attainment of specified performance measures, such performance measures shall be deemed satisfied at the target level.
(4) For a period of [twelve] [six] months commencing on the Date of Termination, the Executive shall receive outplacement assistance services from an outplacement agency selected by the Executive and the Company shall pay all costs of such services; provided that such costs shall not exceed $15,000 in the aggregate.
(5) Except as otherwise provided for in Section 3(a)(1), any amounts paid or benefits provided pursuant to this Section 3(a) shall be paid in lieu of any other amount of severance or consulting compensation that would otherwise be received by the Executive upon termination of employment of the Executive under any severance plan, policy or arrangement of the Company or its Affiliates, including any severance or consulting compensation payable under the Employment Agreement.
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To be eligible for any payments under this Section 3(a), the Executive must execute and deliver to the Company, within 21 days after the Executives Date of Termination, a final and complete release in a form that is reasonably acceptable to and approved by the Company (and not revoke such release).
(b) If, during the Termination Period, the employment of the Executive shall terminate by reason of a Nonqualifying Termination, or if for any other reason the Executive is not entitled to the payments and benefits set forth in Section 3(a), then the rights of the Executive to severance or consulting compensation shall be determined pursuant to the terms of the Employment Agreement.
(c) If the Executives employment is terminated by the Company without Cause prior to a Change in Control at the direction or request of any person or group contemplating a Change in Control, and a Change in Control involving such person or group is thereafter consummated within 12 months following such direction or request, then for purposes of this Agreement the employment of the Executive shall be deemed to have been terminated as of the first day of the Termination Period and the Executive shall be entitled to the benefits set forth in Section 3(a); provided that such benefits shall be reduced and offset by any severance or consulting benefits received by the Executive prior to the consummation of such Change in Control pursuant to the Employment Agreement or otherwise; and provided further that the Executive executes a release as contemplated by Section 3(a). Any amounts payable pursuant to this Section 3(c) shall be paid within 30 days following the Change in Control, except as otherwise provided for in Section 14.
(d) Notwithstanding any other provision in this Agreement, if the Executive shall be entitled to any amounts payable pursuant to Section 3(a) or Section 3(c) in respect of a Change in Control which does not constitute a change in control event within the meaning of Treasury Regulation §1.409A-3(i)(5), and such Executive is a party to an Employment Agreement that, but for this Agreement, would provide for the payment of severance benefits at a time or in a form that is different than the time and form of payment under this Agreement, then to the extent necessary to comply with Section 409A of the Code and subject to Section 14 of this Agreement, the amounts payable pursuant to Section 3(a) or Section 3(c) shall be payable at the same time and in the same form as provided under such Employment Agreement. For the avoidance of doubt, nothing in this Section 3(d) is intended to reduce the aggregate amount payable to the Executive pursuant to Section 3(a) or 3(c) of this Agreement.
4. Withholding Taxes. The Company or its Affiliates may withhold from all payments due to the Executive (or his or her beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company or its Affiliates is required to withhold therefrom.
5. Reduction in Benefits. If at any time or from time to time, the Executive shall determine that any payment or other benefit to the Executive pursuant to this Agreement (Potential Parachute Payment) is or will become subject to the excise tax imposed by Section 4999 of the Code or any similar tax payable under any United States federal, state, local, foreign or other law (Excise Taxes), then the Executive may make a written election, delivered to the Company, to reduce the Potential Parachute Payments to the largest amount that could be
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payable without causing any Potential Parachute Payment to be (i) subject to any Excise Tax or (ii) nondeductible by the Company by reason of Section 280G of the Code (or any successor provision). Any such reductions shall be applied first to reduce the amount of the lump sum payment pursuant to Section 3(a)(1)(ii), and if further reductions are necessary, such reductions shall be applied on a prorated basis to all other Potential Parachute Payments that would be subject to an Excise Tax.
6. Reimbursement of Expenses. If any contest or dispute shall arise under this Agreement involving termination of the Executives employment with the Company or its Affiliates or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Executive, on a current basis, for all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute, together with interest thereon at a rate equal to the prime rate, as published in The Wall Street Journal from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives the Executives statement for such fees and expenses (to the extent paid by the Executive) through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding that the Executives claims in such contest or dispute were without merit, the Executive shall be required to reimburse the Company, over a period of 12 months from the date of such resolution, for all sums advanced to the Executive pursuant to this Section 6, including interest.
7. Operative Event. Notwithstanding any provision herein to the contrary, except as set forth in Section 3(c), no amounts shall be payable hereunder unless and until a Change in Control is consummated at a time when the Executive is employed by the Company.
