Attached files

file filename
EX-31.01 - EX-31.01 - WEST CORPd928243dex3101.htm
EX-32.02 - EX-32.02 - WEST CORPd928243dex3202.htm
EX-15.01 - EX-15.01 - WEST CORPd928243dex1501.htm
EX-32.01 - EX-32.01 - WEST CORPd928243dex3201.htm
EX-31.02 - EX-31.02 - WEST CORPd928243dex3102.htm
Table of Contents

 

 

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 June 30, 2015

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)

Registrant’s 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  x    No  ¨

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   x    Accelerated filer   ¨
Non-accelerated filer   ¨    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 July 29, 2015, 82,861,282 shares of the registrant’s common stock were outstanding.

 

 

 


Table of Contents

INDEX

 

     Page No.  

PART I. FINANCIAL INFORMATION

     3   

Item 1. Financial Statements (Unaudited)

     3   

Report of Independent Registered Public Accounting Firm

     3   

Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2015 and 2014

     4   

Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June  30, 2015 and 2014

     5   

Condensed Consolidated Balance Sheets - June 30, 2015 and December 31, 2014

     6   

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014

     7   

Condensed Consolidated Statements of Stockholders’ Deficit - Six Months Ended June 30, 2015 and 2014

     8   

Notes to Condensed Consolidated Financial Statements

     9   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     29   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     44   

Item 4. Controls and Procedures

     45   

PART II. OTHER INFORMATION

     46   

Item 1. Legal Proceedings

     46   

Item 1A. Risk Factors

     46   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

Item 6. Exhibits

     47   

SIGNATURES

     48   
EXHIBIT INDEX      49   

In this report, “West,” the “Company,” “we,” “us” and “our” refers to West Corporation and subsidiaries.

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

West Corporation

Omaha, Nebraska

We have reviewed the accompanying condensed consolidated balance sheet of West Corporation and subsidiaries (the “Company”) as of June 30, 2015, and the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2015 and 2014, and of stockholders’ deficit and cash flows for the six-month periods ended June 30, 2015 and 2014. These interim financial statements are the responsibility of the Company’s 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, 2014, 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 19, 2015, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company’s plan to sell certain agent-based businesses. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2014 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

August 5, 2015

 

3


Table of Contents

WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2015     2014     2015     2014  

REVENUE

   $ 571,891      $ 552,319      $ 1,137,381      $ 1,087,459   

COST OF SERVICES

     245,266        239,695        484,967        465,206   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     210,192        197,063        425,288        392,502   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

  116,433      115,561      227,126      229,751   

OTHER INCOME (EXPENSE):

Interest expense, net of interest income of $173, $32, $199 and $166

  (38,433   (48,361   (77,275   (97,337

Other, net

  (100   2,473      3,739      3,226   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

  (38,533   (45,888   (73,536   (94,111
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE

  77,900      69,673      153,590      135,640   

INCOME TAX EXPENSE ATTRIBUTED TO CONTINUING OPERATIONS

  28,677      25,146      55,733      49,016   
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME FROM CONTINUING OPERATIONS

  49,223      44,527      97,857      86,624   

INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES

  358      3,232      32,224      7,413   
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

$ 49,581    $ 47,759    $ 130,081    $ 94,037   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER COMMON SHARE - BASIC:

Continuing Operations

$ 0.59    $ 0.53    $ 1.17    $ 1.03   

Discontinued Operations

  0.00      0.04      0.38      0.09   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Earnings Per Common Share - Basic

$ 0.59    $ 0.57    $ 1.55    $ 1.12   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER COMMON SHARE - DILUTED:

Continuing Operations

$ 0.58    $ 0.52    $ 1.14    $ 1.01   

Discontinued Operations

  0.00      0.04      0.37      0.09   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Earnings Per Common Share - Diluted

$ 0.58    $ 0.56    $ 1.51    $ 1.10   
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

Basic

  83,394      83,953      83,758      83,879   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  85,592      85,398      85,920      85,312   
  

 

 

   

 

 

   

 

 

   

 

 

 

DIVIDENDS DECLARED:

Dividends declared per common share

$ 0.225    $ 0.225    $ 0.45    $ 0.45   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

4


Table of Contents

WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2015      2014      2015     2014  

Net income

   $ 49,581       $ 47,759       $ 130,081      $ 94,037   

Foreign currency translation adjustments, net of tax of $(4,762), $(1,767), $12,371 and $(418)

     8,171         2,993         (21,718     708   
  

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income

$ 57,752    $ 50,752    $ 108,363    $ 94,745   
  

 

 

    

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

5


Table of Contents

WEST CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

     June 30,
2015
    December 31,
2014
 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 158,492      $ 115,061   

Trust and restricted cash

     20,134        18,573   

Accounts receivable, net of allowance of $9,188 and $7,544

     375,939        355,625   

Prepaid assets

     50,264        45,242   

Deferred expenses

     62,593        65,317   

Other current assets

     36,152        30,575   

Assets held for sale

     17,524        304,605   
  

 

 

   

 

 

 

Total current assets

  721,098      934,998   

PROPERTY AND EQUIPMENT:

Property and equipment

  1,047,698      1,045,769   

Accumulated depreciation and amortization

  (723,234   (695,739
  

 

 

   

 

 

 

Total property and equipment, net

  324,464      350,030   

GOODWILL

  1,881,074      1,884,920   

INTANGIBLE ASSETS, net of accumulated amortization of $559,119 and $527,153

  364,488      388,166   

OTHER ASSETS

  258,750      259,961   
  

 

 

   

 

 

 

TOTAL ASSETS

$ 3,549,874    $ 3,818,075   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:

Accounts payable

$ 87,162    $ 91,353   

Deferred revenue

  141,368      144,413   

Accrued expenses

  216,945      228,424   

Current maturities of long-term debt

  10,310      16,246   

Liabilities held for sale

  —        84,788   
  

 

 

   

 

 

 

Total current liabilities

  455,785      565,224   

LONG-TERM OBLIGATIONS, less current maturities

  3,447,230      3,642,540   

DEFERRED INCOME TAXES

  90,904      96,632   

OTHER LONG-TERM LIABILITIES

  181,877      173,320   
  

 

 

   

 

 

 

Total liabilities

  4,175,796      4,477,716   

COMMITMENTS AND CONTINGENCIES (Note 13)

STOCKHOLDERS’ DEFICIT

Common stock $0.001 par value 475,000 shares authorized, 84,721 and 84,272 shares issued and 82,629 and 84,180 shares outstanding, respectively

  85      84   

Additional paid-in capital

  2,179,545      2,155,864   

Retained deficit

  (2,681,063   (2,772,775

Accumulated other comprehensive loss

  (59,224   (37,506

Treasury stock at cost (2,092 shares and 92 shares, respectively)

  (65,265   (5,308
  

 

 

   

 

 

 

Total stockholders’ deficit

  (625,922   (659,641
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$ 3,549,874    $ 3,818,075   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

6


Table of Contents

WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

     Six Months Ended  
     June 30,  
     2015     2014  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Income from continuing operations

   $ 97,857      $ 86,624   

Adjustments to reconcile income from continuing operations to net cash flows from operating activities:

    

Depreciation

     54,194        51,351   

Amortization

     39,469        31,078   

Provision for share-based compensation

     11,411        6,147   

Deferred income tax expense (benefit)

     2,202        (9,769

Amortization of deferred financing costs

     10,009        9,754   

Other

     220        6   

Changes in operating assets and liabilities, net of business acquisitions:

    

Accounts receivable

     (20,977     (23,402

Other assets

     (23,675     (45,670

Accounts payable

     18,812        23,647   

Accrued wages and benefits

     (3,741     (1,580

Accrued interest payable

     (19,524     (3,054

Accrued expenses and other liabilities

     (9,733     59,158   
  

 

 

   

 

 

 

Net cash flows from continuing operating activities

     156,524        184,290   

Net cash flows (used in) from discontinued operating activities

     (6,962     17,539   
  

 

 

   

 

 

 

Total net cash flows from operating activities

     149,562        201,829   

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Business acquisitions

     (17,296     (341,925

Purchases of property and equipment

     (64,864     (66,329

Other

     (1,561     (573
  

 

 

   

 

 

 

Net cash flows used in continuing investing activities

     (83,721     (408,827

Net cash flows from (used in) discontinued investing activities

     269,540        (9,402
  

 

 

   

 

 

 

Total net cash flows used in investing activities

     185,819        (418,229

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from revolving credit facilities

     139,000        185,000   

Payments on revolving credit facilities

     (324,000     —     

Payments of deferred financing and other debt-related costs

     (234     (5,981

Principal repayments on long-term obligations

     (16,246     —     

Proceeds from stock options exercised and ESPP shares issued including excess tax benefits

     8,462        3,533   

Dividends paid

     (37,767     (37,815

Repurchase of common stock

     (59,957     —     
  

 

 

   

 

 

 

Net cash flows (used in) from continuing financing activities

     (290,742     144,737   

Net cash flows (used in) from discontinued financing activities

     —          —     
  

 

 

   

 

 

 

Total net cash flows (used in) from financing activities

     (290,742     144,737   

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

     (1,208     1,323   

NET CHANGE IN CASH AND CASH EQUIVALENTS

     43,431        (70,340

CASH AND CASH EQUIVALENTS, Beginning of period

     115,061        230,041   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, End of period

   $ 158,492      $ 159,701   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

7


Table of Contents

WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)

 

     Common
Stock
     Additional
Paid - in
Capital
     Retained
Deficit
    Treasury
Stock
    Accumulated
Other
Comprehensive
Loss
    Total
Stockholders’
Deficit
 

BALANCE, January 1, 2015

   $ 84       $ 2,155,864       $ (2,772,775   $ (5,308   $ (37,506   $ (659,641

Net income

           130,081            130,081   

Dividends declared (cash dividend - $0.45 per share)

           (38,369         (38,369

Foreign currency translation adjustment, net

               (21,718     (21,718

Purchase of stock at cost (2,000,000 shares)

             (59,957       (59,957

Executive Deferred Compensation Plan activity (49,307 shares issued)

        3,844               3,844   

Shares issued from the Employee Stock Purchase Plan (131,865 shares)

        3,745               3,745   

Stock options exercised including related tax benefits (251,943 shares)

     1         5,631               5,632   

Share-based compensation

        10,461               10,461   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, June 30, 2015

   $ 85       $ 2,179,545       $ (2,681,063   $ (65,265   $ (59,224   $ (625,922
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, January 1, 2014

   $ 84       $ 2,132,441       $ (2,855,189   $ (5,308   $ (12,200   $ (740,172

Net income

           94,037            94,037   

Dividends declared (cash dividend - $0.45 per share)

           (37,758         (37,758

Foreign currency translation adjustment, net

               708        708   

Executive Deferred Compensation Plan activity (59,260 shares issued)

        1,358               1,358   

Shares issued from the Employee Stock Purchase Plan (153,375 shares)

        3,236               3,236   

Stock options exercised including related tax benefits (88,639 shares)

        786               786   

Share based compensation

        5,065               5,065   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, June 30, 2014

   $ 84       $ 2,142,886       $ (2,798,910   $ (5,308   $ (11,492   $ (672,740
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

8


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. ORGANIZATION, CONSOLIDATION AND PRESENTATION OF FINANCIAL STATEMENTS

Business Description: West Corporation (the “Company” or “West”) is a global provider of technology-enabled communication services. “We,” “us” and “our” also refer to West and its consolidated subsidiaries, as applicable. We offer a broad range of communication and network infrastructure solutions that help manage or support essential communications. These solutions include unified communications and conferencing services, safety services, interactive services such as automated notifications, telecom services and specialized agent 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, education, technology and healthcare. We have sales and/or operations in the United States, Canada, Europe, the Middle East, Asia-Pacific, Latin America and South America.

Discontinued Operations: On March 3, 2015, we divested several of our agent-based businesses, including our consumer facing customer sales and lifecycle management, account services and receivables management businesses, for $275.0 million in cash. We completed the divestiture pursuant to a purchase agreement executed January 7, 2015 and in accordance with a plan approved by our Board of Directors on December 30, 2014.

As a result of the sale, the related operating results for these businesses have been reflected as discontinued operations for all periods presented and the related assets and liabilities were classified as held for sale and measured at the lower of their carrying amount or fair value less costs to sell at December 31, 2014. Unless otherwise stated, financial results discussed herein refer to continuing operations.

Following the divestiture on March 3, 2015, we implemented a revised organizational structure, which our Chief Executive Officer utilizes for making strategic and operational decisions and allocating resources. Under the revised organizational structure, our five operating segments are aggregated into one reportable segment. Beginning in the first quarter of 2015, all prior period comparative information has been recast to reflect this change as if it had taken place in all periods presented.

Our Services

 

  Unified Communications and Conferencing Services. We provide our clients with an integrated suite of unified communications and conferencing services. We combine reliable, world-class technologies with deep experience and flexibility to provide solutions that are easy to use and scalable for every client’s specific need. Our products and services can transform every aspect of business by enabling personalized engagement, meetings anywhere, enhanced productivity and immersive communication experiences.

 

  Interactive Services. We help our clients automate, navigate and solve their communication challenges across the customer lifecycle. We design, integrate, deliver and manage applications, services, platforms and networks that aim to improve the customer experience and drive efficiencies for our clients. Our technology uses an omni-channel approach that brings together voice, text, email, push notification, fax, video, web, social media, hosted contact center and mobile to create an automated customer experience across channels. Our technology also directly interfaces with our client’s customer relationship management (“CRM”) systems.

 

9


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  Safety Services. We believe we are one of the largest providers of safety 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.

 

  Telecom Services. We are a leading provider of local and national tandem switching services to service providers throughout the United States. Our services support the convergence of traditional telecom, wireless services, VoIP technologies and over-the-top service providers. We leverage our sophisticated call routing and control platform to provide tandem interconnection services to the competitive marketplace.

 

  Specialized Agent Services. We provide our clients with specialized services using groups of highly trained employees. These services include business-to-business services, cost containment services and healthcare advocacy services.

Basis of Consolidation – The unaudited condensed consolidated financial statements include the accounts of West and its 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 Management’s 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, 2014. All intercompany balances and transactions have been eliminated. Our results for the six months ended June 30, 2015 are not necessarily indicative of what our results will be for other interim periods or for the full fiscal year.

Use of Estimates – The 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 Recognition – The Company’s revenue recognition policies follow the standards established by the Securities and Exchange Commission Topic 13: Revenue Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed or determinable and collectability is reasonably assured. Amounts billed in advance of providing service are deferred and recorded as deferred revenue or other long-term liabilities on the balance sheet until service has been provided.

Dividend – We funded the dividends paid in 2014 and the first six months of 2015 with cash generated by our operations and we anticipate funding future dividends 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 each of February 19, 2015 and May 28, 2015 we paid a $0.225 per common share quarterly dividend. The total dividend paid was approximately $19.0 million and $18.8 million to stockholders of record as of the close of business on February 10, 2015 and May 18, 2015, respectively, for a total of $37.8 million. On August 3, 2015, we announced a $0.225 per common share quarterly dividend. The dividend is payable September 3, 2015 to stockholders of record as of the close of business on August 24, 2015.

Public Offering - On March 18, 2015, we completed an underwritten public offering of 12,650,000 shares of common stock by certain of our existing stockholders at a public offering price of $30.75 per share, including 1,650,000 shares of common stock sold by the selling stockholders pursuant to the full exercise of the underwriters’ option to purchase additional shares. Concurrently with the closing of the offering, we repurchased 1,000,000 shares of common stock from the selling stockholders in a private transaction at $29.596875 per share, which was the purchase price at which the shares of common stock were sold to the public in the underwritten offering, less underwriting discounts and commissions for an aggregate purchase price of approximately $29.6 million.

 

10


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On June 24, 2015 and July 22, 2015, we completed an underwritten public offering of 7,000,000 and 200,000 shares of common stock, respectively, by certain of our existing stockholders at a public offering price of $30.75 per share, with the 200,000 shares of common stock sold by the selling stockholders pursuant to a partial exercise of the underwriters’ option to purchase additional shares. Concurrent with the closing of the offering on June 24, 2015, we repurchased 1,000,000 shares of common stock from the selling stockholders in a private transaction at $30.36 per share, which was the purchase price at which the shares of common stock were sold to the public in the underwritten offering, less underwriting discounts and commissions for an aggregate purchase price of approximately $30.4 million.

Recent Accounting Pronouncements - In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in the balance sheet. Under the new guidance, debt issuance costs will be reported as a direct deduction from the related liability rather than as an asset. The guidance is effective for annual periods beginning after December 15, 2015. The new guidance requires retrospective application and early adoption is permitted. The Company is considering early adoption of this guidance. The adoption of this guidance is not expected to have a material impact on the consolidated financial statements of the Company.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration it expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company beginning with the first quarter 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is in the process of assessing the impact of this standard on the Company’s financial statements.

 

2. DISCONTINUED OPERATIONS

On March 3, 2015, we divested several of our agent-based businesses, including our consumer facing customer sales and lifecycle management, account services and receivables management businesses, for $275.0 million in cash. We completed the divestiture pursuant to a purchase agreement executed January 7, 2015 and in accordance with a plan approved by our Board of Directors on December 30, 2014.

 

 

11


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Subject to a final working capital adjustment, the divestiture resulted in a $48.6 million gain on a pre-tax basis and a $29.6 million gain on an after tax basis which is included within income from discontinued operations for the six months ended June 30, 2015. The total after tax gain realized on the sale was $38.2 million, including the $8.6 million tax benefit associated with a higher tax basis than book basis that we were required to recognize in the fourth quarter of 2014. The following table summarizes the results of discontinued operations for the three and six months ended June 30, 2015 and 2014:

 

     Three Months Ended      Six Months Ended  
(Amounts in thousands)    June 30,
2015
     June 30,
2014
     June 30,
2015
     June 30,
2014
 

Revenue

   $ —         $ 140,699       $ 102,251       $ 283,638   

Operating income

     551         6,353         3,851         14,020   

Gain on disposal

     —           —           48,556         —     

Income before income tax expense

     551         6,285         52,234         13,921   

Income tax expense

     193         3,053         20,010         6,508   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from discontinued operations

   $ 358       $ 3,232       $ 32,224       $ 7,413   
  

 

 

    

 

 

    

 

 

    

 

 

 

During the three months ended June 30, 2015 we recorded in non-operating other expense $1.3 million of transition services costs associated with the divestiture, net of transition services revenue of $0.1 million. During the six months ended June 30, 2015 we recorded in non-operating other expense $1.1 million of transition services costs associated with the divestiture, net of transition services revenue of $0.5 million.