8. Termination of Agreement.
(a) This Agreement shall be effective on the date hereof and shall terminate upon the earliest to occur of (i) except as provided in Section 3(c), termination of the Executives employment by the Company or its Affiliates prior to a Change in Control, (ii) termination of the Executives employment pursuant to a Nonqualifying Termination and (iii) the expiration of the Termination Period with respect to the first Change in Control to occur after the date of this Agreement.
(b) The Company shall have the right prior to a Change in Control, in its sole discretion, pursuant to action by the Committee, to approve the termination of this Agreement, which termination shall not become effective until the date fixed by the Committee for such termination, which date shall be at least 120 days after notice thereof is given by the Company to the Executive in accordance with Section 11; provided, however, that no such action shall be taken by the Committee during any period of time when the Committee has knowledge that any person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Committee, such person has abandoned or terminated its efforts to effect a Change in Control.
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9. Scope of Agreement. Nothing in this Agreement shall be deemed to entitle the Executive to continued employment with the Company or its Affiliates and, if the Executives employment with the Company or its Affiliates shall terminate at a time other than the Termination Period, then, except as specifically provided herein, the Executive shall have no further rights under this Agreement.
10. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred, and all references herein to actions or omissions of the Company following such merger, consolidation or transfer of assets shall be deemed references to actions or omissions of such surviving or resulting corporation or transferee.
(b) The Company agrees that concurrently with any merger or consolidation in which the Company is not the surviving or resulting corporation or any transfer of all or substantially all of the assets of the Company, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Executive (or his or her beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to or concurrently with the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Agreement and (i) if such merger, consolidation or transfer is a change in control event, within the meaning of Section 409A of the Code, or (ii) the Executive terminates employment for Good Reason, the Executive shall be entitled to compensation and other benefits from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executives employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be enforceable by the Executives personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts would be payable to the Executive hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executives estate.
11. Notices.
(a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed:
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(1) if to the Executive, to the home address of the Executive maintained in the Companys business records, and if to the Company, to West Corporation, 11808 Miracle Hills Drive, Omaha, Nebraska 68154, Attention: Executive Vice President and General Counsel, with a copies to the Secretary and the Chairman of the Compensation Committee of the Board, or
(2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
(b) A written notice of the Executives Date of Termination by the Company or the Executive, as the case may be, to the other, shall (1) indicate the specific termination provision in this Agreement relied upon, (2) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executives employment under the provision so indicated and (3) specify the termination date (which date shall be not less than 15 days after the giving of such notice). The failure by the Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executives or the Companys rights hereunder.
12. Full Settlement; Resolution of Disputes.
(a) The Companys obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the Executive in the event of any termination of the Executives employment, then, unless and until there is a final, nonappealable judgment by a court or arbitral tribunal of competent jurisdiction or a written agreement signed by both parties addressing such dispute, in each case declaring that such termination was for Cause, that the termination of employment by the Executive was without Good Reason, or that the Company is not otherwise obligated to pay any amount to the Executive and his or her dependents or other beneficiaries, as the case may be, under Section 3(a), the Company shall pay all amounts to an escrow account until there is a final nonappealable judgment by a court or arbitral tribunal of competent jurisdiction, or a written agreement signed by both parties addressing such dispute, as the case may be, that resolves whether the Company would be required to pay such amounts pursuant to Sections 3(a) as though such termination were by the Company without Cause or by the Executive with Good Reason, in which case such amounts would be released from escrow to the Executive, or not, in which case such amounts would be released from escrow to the Company.
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13. Employment with Affiliates. Employment with the Company for purposes of this Agreement shall include employment with any Affiliate of the Company.