On January 30, 2015, we entered into an exclusive sales listing agreement to market certain land, building and improvements which were primarily occupied by the agent businesses we later divested on March 3, 2015. The net book value of these assets is $17.5 million and the assets are presented on our June 30, 2015 condensed consolidated balance sheet as assets held for sale and measured at the lower of their carrying amount or fair value less costs to sell.

 

 

12


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following is a summary of the assets and liabilities of discontinued operations which were held for sale as of June 30, 2015 and December 31, 2014:

 

     As of  
(Amounts in thousands)    June 30,
2015
     December 31,
2014
 

Assets:

     

Cash and cash equivalents

   $ —        $ —    

Trust and restricted cash

     —          2,411   

Accounts receivable net of allowance of $0 and $521

     —          92,699   

Deferred income taxes

     —          8,974   

Other assets

     —          5,499   

Property and equipment, net

     17,524         38,146   

Goodwill

     —          152,716   

Intangible and other assets

     —          4,160   
  

 

 

    

 

 

 

Total assets held for sale

$ 17,524    $ 304,605   
  

 

 

    

 

 

 

Liabilities:

Accounts payable

$ —     $ 19,660   

Accrued expenses

  —       29,249   

Deferred income taxes

  —       33,181   

Other liabilities

  —       2,698   
  

 

 

    

 

 

 

Total liabilities held for sale

$ —     $ 84,788   
  

 

 

    

 

 

 

Net assets held for sale

$ 17,524    $ 219,817   
  

 

 

    

 

 

 

We have agreed to indemnify the buyer, up to the full purchase price of $275.0 million, with respect to the equity interests of the companies we sold, title to the equity and assets sold and the authority of the Company to sell the equity and assets. The Company has also agreed to indemnify the buyer for breaches of other representations and warranties in the purchase agreement for up to $13.75 million in losses, and for certain other matters.

 

13


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. ACQUISITIONS

SharpSchool

Effective June 1, 2015, we completed the acquisition of substantially all of the assets of Intrafinity, Inc., doing business as SharpSchool, a leading provider of website and content management system software-as-a-service solutions for the K-12 education market (“SharpSchool”). The purchase price was approximately $17.2 million and was funded with cash on hand.

In the preliminary purchase price allocation, goodwill of $8.4 million, partially deductible for tax purposes under Canadian tax rules governing asset acquisitions, and finite-lived intangible assets of $8.9 million were recorded. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of SharpSchool were the expansion of our interactive services further into the education vertical market and anticipated synergies which are expected to result in a more efficient and faster growing K-12 business for West. SharpSchool has been integrated into the Interactive Services operating segment.

SchoolReach

On November 3, 2014, we completed the acquisition of the assets of GroupCast, L.L.C., a provider of alert and notification services for corporations, government entities and K-12 school districts that operates under two brands, GroupCast and SchoolReach (“SchoolReach”). SchoolReach is a provider of notification systems for thousands of smaller public school districts and private schools throughout the United States. The purchase price was approximately $13.5 million, less a working capital adjustment of $1.0 million, and was funded with cash on hand.

In the preliminary purchase price allocation, goodwill of $6.9 million, deductible for tax purposes under U.S. tax rules governing asset acquisitions, and finite-lived intangible assets of $7.4 million were recorded. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of SchoolReach were the expansion of our interactive services further into the education vertical market and anticipated synergies. SchoolReach has been integrated into the Interactive Services operating segment.

911 Enable

On September 2, 2014, we acquired the 911 Enable business of Connexon Group, Inc. (“911 Enable”), a provider of emergency communications solutions for IP-based enterprise customers across the United States and Canada. The purchase price was approximately $42.4 million and was funded with cash on hand.

In the preliminary purchase price allocation, goodwill of $20.3 million, deductible for tax purposes under U.S. tax rules governing asset acquisitions, and finite-lived intangible assets of $21.7 million were recorded. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of 911 Enable were the expansion of our enterprise VoIP 911 and safety communications services enabling improved emergency response services to business, government, education and non-profit organizations and anticipated synergies. The acquisition has been integrated into the Safety Services operating segment.

 

14


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Health Advocate

On June 13, 2014, we acquired Health Advocate, Inc. (“Health Advocate”), a leading provider of healthcare advocacy services. The purchase price was approximately $265.9 million and was funded with cash on hand and use of our revolving trade accounts receivable financing facility.

Health Advocate serves an estimated 10 million subscribers through more than 10,000 client relationships, including many of the nation’s largest employers, by helping members personally navigate healthcare and insurance-related issues, saving them time and money. Health Advocate leverages the power of pricing transparency and personalized health communications to help members make better informed decisions and get more value out of the healthcare system. Additional services include wellness coaching, employee assistant programs (EAPs), a nurse line, biometrics screenings and chronic care solutions. Health Advocate’s technology platform combined with clinical and health plan and claims billing experts can support consumers with a wide range of healthcare or health insurance issues.

In the purchase price allocation, goodwill of $156.0 million, not deductible for tax purposes under U.S. tax rules governing stock acquisitions, and finite-lived intangible assets of $152.0 million were recorded. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of Health Advocate were the opportunity to expand our services in the healthcare industry and anticipated synergies. Further, Health Advocate’s strong competitive position in the health advocacy market and Health Advocate’s suite of consumer focused services and health solutions provide cross-selling opportunities with our existing healthcare client base. The acquisition of Health Advocate was integrated into our Specialized Agent Services operating segment. During the six months ended June 30, 2015, we made an adjustment to the preliminary purchase price allocation decreasing goodwill and increasing fixed assets for $1.4 million and finalized our purchase price allocation.

SchoolMessenger

On April 21, 2014, we acquired Reliance Holdings, Inc., doing business through its wholly owned subsidiary Reliance Communications, LLC as SchoolMessenger (“SchoolMessenger”), a leading provider of notification and mobile communication solutions for the K-12 education market. The purchase price was approximately $77.4 million and was funded with cash on hand.

In the purchase price allocation, goodwill of $50.4 million, not deductible for tax purposes under U.S. tax rules governing stock acquisitions, and finite-lived intangible assets of $40.1 million were recorded. The primary factors that contributed to a purchase price resulting in the recognition of goodwill for the acquisition of SchoolMessenger were the opportunity to expand our interactive services into the adjacent education vertical market and anticipated synergies. The acquisition was integrated into the Interactive Services operating segment. During the six months ended June 30, 2015, we finalized our purchase price allocation for SchoolMessenger with no adjustments to the preliminary purchase price allocation.

 

15


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for SharpSchool, SchoolReach and 911 Enable and the final fair value of assets acquired and liabilities assumed for the Health Advocate and SchoolMessenger acquisitions.

 

     SharpSchool     SchoolReach     911 Enable      Health Advocate      SchoolMessenger  
(Amounts in thousands)                                 

Working Capital

   $ (1,036   $ (2,073   $ 596       $ 1,373       $ (9,751

Property and equipment

     782        342        59         7,439         1,574   

Other assets, net

     77        —          —           72         —     

Intangible assets

     8,900        7,350        21,685         151,990         40,145   

Goodwill

     8,440        6,923        20,289         156,014         50,386   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total assets acquired

     17,163        12,542        42,629         316,888         82,354   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Non-current deferred taxes

     —          —          —           43,034         4,231   

Long-term liabilities

     —          —          258         7,964         751   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total liabilities assumed

     —          —          258         50,998         4,982   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net assets acquired

   $ 17,163      $ 12,542      $ 42,371       $ 265,890       $ 77,372   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Acquisition costs incurred for prospective acquisitions and completed acquisitions for the three months ended June 30, 2015 and 2014 of $0.8 million and $1.2 million, respectively, are included in selling, general and administrative expenses. Acquisition costs incurred for prospective acquisitions and completed acquisitions for the six months ended June 30, 2015 and 2014 of $1.6 million and $1.5 million, respectively, are included in selling, general and administrative expenses.

The excess of the acquisition costs over the fair value of the assets acquired and liabilities assumed for the purchase of SharpSchool, SchoolReach and 911 Enable were assigned to goodwill based on preliminary estimates. We are in the process of completing the acquisition accounting for certain intangible assets and liabilities. The process of completing the acquisition accounting involves numerous time consuming steps for information gathering, verification and review. We expect to finalize this process within approximately twelve months following the respective acquisition dates.

Our acquisitions completed in 2014 and 2015 were included in the consolidated results of operations from their respective dates of acquisition and included revenue of $26.2 million and $61.4 million for the three and six months ended June 30, 2015, respectively. The net income impact of these acquisitions for the three and six months ended June 30, 2015 was not material.

Pro forma

Assuming the acquisitions of SharpSchool, SchoolReach, 911 Enable, Health Advocate and SchoolMessenger occurred as of the beginning of the periods presented, our unaudited pro forma results of operations for the three and six months ended June 30, 2015 and 2014 would have been, in thousands (except per share amounts), as follows:

 

     Three months ended June 30,      Six months ended June 30,  
     2015      2014      2015      2014  

Revenue from continuing operations

   $ 572,790       $ 577,815       $ 1,139,738       $ 1,146,600   

Income from continuing operations

   $ 49,173       $ 40,252       $ 97,592       $ 79,424   

Income per common share from continuing operations-basic

   $ 0.59       $ 0.48       $ 1.17       $ 0.95   

Income per common share from continuing operations-diluted

   $ 0.57       $ 0.47       $ 1.14       $ 0.93   

 

16


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The pro forma results above are not necessarily indicative of the operating results that would have actually occurred if the acquisitions had been in effect on the date indicated, nor are they necessarily indicative of future results of the combined company.

 

4. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents the changes in the carrying amount of goodwill for the year ended December 31, 2014 and six months ended June 30, 2015:

 

     (Amounts in thousands)  

Balance at January 1, 2014

   $ 1,671,205   

Acquisitions

     234,964   

Foreign currency translation adjustment

     (21,023

Acquisition accounting adjustments

     (226
  

 

 

 

Balance at December 31, 2014

$ 1,884,920   
  

 

 

 

Balance at January 1, 2015

$ 1,884,920   

Acquisitions

  8,440   

Foreign currency translation adjustment

  (10,933

Acquisition accounting adjustments

  (1,353
  

 

 

 

Balance at June 30, 2015

$ 1,881,074   
  

 

 

 

 

17


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Other intangible assets

Below is a summary of the major intangible assets for each identifiable intangible asset:

 

     As of December 31, 2014  

(Amounts in thousands)
Intangible assets

   Acquired
Cost
     Accumulated
Amortization
     Net Intangible
Assets
 

Client Relationships

   $ 622,285       $ (409,611    $ 212,674   

Technology & Patents

     168,932         (82,536      86,396   

Trade names (indefinite-lived)

     37,710         —           37,710   

Trade names and trademarks (finite-lived)

     65,866         (22,333      43,533   

Other intangible assets

     20,526         (12,673      7,853   
  

 

 

    

 

 

    

 

 

 

Total

   $ 915,319       $ (527,153    $ 388,166   
  

 

 

    

 

 

    

 

 

 
     As of June 30, 2015  

Intangible assets

   Acquired
Cost
     Accumulated
Amortization
     Net Intangible
Assets
 

Client Relationships

   $ 627,942       $ (430,294    $ 197,648   

Technology & Patents

     171,123         (88,974      82,149   

Trade names (indefinite-lived)

     37,710         —           37,710   

Trade names and trademarks (finite-lived)

     66,128         (25,467      40,661   

Other intangible assets

     20,704         (14,384      6,320   
  

 

 

    

 

 

    

 

 

 

Total

   $ 923,607       $ (559,119    $ 364,488   
  

 

 

    

 

 

    

 

 

 

Amortization expense for finite-lived intangible assets was $16.4 million and $13.3 million for the three months ended June 30, 2015 and 2014, respectively, and $33.0 million and $25.2 million for the six months ended June 30, 2015 and 2014, respectively. Estimated amortization expense for the intangible assets noted above for the year 2015 and the next five years is as follows:

 

2015

   $ 64.2 million   

2016

   $ 53.2 million   

2017

   $ 43.3 million   

2018

   $ 38.8 million   

2019

   $ 34.7 million   

2020

   $ 28.8 million   

 

18


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

5. ACCRUED EXPENSES

Accrued expenses consisted of the following as of:

 

(Amounts in thousands)    June 30,
2015
     December 31,
2014
 

Accrued phone

   $ 55,276       $ 45,501   

Accrued wages

     49,435         52,311   

Accrued other taxes (non-income related)

     43,090         39,249   

Interest payable

     24,999         44,523   

Income taxes payable

     6,529         1,045   

Accrued licensing costs

     5,815         984   

Accrued employee benefit costs

     4,627         5,039   

Accrued lease expense

     2,660         3,216   

Deferred income tax

     2,451         1,117   

Acquisition obligation

     —           6,115   

Other accrued expenses

     22,063         29,324   
  

 

 

    

 

 

 
$ 216,945    $ 228,424   
  

 

 

    

 

 

 

 

6. LONG-TERM OBLIGATIONS

Long-term debt is carried at amortized cost. Long-term obligations, in thousands, consisted of the following as of:

 

     June 30,
2015
     December 31,
2014
 

Senior Secured Term Loan Facility, due 2016

   $ 307,415       $ 310,536   

Senior Secured Term Loan Facility, due 2018

     1,813,250         1,813,250   

Accounts Receivable Securitization, due 2018

     —           185,000   

Senior Secured Term Loan A Facility, due 2019

     336,875         350,000   

5 3/8% Senior Notes, due 2022

     1,000,000         1,000,000   
  

 

 

    

 

 

 
  3,457,540      3,658,786   
  

 

 

    

 

 

 

Less: current maturities

  (10,310   (16,246
  

 

 

    

 

 

 

Long-term obligations

$ 3,447,230    $ 3,642,540   
  

 

 

    

 

 

 

At June 30, 2015, the Accounts Receivable Securitization Facility was undrawn. At December 31, 2014, $185.0 million was outstanding under the Securitization Facility. The highest outstanding balance during the six months ended June 30, 2015 and year ended December 31, 2014 was $185.0 million.

At June 30, 2015, we were in compliance with our financial debt covenants.

 

19


Table of Contents

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 Investments—Debt and Equity Securities considering the employee’s 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.

 

20


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

The carrying amount of the trading securities of $60.7 million and $63.3 million at June 30, 2015 and December 31, 2014, respectively, were equal to the quoted prices in active markets for identical assets.

The fair value of our 5.375% senior notes based on market quotes, which we determined to be Level 2 inputs, at June 30, 2015 was approximately $942.5 million compared to the carrying amount of $1.0 billion. At December 31, 2014, the fair value of our 5.375% senior notes was approximately $965.0 million compared to the carrying amount of $1.0 billion.

The fair value of our senior secured term loan A facility based on recent trading activity, which we determined to be Level 2 inputs, at June 30, 2015, was approximately $326.8 million compared to the carrying amount of $336.9 million. At December 31, 2014, the fair value of our senior secured term loan A facility approximated the carrying amount of $350.0 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 are obtained from an independent source. The fair value of our senior secured term loan facilities at June 30, 2015 was approximately $2,115.7 million compared to the carrying amount of $2,120.7 million. The fair value of our senior secured term loan facilities at December 31, 2014 was approximately $2,074.6 million compared to the carrying amount of $2,123.8 million.

 

8. STOCK-BASED COMPENSATION

2006 Executive Incentive Plan

Stock options granted under the West Corporation 2006 Executive Incentive Plan (“2006 EIP”) prior to 2012 vest 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. Stock options granted under the 2006 EIP in 2012 and 2013 vest 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.

2013 Long-Term Incentive Plan

Prior to the completion of our initial public offering (“IPO”) on March 27, 2013, we adopted, and subsequently amended, the 2013 Long-Term Incentive Plan (as amended, “2013 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 2013 LTIP, 8,500,000 shares of common stock are available for stock options, restricted stock or other types of equity awards granted under the 2013 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 2013 LTIP. To the extent that shares subject to an outstanding award granted under the 2013 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 2013 LTIP.

 

21


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Stock options granted under the 2013 LTIP vest 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. Restricted stock granted under the 2013 LTIP, which is time-vested, vests over a period of three or four years (excluding awards to directors which vest over a six to twelve month period), with a ratable portion of the restricted stock award vested on each anniversary of the grant date until fully vested, unless earlier forfeited as a result of termination of service to the Company prior to the applicable vesting date. Dividends are payable in respect of shares of unvested restricted stock either at the time the dividend is paid to stockholders or upon vesting of the restricted stock in accordance with the terms of the applicable restricted stock award agreement.

2006 Executive Incentive Plan and 2013 Long-Term Incentive Plan – Stock Options

The following table presents the stock or stock option activity under the 2006 EIP and 2013 LTIP for the six months ended June 30, 2015.

 

     Stock or
Options
Available
for Grant
     Options Outstanding  
        Number of
Options
     Weighted
Average
Exercise Price
 

Balance at January 1, 2015

     6,278,516         2,954,227       $ 27.05   

Options granted

     —           —           —     

Options exercised

     —           (239,527      24.12   

Canceled or forfeited (2013 LTIP)

     28,026         (28,026      23.98   

Canceled or forfeited (2006 EIP)

     —           (148,205      31.25   

Restricted stock granted

     (146,910      —           —     

Restricted stock cancelled

     189,173         —           —     
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

     6,348,805         2,538,469       $ 27.11   
  

 

 

    

 

 

    

 

 

 

At June 30, 2015, we expect that approximately 2.5 million options granted and outstanding will vest. At June 30, 2015, the intrinsic value of options vested and exercisable was approximately $6.4 million. The aggregate intrinsic value of options outstanding at June 30, 2015, was approximately $10.5 million. The aggregate intrinsic value of options outstanding, vested and expected to vest at June 30, 2015 was approximately $10.1 million.