14. Section 409A. This Agreement is intended to comply with the requirements of Section 409A of the Code, and shall be interpreted and construed consistently with such intent. In the event the terms of this Agreement would subject Executive to taxes or penalties under Section 409A of the Code (409A Penalties), the Company and Executive shall cooperate diligently to amend the terms of the Agreement to avoid such 409A Penalties, to the extent possible; provided that in no event shall the Company be responsible for any 409A Penalties that arise in connection with any amounts payable under this Agreement. Notwithstanding any other provision in this Agreement, to the extent any payments hereunder constitutes nonqualified deferred compensation, within the meaning of Section 409A of the Code, then (i) each such payment which is conditioned upon Executives execution of a release and which is to be paid or provided during a designated period that begins in one taxable year and ends in a second taxable year, shall be paid or provided in the later of the two taxable years and (ii) if Executive is a specified employee, as defined in Section 409A of the Code, as of the Date of Termination, then to the extent any amount payable under this Agreement is payable upon Executives separation from service, within the meaning of Section 409A of the Code, and under the terms of this Agreement would be payable prior to the six-month anniversary of Executives Date of Termination, such payment shall be delayed until the earlier to occur of (a) the six-month anniversary of the Date of Termination or (b) the date of Executives death. Any reimbursement or advancement payable to Executive pursuant to this Agreement shall be conditioned on the submission by Executive of all expense reports reasonably required by the Company under any applicable expense reimbursement policy, and shall be paid to Executive within 30 days following receipt of such expense reports, but in no event later than the last day of the calendar year following the calendar year in which Executive incurred the reimbursable expense. Any amount of expenses eligible for reimbursement, or in-kind benefit provided, during a calendar year shall not affect the amount of expenses eligible for reimbursement, or in-kind benefit to be provided, during any other calendar year. The right to any reimbursement or in-kind benefit pursuant to this Agreement shall not be subject to liquidation or exchange for any other benefit.
15. Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Nebraska without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which other provisions shall remain in full force and effect.
16. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both of which together shall constitute one and the same instrument.
17. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by the Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar
11
provisions or conditions at the same or at any prior or subsequent time. Failure by the Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as otherwise expressly set forth in this Agreement, the rights and obligations of, and the benefits payable to, the Executive, or his or her estate or beneficiaries pursuant to this Agreement are in addition to any rights and obligations of, and benefits payable to, the Executive, or his or her estate or beneficiaries under any other employee benefit plan, employment agreement or compensation program of the Company or any of its Affiliates, including the Employment Agreement. Without limiting the scope of the foregoing, the Executive shall be subject to all covenants set forth in the Employment Agreement, including those relating to confidentiality, noncompetition and developments, and such covenants shall be fully enforceable pursuant to the terms of the Employment Agreement, regardless of whether the Executive is entitled to the benefits set forth herein or in the Employment Agreement.
12
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and the Executive has executed this Agreement as of the day and year first above written.
WEST CORPORATION | ||
By: | ||
Name: |
||
Title: |
||
Name: [First Name] [Middle Initial] [Last Name] |
13
Exhibit 10.3
AMENDMENT NUMBER ONE
TO THE
WEST CORPORATION NONQUALIFIED DEFERRED COMPENSATION PLAN
WHEREAS, West Corporation, a Delaware corporation (the Company), maintains the West Corporation Nonqualified Deferred Compensation Plan, as amended and restated effective as of March 27, 2013 (the Plan);
WHEREAS, pursuant to Article VIII of the Plan, the Company has the authority to amend the Plan; and
WHEREAS, the Board has authorized an amendment of the Plan to provide participants in the Plan with the right to elect the form of notional investment for any dividend equivalent payments credited to each participants Deferral Account arising from the vested portion of a participants notional investment in the Companys common stock, in accordance with the terms of this Amendment.
NOW, THEREFORE, BE IT RESOLVED, that the Plan hereby is amended, effective as of April 24, 2013, as follows:
1. Section 3.3 is hereby amended to add the following new paragraph at the end thereof:
Notwithstanding any then-current or prior Investment Designation, each Participant may elect to direct the notional investment of the Dividend Equivalent arising from the vested portions of the notional investments in Common Stock to be notionally invested in Measurement Funds or Common Stock in accordance with this Section 3.3 and procedures established by the Company.
2. Section 3.4 is hereby amended to add the following new subsection (c) at the end thereof
(c) For purposes of the Plan, Earnings on Common Stock shall include cash dividends payable to holders of Common Stock (Cash Dividends), and each Participants Deferral Account that is deemed to be notionally invested in Common Stock as of the close of business on the applicable record date for a Cash Dividend shall be credited on the payment date for such Cash Dividend with an amount equal to the per share value of the Cash Dividend multiplied by the number of shares of Common Stock in which the Deferral Account is deemed to be notionally invested (the Dividend Equivalent); provided, however, that (i) the Dividend Equivalent shall be subject to the same payment and other Plan terms that apply to the shares of Common Stock to which the Dividend Equivalent relates; (ii) any Dividend Equivalent attributable to any unvested Employer Matching Contributions shall vest, if applicable, or be forfeited, if applicable, at the same time and on the same basis as the underlying Employer Matching Contribution; and (iii) unless otherwise directed pursuant to an investment election
made available to Participants pursuant to Section 3.3, the Dividend Equivalent shall be notionally invested in additional shares of Common Stock. The Participant shall not be eligible for Employer Matching Contributions on any Dividend Equivalent notionally invested in Common Stock.