 

22


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table summarizes information on the options granted under the 2006 EIP and 2013 LTIP at June 30, 2015:

 

Outstanding     Vested and Exercisable  
Range of
Exercise Prices
  Number of
Options
    Weighted Average
Remaining
Contractual
Life (years)
    Weighted
Average
Exercise
Price
    Number of
Options
    Weighted
Average
Exercise
Price
 
$0.00 - $13.12     69,972        1.43      $ 13.12        69,972      $ 13.12   
13.13 - 28.88     1,888,502        6.66        25.14        1,116,316        25.41   
28.89 - 50.88     561,997        5.71        33.85        561,997        33.85   
50.89 - 84.80     17,998        5.17        77.74        16,434        77.06   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
$0.00 - $84.80     2,538,469        6.29      $ 27.11        1,764,719      $ 28.09   

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

            Options Outstanding  

Executive Management Rollover Options

   Options
Available
for Grant
     Number
of Shares
     Weighted
Average
Exercise Price
 

Balance at January 1, 2015

     —           12,416       $ 5.47   

Exercised

     —           (12,416      5.47   
  

 

 

    

 

 

    

 

 

 

Balance at June 30, 2015

     —           —         $ —     
  

 

 

    

 

 

    

 

 

 

We account for the stock option grants under the 2006 EIP and 2013 LTIP in accordance with Accounting Standards Codification 718, Compensation-Stock Compensation. The fair value of each option granted was estimated on the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for grants during the six months ended June 30, 2014. No options were granted during the six months ended June 30, 2015.

 

     Six months
ended June 30,
2014
 

Risk-free interest rate

     2.02

Dividend yield

     3.64

Expected volatility

     29.10

Expected life (years)

     6.25   

Fair value of the option award

   $ 4.90   

The risk-free interest rate is based on the U.S. Treasury yield curve at the time of grant; the dividend yield is calculated as the ratio of dividends paid per share of common stock to the stock price on the date of grant; volatility is based on the five-year historical volatility of twelve public companies we consider guideline or peer companies; and the expected life is based on Staff Accounting Bulletin 107. This bulletin provides a simplified method for estimating the expected life of options.

 

23


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Restricted Stock

During the six months ended June 30, 2015, pursuant to our agreement with our non-employee directors who are not affiliated with our former sponsors, we issued 9,410 shares of common stock with an aggregate fair value of approximately $300,000. These shares vest on the one-year anniversary of the date of grant. On January 2, 2015, 37,500 restricted shares with an aggregate fair value of approximately $1.2 million were awarded to our new Chief Financial Officer. These shares vest over a period of four years with 25% of the restricted shares becoming unrestricted on each of the first through fourth anniversaries of the award. On May 1, 2015, 100,000 restricted stock units with an aggregate fair value of approximately $3.1 million were granted to our President and Chief Operating Officer. These restricted stock units vest over a period of four years with 25% of the restricted stock units becoming unrestricted on each of the first through fourth anniversaries of the award.

2013 Employee Stock Purchase Plan

During the fourth quarter of 2013, we implemented the 2013 Employee Stock Purchase Plan (“ESPP”), under which the sale of 1.0 million shares of our common stock has been authorized and reserved. Employees may designate up to 50% of their annual compensation for the purchase of stock, subject to a per person limit of 2,000 shares in any offering period or calendar year. The price for shares purchased under the ESPP is 85% of the market closing price on the last day of the quarterly purchase period. No employee will be authorized to purchase common stock through the ESPP if, immediately after the purchase, the employee (or any other person whose stock would be attributed to such employee under U.S. tax law) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any parent of the Company or any subsidiary. In addition, no participant will be entitled to purchase stock under the ESPP at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company and its subsidiaries, exceeds $25,000 in fair market value, determined as of the date of grant (or such other limit as may be imposed by U.S. tax law), for each calendar year in which any option granted to the participant under any such plans is outstanding at any time. During the six months ended June 30, 2015, 131,865 shares were issued under the ESPP. As of June 30, 2015, 403,090 shares had been issued under the ESPP. For the three and six months ended June 30, 2015 we recognized compensation expense for this plan of $0.3 million and $0.7 million, respectively. For the three and six months ended June 30, 2014, we recognized compensation expense for this plan of $0.3 million and $0.6 million, respectively.

Stock-Based Compensation Expense

For the three months ended June 30, 2015 and 2014, stock-based compensation expense was $6.0 million and $2.5 million, respectively. For the six months ended June 30, 2015 and 2014, stock-based compensation expense was $11.4 million and $6.1 million, respectively.

At June 30, 2015 and 2014, there was approximately $4.7 million and $11.4 million, respectively, of unrecorded and unrecognized compensation expense related to unvested stock options under the 2006 EIP and 2013 LTIP, which will be recognized over the remaining vesting period of approximately 1.1 years as of June 30, 2015.

At June 30, 2015 and 2014, there was approximately $38.0 million and $4.5 million, respectively, of unrecorded and unrecognized compensation expense related to unvested share-based compensation on restricted stock under the 2013 LTIP, which will be recognized over the remaining vesting period of approximately 3.8 years as of June 30, 2015.

 

24


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

     Three months ended June 30,      Six months ended June 30,  
(Amounts in thousands, except per share amounts)    2015      2014      2015      2014  

Earnings Per Common Share-basic:

           

Continuing operations

   $ 0.59       $ 0.53       $ 1.17       $ 1.03   

Discontinued operations

     0.00         0.04         0.38         0.09   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total earnings per share-basic

   $ 0.59       $ 0.57       $ 1.55       $ 1.12   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings Per Common Share-diluted

           

Continuing operations

   $ 0.58       $ 0.52       $ 1.14       $ 1.01   

Discontinued operations

     0.00         0.04         0.37         0.09   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total earnings per share-diluted

   $ 0.58       $ 0.56       $ 1.51       $ 1.10   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted Average Number of Shares Outstanding:

           

Basic - Common

     83,394         83,953         83,758         83,879   

Dilutive Impact of Stock Options:

           

Common Shares

     2,198         1,445         2,162         1,433   

Diluted Common Shares

     85,592         85,398         85,920         85,312   

Diluted earnings per share are 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 and unvested restricted stock by application of the treasury stock method that have a dilutive effect on earnings per share and the notional shares of the Company in the West Corporation Nonqualified Deferred Compensation Plan. At June 30, 2015 and 2014, 579,995 and 675,352 stock options, respectively, were outstanding with an exercise price equal to or exceeding the market value of our common stock and were therefore excluded from the computation of shares contingently issuable upon exercise of the options.

 

25


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

10. ACCUMULATED OTHER COMPREHENSIVE LOSS

Activities within accumulated other comprehensive loss for the three and six months ended June 30, 2015 and 2014, was for foreign currency translation of our foreign subsidiaries and is presented net of tax.

 

(Amounts in thousands)    Accumulated
Other
Comprehensive
Loss
 

BALANCE, April 1, 2015

   $ (67,395

Foreign currency translation adjustment, net of tax of $(4,762)

     8,171   
  

 

 

 

BALANCE, June 30, 2015

   $ (59,224
  

 

 

 

BALANCE, January 1, 2015

   $ (37,506

Foreign currency translation adjustment, net of tax of $12,371

     (21,718
  

 

 

 

BALANCE, June 30, 2015

   $ (59,224
  

 

 

 

 

(Amounts in thousands)    Accumulated
Other
Comprehensive
Loss
 

BALANCE, April 1, 2014

   $ (14,485

Foreign currency translation adjustment, net of tax of $(1,767)

     2,993   
  

 

 

 

BALANCE, June 30, 2014

   $ (11,492
  

 

 

 

BALANCE, January 1, 2014

   $ (12,200

Foreign currency translation adjustment, net of tax of $(418)

     708   
  

 

 

 

BALANCE, June 30, 2014

   $ (11,492
  

 

 

 

 

26


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

11. SEGMENT REPORTING, GEOGRAPHIC AND CUSTOMER INFORMATION

Following the divestiture on March 3, 2015, of several of our agent-based businesses, we implemented a revised organizational structure, which our Chief Executive Officer utilizes for making strategic and operational decisions and allocating resources. The Company manages various technology-driven communication service businesses with an operating focus consistent with the revised organizational structure for clients in various industries and geographic locations.

The Company’s Chief Executive Officer, who has been identified as the Chief Operating Decision Maker (“CODM”), reviews financial information prepared on a consolidated basis accompanied by disaggregated revenue and Adjusted EBITDA information by operating segment. The operating segments are organized for operational reasons and serve similar customers and industries. Each of our operating segments manage and process large scale, complex transactions that help our clients communicate effectively and efficiently with their customers. Based on an overall evaluation of all facts and circumstances, including consideration of the economic characteristics of the operating segments, the Company has aggregated its five operating segments into one reportable segment. Beginning in the first quarter of 2015, all prior period comparative information has been recast to reflect this change as if it had taken place in all periods presented.

For the three months ended June 30, 2015 and 2014, revenues from non-U.S. countries represented approximately 21% and 23%, respectively, of consolidated revenues. For the six months ended June 30, 2015 and 2014, revenues from non-U.S. countries represented approximately 21% and 24%, respectively, of consolidated revenues. During the three months ended June 30, 2015 and 2014, revenue from the United Kingdom accounted for 12% and 13% of consolidated revenue, respectively. During the six months ended June 30, 2015 and 2014, revenue from the United Kingdom accounted for 12% and 13% of consolidated revenue, respectively. The United Kingdom was the only foreign country which accounted for greater than 10% of revenue. Revenue is attributed to an organizational region based on location of the billed customer’s account. Geographic information by organizational region, is noted below:

 

     For the three months ended June 30,      For the six months ended June 30,  
(in thousands)    2015      2014      2015      2014  

Revenue:

           

Americas - United States

   $ 454,656       $ 423,987       $ 901,869       $ 828,836   

Europe, Middle East & Africa (EMEA)

     77,250         82,750         155,227         168,422   

Asia Pacific (APAC)

     37,800         39,765         72,311         78,391   

Americas - Other

     2,185         5,817         7,974         11,810   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 571,891       $ 552,319       $ 1,137,381       $ 1,087,459   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of June 30,
2015
     As of December 31,
2014
 

Long-Lived Assets:

     

Americas - United States

   $ 2,651,740       $ 2,686,553   

Europe, Middle East & Africa (EMEA)

     157,948         176,817   

Asia Pacific (APAC)

     17,467         17,891   

Americas - Other

     1,621         1,816   
  

 

 

    

 

 

 

Total

   $ 2,828,776       $ 2,883,077   
  

 

 

    

 

 

 

 

27


Table of Contents

WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

For the three months ended June 30, 2015 and 2014, the aggregate loss on transactions denominated in currencies other than the functional currency of West Corporation or any of its subsidiaries was approximately $1.5 million and $1.4 million, respectively. For the six months ended June 30, 2015 and 2014, the aggregate loss on transactions denominated in currencies other than the functional currency of West Corporation or any of its subsidiaries was approximately $0.2 million and $2.7 million, respectively.

For the three months ended June 30, 2015 and 2014, our largest 100 clients represented 48% and 46% of our total revenue, respectively. For the six months ended June 30, 2015 and 2014, our largest 100 clients represented 45% and 46% of our total revenue, respectively. During the three and six months ended June 30, 2015 and 2014, no client represented greater than 10% of our total revenue.

 

12. SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes, in thousands, supplemental information about our cash flows:

 

     For the six months ended June 30,  
     2015      2014  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

     

Cash paid for interest

   $ 86,314       $ 89,799   

Cash paid for income taxes, net of $939 and $2,614 for refunds

   $ 63,727       $ 44,144   

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:

     

Acquisition of property through accounts payable commitments

   $ 6,647       $ 8,410   

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:

     

Accrued dividends

   $ 975       $ 63   

 

13. 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.

In connection with the sale of certain of our agent-based businesses to Alorica Inc., we agreed to indemnify the buyer, up to the full purchase price of $275.0 million, with respect to the equity interests of the companies we sold, title to the equity and assets sold and the authority of the Company to sell the equity and assets. The Company has also agreed to indemnify the buyer for breaches of other representations and warranties in the purchase agreement for up to $13.75 million in losses, and for certain other matters.

 

28


Table of Contents
Item 2. Management’s 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.

FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or other similar words.

These forward-looking statements are only predictions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to materially differ from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We have described in the “Risk Factors” section contained in our Annual Report on Form 10-K for the year ended December 31, 2014 the principal risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as guarantees of future events.

The forward-looking statements in this report represent our views as of the date of this report. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this report.

Business Overview

We are a global provider of technology-enabled communication services. “We,” “us” and “our” also refer to West and its consolidated subsidiaries, as applicable. We offer a broad range of communication and network infrastructure solutions that help manage or support essential communications. These solutions include unified communications and conferencing services, safety services, interactive services such as automated notifications, telecom services and specialized agent 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, education, technology and healthcare. We have sales and/or operations in the United States, Canada, Europe, the Middle East, Asia-Pacific, Latin America and South America.

Since our founding in 1986, we have invested significantly to expand our technology platforms and develop our operational processes to meet the complex 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 delivering operational excellence. In 2014, we managed

 

29


Table of Contents

over 64 billion telephony minutes and approximately 159 million conference calls, facilitated approximately 290 million 9-1-1 calls, and received or delivered approximately 4 billion calls and data messages. We believe our platforms provide scale and flexibility to handle greater transaction volume than our competitors, offer superior service and develop new offerings. We believe we have 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 service offerings to our diverse client base.

Financial Operations Overview

Revenue

Revenue from our Unified Communications and Conferencing Services is generally billed and revenue recognized on a per participant minute basis or, in the case of license arrangements, generally billed in advance and revenue recognized ratably over the service life period. We also charge clients for additional features, such as conference call recording, transcription services or professional services. Some Unified Communications and Conferencing Services revenue is recognized on a user or network circuit basis.

Interactive Services revenue is generally billed, and revenue recognized, on a per call, per message or per minute basis, or ratably over the contract term.

Safety Services revenue is generated primarily from monthly fees based on the number of billing telephone numbers and cell towers covered under contract. In addition, product sales that may include hardware, software and professional services (installation, training and project management) are generally recognized when shipment of the hardware and software has occurred and for professional services when client acceptance of a fully functional system is received. 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.

Telecom Services revenue is primarily comprised of switched access charges for toll-free origination services, which are paid primarily by interexchange carriers. Revenue is billed monthly and revenue recognized based on usage.

Specialized Agent Services revenue is generally billed based on hours of input, number of contacts, number of personnel assigned, on a contingent basis or recognized in the month collection payments are received based upon a percentage of cash collected or other agreed upon contractual parameters. Revenue for health advocacy services is based on “Per Employee Per Month” fees charged under prepayment agreements for services and is recognized ratably over the service period. Fees received for future service periods are deferred until the service is performed.

Cost of Services

The principal component of cost of services is our variable telephone expense. Significant components of our cost of services also include labor expense, primarily related to commissions for our sales force. We generally pay commissions to sales professionals on both new sales and incremental revenue generated from existing clients.

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.

 

30


Table of Contents

Key Drivers Affecting Our Results of Operations

Divestiture Activities. On March 3, 2015, we divested several of our agent-based businesses, including our consumer facing customer sales and lifecycle management, account services and receivables management businesses, for $275.0 million in cash. We completed the divestiture pursuant to a purchase agreement executed January 7, 2015 and in accordance with a plan approved by our Board of Directors on December 30, 2014.

Subject to a working capital true-up, this divestiture resulted in a $48.6 million gain on a pre-tax basis and a $29.6 million gain on an after tax basis which is included within income from discontinued operations for the six months ended June 30, 2015. The total after tax gain realized on the sale was $38.2 million, including the $8.6 million tax benefit associated with a higher tax basis than book basis that we were required to recognize in the fourth quarter of 2014.

Factors Related to Our Indebtedness. On each of January 24, 2014 and July 1, 2014, 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 our senior secured credit facilities (“Senior Secured Credit Facilities”) by entering into Amendment No. 4 (the “Fourth Amendment”) and Amendment No. 5 (the “Fifth Amendment”), respectively, to the Amended and Restated Credit Agreement, in each case amending the Amended and Restated Credit Agreement 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 Amendment No. 3 to Amended and Restated Credit Agreement, dated as of February 20, 2013 (the “Amended Credit Agreement”).

The Fourth Amendment provided for a 25 basis point reduction in the applicable LIBOR interest rate margins and a 25 basis point reduction in the LIBOR interest rate floors of all Term Loans (as defined below). The Fourth Amendment also provided for interest rate floors applicable to the Term Loans. The interest rate floors effective June 30, 2015 were 0.75% for the LIBOR component of LIBOR rate Term Loans and 1.75% for the base rate component of base rate Term Loans.

On July 1, 2014, we issued $1.0 billion aggregate principal amount of our 5.375 percent notes due 2022 (the “2022 Senior Notes”). In July 2014, we used a portion of the net proceeds from the 2022 Senior Notes to redeem in full $500.0 million aggregate principal amount of our 8.625 percent senior notes due 2018 (the “2018 Senior Notes”) and $200.0 million aggregate principal amount of our 7.875 percent senior notes due 2019 (the “2019 Senior Notes”). Also, on July 1, 2014, we used a portion of the net proceeds from the 2022 Senior Notes to repay $250.0 million aggregate principal amount of the senior secured term loan facility due June 30, 2018 (the “2018 Maturity Term Loans”, and together with our senior secured term loan facility due July 15, 2016 (the “2016 Maturity Term Loans”), the “Term Loans”).

On July 1, 2014, we modified our Senior Secured Credit Facilities by entering into the Fifth Amendment. The Fifth Amendment provided for a new term loan A facility (“TLA”) to be made available, in a single borrowing, at any time on or before December 31, 2014 in the form of TLA loans having terms substantially similar to the existing term loans under our Senior Secured Credit Facilities, except with respect to pricing, amortization and maturity, in an aggregate principal amount of $350.0 million. The TLA matures on July 1, 2019, provided, that the maturity date shall be April 2, 2018 if an aggregate principal amount of $500.0 million or greater of 2018 Maturity Term Loans remains outstanding on such date. The proceeds of the TLA were received on November 14, 2014 and were used to redeem the 2019 Senior Notes. Annual amortization (payable in quarterly installments) in respect of the TLA will be payable at: a 2.5% annual rate in the year ended June 30, 2015 (amortization to be at a 0.625% quarterly rate for the full fiscal quarters following incurrence); a 5.0% annual rate in the year ending June 30, 2016; a 7.5% annual rate in the year ending June 30, 2017; and a 10.0% annual rate thereafter until the maturity date, at which point all remaining outstanding TLA shall become due and payable.