***
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized agent on this 24th day of April, 2013.
WEST CORPORATION | ||
By: | /s/ Paul M. Mendlik | |
Name: Paul M. Mendlik | ||
Title: Chief Financial Officer |
2
Exhibit 31.01
CERTIFICATION
I, Thomas B. Barker, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of West Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 29, 2013 | /s/ Thomas B. Barker | |||||
Thomas B. Barker | ||||||
Chief Executive Officer |
Exhibit 31.02
CERTIFICATION
I, Paul M. Mendlik, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of West Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 29, 2013 | /s/ Paul M. Mendlik | |||||
Paul M. Mendlik | ||||||
Chief Financial Officer and Treasurer |
Exhibit 32.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of West Corporation (the Company) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Thomas B. Barker, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Thomas B. Barker |
Thomas B. Barker |
Chief Executive Officer |
April 29, 2013 |
Exhibit 32.02
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of West Corporation (the Company) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Paul M. Mendlik, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Paul M. Mendlik |
Paul M. Mendlik |
Chief Financial Officer and Treasurer |
April 29, 2013 |
Acquisitions - Summary of Estimated Fair Values of Assets Acquired and Liabilities Assumed at Acquisition (Detail) (HyperCube [Member], USD $)
In Thousands, unless otherwise specified |
Mar. 23, 2012
|
---|---|
HyperCube [Member]
|
|
Business Acquisition [Line Items] | |
Working Capital | $ 1,212 |
Property and equipment | 10,114 |
Other assets, net | 391 |
Intangible assets | 19,110 |
Goodwill | 49,723 |
Total assets acquired | 80,550 |
Non-current deferred taxes | 2,594 |
Long-term liabilities | 50 |
Total liabilities assumed | 2,644 |
Net assets acquired | $ 77,906 |
Stock-Based Compensation - Additional Information (Detail) (USD $)
In Millions, except Share data, unless otherwise specified |
1 Months Ended | 3 Months Ended | 3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 15, 2012
|
Mar. 31, 2013
|
Mar. 31, 2012
|
Mar. 31, 2013
Modified Agreement [Member]
|
Mar. 31, 2013
Executive Management Rollover Options [Member]
|
Dec. 31, 2012
EIP [Member]
Prior Year [Member]
|
Dec. 31, 2012
Option Certificate [Member]
|
Mar. 31, 2013
Stock Options [Member]
|
Mar. 31, 2013
Restricted Stock [Member]
|
Mar. 31, 2013
Restricted Stock [Member]
Selling, General and Administrative Expenses [Member]
|
Mar. 31, 2013
Long Term Incentive Plan [Member]
|
Dec. 31, 2012
Maximum [Member]
|
Dec. 31, 2012
Maximum [Member]
EIP [Member]
Prior Year [Member]
|
|
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items] | |||||||||||||
Share based payment award vesting period | 4 years | 4 years | 5 years | ||||||||||
The annual vesting and exercisable percentage options awarded | 20.00% | 25.00% | |||||||||||
Cash Dividend Per Share | $ 8.00 | ||||||||||||
Share-based Compensation, Accelerated Vesting | $ 6.8 | ||||||||||||
Option Granted Price Modified | $ 8.00 | ||||||||||||
Option Granted Price Modified | $ 25.52 | ||||||||||||
Dividend Equivalent Payment | 1.5 | ||||||||||||
The percentage of options awarded that are expected to vest | 72.00% | ||||||||||||
Intrinsic value of vested options | 1.1 | 3.5 | |||||||||||
Fair value of option awards granted under the EIP | $ 9.04 | $ 12.24 | |||||||||||
Fair value of option awards granted under the EIP, Initial Awards | $ 5.92 | ||||||||||||
Fair value of option awards, reduced exercise price | $ 8.96 | ||||||||||||
Unrecognized compensation cost related to unvested | 13.9 | 23.9 | |||||||||||
Number of accelerated shares vested | 42,562 | 5,000 | |||||||||||
Compensation expense in selling general and administrative expense | $ 3.2 | $ 0.1 | $ 1.2 | ||||||||||
Common stock granted under plan | 8,500,000 |
Accrued Expenses - Accrued Expense (Parenthetical) (Detail) (USD $)
|
3 Months Ended | |
---|---|---|
Mar. 31, 2013
|
Dec. 31, 2012
|
|
Accrued And Other Liabilities [Line Items] | ||
Long-term deferred revenue | $ 30,602,000 | $ 33,286,000 |
Sponsor fees | $ 24,000,000 |
EARNINGS PER SHARE (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
|
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Weighted Average Number of Shares Outstanding |
|
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