On November 14, 2014, we redeemed the 2019 Senior Notes. The debt call premium paid was 3.938% of the principal amount of the 2019 Senior Notes. In addition, the Company paid accrued and unpaid interest on the redeemed 2019 Senior Notes up to, but not including, the redemption date. Following this redemption, none of the 2019 Senior Notes remained outstanding.

 

31


Table of Contents

We used a portion of the $275.0 million proceeds received from the divestiture, completed on March 3, 2015, to repay $185.0 million that had been outstanding under our Securitization Facility. On March 18, 2015, we completed the repurchase of 1,000,000 shares in a private transaction at $29.596875 per share, which was the purchase price at which the shares of common stock were sold to the public in the underwritten offering, less underwriting discounts and commissions of common stock for an aggregate purchase price of approximately $29.6 million.

Overview of 2015 Results

The following overview highlights the areas we believe are important in understanding the results of our continuing operations for the three and six months ended June 30, 2015. This summary is not intended as a substitute for the detail provided elsewhere in this quarterly report or for our condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report. Unless otherwise stated, financial results discussed herein refer to continuing operations.

 

    Our revenue increased $19.6 million, or 3.5%, during the three months ended June 30, 2015 compared to revenue during the three months ended June 30, 2014.

 

    Our revenue increased $49.9 million, or 4.6%, during the six months ended June 30, 2015 compared to revenue during the six months ended June 30, 2014.

 

    Our operating income increased $0.9 million, or 0.8%, during the three months ended June 30, 2015 compared to operating income during the three months ended June 30, 2014.

 

    Our operating income decreased $2.6 million, or 1.1%, during the six months ended June 30, 2015 compared to operating income during the six months ended June 30, 2014.

 

    Our cash flows from operating activities decreased $8.4 million, or 7.8%, during the three months ended June 30, 2015 compared to cash flows from operating activities during the three months ended June 30, 2014.

 

    Our cash flows from operating activities decreased $27.8 million, or 15.1%, during the six months ended June 30, 2015 compared to cash flows from operating activities during the six months ended June 30, 2014.

 

    On March 3, 2015, we completed the divestiture of certain of our agent-based businesses for $275.0 million in cash. This divestiture resulted in a $48.6 million gain on a pre-tax basis and a $29.6 million gain on an after tax basis for the six months ended June 30, 2015. The total after tax gain realized on the sale was $38.2 million, including the $8.6 million tax benefit associated with a higher tax basis than book basis that we were required to recognize in the fourth quarter of 2014. Following the divestiture, we implemented a revised organizational structure which our Chief Executive Officer utilizes for making strategic and operational decisions and allocating resources. Under the revised organizational structure, our five operating segments are aggregated into one reportable segment. Beginning in the first quarter of 2015, all prior period comparative information has been recast to reflect this change as if it had taken place in all periods presented.

 

    On March 18, 2015, we completed an underwritten public offering of 12,650,000 shares of common stock by certain of our existing stockholders at a public offering price of $30.75 per share, including 1,650,000 shares of common stock sold by the selling stockholders pursuant to the full exercise of the underwriters’ option to purchase additional shares. Concurrent with the closing of the offering, we repurchased 1,000,000 shares of common stock from the selling stockholders in a private transaction at $29.596875 per share, which was the purchase price at which the shares of common stock were sold to the public in the underwritten offering, less underwriting discounts and commissions for an aggregate purchase price of approximately $29.6 million.

 

    Effective June 1, 2015, we completed the acquisition of substantially all of the assets of Intrafinity, Inc., doing business as SharpSchool, a provider of website and content management system software-as-a-service solutions for the K-12 education market. The purchase price was approximately $17.2 million and was funded with cash on hand.

 

32


Table of Contents
    On June 24, 2015, we completed an underwritten public offering of 7,000,000 shares of common stock by certain of our existing stockholders at a public offering price of $30.75 per share. Concurrent with the closing of the offering, we repurchased 1,000,000 shares of common stock from the selling stockholders in a private transaction at $30.36 per share, which was the purchase price at which the shares of common stock were sold to the public in the underwritten offering, less underwriting discounts and commissions for an aggregate purchase price of approximately $30.4 million which was funded with cash on hand.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2015 and 2014

Revenue: The tables below summarize the change in our revenue for the three and six months ended June 30, 2015, compared to the revenue for the three and six months ended June 30, 2014.

 

     Amounts      Contribution  
     in millions      to Growth %  

Revenue for the three months ended June 30, 2014

   $ 552.3     

Revenue from acquired entities

     26.2        4.7

Estimated impact of foreign exchange rates

     (10.4 )      -1.9

Loss of a large conferencing client in 2014

     (9.3      -1.7

Organic growth, net

     13.1         2.4
  

 

 

    

 

 

 

Revenue for the three months ended June 30, 2015

   $ 571.9         3.5
  

 

 

    

 

 

 

Total revenue for the three months ended June 30, 2015 increased $19.6 million, or 3.5%, to $571.9 million from $552.3 million for the three months ended June 30, 2014. This increase included revenue of $26.2 million from the acquisitions of SharpSchool, SchoolReach, 911 Enable, Health Advocate and SchoolMessenger. These acquisitions closed on June 1, 2015, November 3, 2014, September 2, 2014, June 13, 2014 and April 21, 2014, respectively, and their results have been included in our operations since their respective acquisition dates.

Foreign exchange rates had a negative impact of approximately $10.4 million on our revenues this quarter when comparing the foreign exchange rates in place for the three months ended June 30, 2015 to those in place for the three months ended June 30, 2014.

The loss of a large conferencing client, which we announced early in 2014, had minimal impact on revenue in the second quarter of 2014. However, when compared to the three months ended June 30, 2014, the loss of this conferencing client had a $9.3 million impact on our revenue for the three months ended June 30, 2015.

The volume of minutes used for our reservationless conferencing services, which accounts for the majority of our conferencing revenue, grew approximately 3.1% for the three months ended June 30, 2015 compared to the three months ended June 30, 2014. For the three months ended June 30, 2015, the average rate per minute for reservationless conferencing services declined by approximately 9.9% compared to the three months ended June 30, 2014. Adjusting for the impact of the loss of the large conferencing client and using constant currency foreign exchange rates, the volume of minutes used for our reservationless conferencing services grew by approximately 8.4% and our average rate per minute for reservationless conferencing services declined by approximately 10.2% compared to the three months ended June 30, 2014.

For the three months ended June 30, 2015 and 2014, our largest 100 clients represented 48% and 46% of our total revenue, respectively. During the three months ended June 30, 2015, international revenue was $117.2 million, a decrease of 8.6% over the three months ended June 30, 2014. Using constant currency foreign exchange rates, the decrease in international revenue would have been 0.6% compared to the three months ended June 30, 2014.

 

33


Table of Contents
     Amounts      Contribution  
     in millions      to Growth %  

Revenue for the six months ended June 30, 2014

   $ 1,087.5      

Revenue from acquired entities

     61.4         5.6

Estimated impact of foreign exchange rates

     (20.3      -1.9

Loss of a large conferencing client in 2014

     (19.5      -1.8

Organic growth, net

     28.3         2.6
  

 

 

    

 

 

 

Revenue for the six months ended June 30, 2015

   $ 1,137.4         4.6
  

 

 

    

 

 

 

For the six months ended June 30, 2015, total revenue increased $49.9 million, or 4.6%, to $1,137.4 million from $1,087.5 million for the six months ended June 30, 2014. This increase during the six months ended June 30, 2015 included revenue of $61.4 million from the acquisitions of SharpSchool, SchoolReach, 911 Enable, Health Advocate and SchoolMessenger.

Foreign exchange rates had a negative impact of approximately $20.3 million on our revenues for the six months ended June 30, 2015 when comparing the foreign exchange rates in place for the six months ended June 30, 2015 to those in place for the six months ended June 30, 2014.

The loss of a large conferencing client, which we announced early in 2014, had minimal impact on revenue in the first half of 2014. However, when compared to the six months ended June 30, 2014, the loss of this conferencing client had a $19.5 million impact on our revenue for the six months ended June 30, 2015.

The volume of minutes used for our reservationless conferencing services, which accounts for the majority of our conferencing revenue, grew approximately 2.7% for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. For the six months ended June 30, 2015, the average rate per minute for reservationless conferencing services declined by approximately 9.7% compared to the six months ended June 30, 2014. Adjusting for the impact of the loss of the large conferencing client and using constant currency foreign exchange rates the volume of minutes used for our reservationless conferencing services grew by approximately 8.4% and our average rate per minute for reservationless conferencing services declined by approximately 10.4% compared to the six months ended June 30, 2014.

For the six months ended June 30, 2015 and 2014, our largest 100 clients represented 45% and 46% of our total revenue, respectively. During the six months ended June 30, 2015, international revenue was $235.5 million, a decrease of 8.9% over the six months ended June 30, 2014. Using constant currency foreign exchange rates, the decrease in international revenue would have been 1.1% compared to the six months ended June 30, 2014.

Cost of services: Cost of services consists of direct labor, telephone expense, commissions and other costs directly related to providing services to clients. Cost of services for the three months ended June 30, 2015 increased $5.6 million, or 2.3%, to $245.3 million from $239.7 million for the three months ended June 30, 2014. The increase in cost of services during the three months ended June 30, 2015 included $9.3 million from the acquisitions completed in 2014 and 2015. As a percentage of revenue, cost of services decreased to 42.9% for the three months ended June 30, 2015 from 43.4% for the three months ended June 30, 2014.

Cost of services for the six months ended June 30, 2015 increased $19.8 million, or 4.2%, to $485.0 million from $465.2 million for the six months ended June 30, 2014. The increase in cost of services during the six months ended June 30, 2015 included $22.1 million from the acquisitions completed in 2014 and 2015. As a percentage of revenue, cost of services decreased to 42.6% for the six months ended June 30, 2015, compared to 42.8% for the six months ended June 30, 2014.

 

34


Table of Contents

Selling, general and administrative expenses: SG&A expenses increased $13.1 million, or 6.7%, to $210.2 million for the three months ended June 30, 2015 from $197.1 million for the three months ended June 30, 2014. The increase in SG&A expenses during the three months ended June 30, 2015 included $15.9 million from the acquisitions completed in 2014 and 2015. The $15.9 million of SG&A from acquired entities includes $5.3 million of amortization of acquired intangible assets and $1.0 million of depreciation. As a percentage of revenue, SG&A expenses increased to 36.8% for the three months ended June 30, 2015 from 35.7% for the three months ended June 30, 2014.

SG&A expenses increased $32.8 million, or 8.4%, to $425.3 million for the six months ended June 30, 2015 from $392.5 million for the six months ended June 30, 2014. The increase in SG&A expenses during the six months ended June 30, 2015 included $37.2 million from the acquisitions completed in 2014 and 2015. The $37.2 million of SG&A from acquired entities includes $12.4 million of amortization of acquired intangible assets and $2.5 million of depreciation. As a percentage of revenue, SG&A expenses increased to 37.4% for the six months ended June 30, 2015 compared to 36.1% for the six months ended June 30, 2014.

Operating income: Operating income for the three months ended June 30, 2015 increased $0.9 million, or 0.8%, to $116.4 million from $115.6 million for the three months ended June 30, 2014. As a percentage of revenue, operating income for the three months ended June 30, 2015 decreased to 20.4% from 20.9% for the three months ended June 30, 2014.

Operating income for the six months ended June 30, 2015 decreased $2.6 million, or 1.1%, to $227.1 million from $229.8 million for the six months ended June 30, 2014. As a percentage of revenue, operating income for the six months ended June 30, 2015 decreased to 20.0% from 21.1% for the six months ended June 30, 2014.

Other income (expense): Other income (expense) includes interest expense from borrowings under credit facilities and outstanding notes; the aggregate foreign exchange gain (loss) on affiliate transactions denominated in currencies other than the functional currency; expenses, net of recoveries, of transition services agreements in connection with the sale of certain of our agent-based businesses; and interest income from short-term investments.

Other income (expense) for the three months ended June 30, 2015 was ($38.5) million compared to ($45.9) million for the three months ended June 30, 2014. Other income (expense) for the six months ended June 30, 2015 was ($73.5) million compared to ($94.1) million for the six months ended June 30, 2014. Interest expense for the three and six months ended June 30, 2015 was $38.6 million and $77.5 million, respectively, compared to $48.4 million and $97.5 million, respectively, for the three and six months ended June 30, 2014. The decrease in interest expense is due to the refinancing activities we completed in 2014.

During the three and six months ended June 30, 2015, we recognized gains of $0.1 million and $1.5 million, respectively, on affiliate foreign currency transactions denominated in currencies other than the functional currency of West. During the three and six months ended June 30, 2014, we recognized gains of $0.4 million in both periods on affiliate foreign currency transactions denominated in currencies other than the functional currency of West.

During the three months ended June 30, 2015, we recognized a $0.2 million loss in marking the investments in our non-qualified retirement plans to market compared to a $1.8 million gain during the three months ended June 30, 2014. During the six months ended June 30, 2015, we recognized a $1.1 million gain in marking the investments in our non-qualified retirement plans to market compared to a $2.5 million gain during the six months ended June 30, 2014.

During the three months ended June 30, 2015 we recorded in non-operating other expense $1.3 million of transition services costs associated with the divestiture, net of transition services revenue of $0.1 million. During the six months ended June 30, 2015 we recorded in non-operating other expense $1.1 million of transition services costs associated with the divestiture, net of transition services revenue of $0.5 million.

 

35


Table of Contents

Income from continuing operations: Our income from continuing operations increased $4.7 million, or 10.5%, for the three months ended June 30, 2015 to $49.2 million from $44.5 million for the three months ended June 30, 2014. The increase in income from continuing operations was driven primarily by $9.8 million lower interest expense. This reduction in interest expense was partially offset by an increase in our effective tax rate. Income from continuing operations includes a provision for income tax expense at an effective rate of approximately 36.8% for the three months ended June 30, 2015, compared to 36.1% for the three months ended June 30, 2014. This increase in the effective tax rate during the three months ended June 30, 2015, is primarily due to an increase in certain non-deductible expenses and an increase in the accrual for state income taxes.

Our income from continuing operations for the six months ended June 30, 2015 increased $11.2 million, or 13.0%, to $97.9 million from $86.6 million for the six months ended June 30, 2014. The increase in income from continuing operations was driven primarily by $20.0 million lower interest expense. This reduction in interest expense was partially offset by an increase in our effective tax rate. Income from continuing operations includes a provision for income tax expense at an effective rate of approximately 36.3% for the six months ended June 30, 2015, compared to an effective tax rate of approximately 36.1% for the six months ended June 30, 2014. This increase in the effective tax rate during the six months ended June 30, 2015, is primarily due to an increase in certain non-deductible expenses and an increase in the accrual for state income taxes.

Earnings per common share from continuing operations: Earnings per common share-basic and diluted from continuing operations for the three months ended June 30, 2015 were $0.59 and $0.58, respectively. Earnings per common share-basic and diluted from continuing operations for the three months ended June 30, 2014 were $0.53 and $0.52, respectively. Earnings per common share-basic and diluted from continuing operations for the six months ended June 30, 2015 were $1.17 and $1.14, respectively. Earnings per common share-basic and diluted from continuing operations for the six months ended June 30, 2014 were $1.03 and $1.01, respectively.

Discontinued Operations

On March 3, 2015, we divested several of our agent-based businesses, including our consumer facing customer sales and lifecycle management, account services and receivables management businesses, for $275.0 million in cash. We completed the divestiture pursuant to a purchase agreement executed January 7, 2015 and in accordance with a plan approved by our Board of Directors on December 30, 2014. Subject to a working capital adjustment, this divestiture resulted in a $48.6 million gain on a pre-tax basis and a $29.6 million gain on an after tax basis which is included within income from discontinued operations for the six months ended June 30, 2015. The total after tax gain realized on the sale was $38.2 million, including the $8.6 million tax benefit associated with a higher tax basis than book basis that we were required to recognize in the fourth quarter of 2014.

As a result of the divestiture, the related operating results have been reflected as discontinued operations for all periods presented, and the related assets and liabilities at December 31, 2014 were classified as held for sale and measured at the lower of their carrying value or fair value less costs to sell. Corporate overhead expenses and other shared services expenses that had previously been allocated to these business units are included in continuing operations. These expenses up to the date of closing on the divestiture were $3.2 million and are reflected in SG&A.

 

36


Table of Contents

The following table summarizes the results of discontinued operations for the three and six months ended June 30, 2015 and 2014:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
(Amounts in thousands)    2015      2014      2015      2014  

Revenue

   $ —         $ 140,699       $ 102,251       $ 283,638   

Operating income

     551         6,353         3,851         14,020   

Gain on disposal

     —           —           48,556         —     

Income before income tax

     551         6,285         52,234         13,921   

Income tax expense

     193         3,053         20,010         6,508   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from discontinued operations

   $ 358       $ 3,232       $ 32,224       $ 7,413   
  

 

 

    

 

 

    

 

 

    

 

 

 

On January 30, 2015, we entered into an exclusive sales listing agreement to market certain land, building and improvements which were primarily occupied by the agent-based businesses we later divested on March 3, 2015. The net book value of these assets is $17.5 million and, they are presented on our June 30, 2015 condensed consolidated balance sheet as assets held for sale and measured at the lower of their carrying amount or fair value less costs to sell.

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 facilities, revolving credit facilities and asset securitization facilities.

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, repurchase common stock and the repayment of principal on debt.

The following table summarizes our cash flows by category for the periods presented:

 

     For the Six Months Ended June 30,  
(Amounts in thousands)    2015      2014      Change      % Change  

Net cash flows from continuing operating activities

   $ 156,524       $ 184,290       $ (27,766      -15.1

Net cash flows used in continuing investing activities

   $ (83,721    $ (408,827    $ 325,106         NM   

Net cash flows (used in) from continuing financing activities

   $ (290,742    $ 144,737       $ (435,479      NM   

NM - Not Meaningful

Net cash flows from continuing operating activities decreased $27.8 million, or 15.1%, to $156.5 million for the six months ended June 30, 2015, compared to net cash flows from continuing operating activities of $184.3 million for the six months ended June 30, 2014. The decrease in net cash flows from continuing operating activities is primarily due to the timing of debt related interest payments of $16.5 million and $19.6 million in estimated higher income tax payments made due to the gain from the divestiture and higher taxable income compared to the same period last year.

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 June 30, 2015 compared to 63 days at June 30, 2014. At June 30, 2015, the decrease in DSO of approximately 3 days compared to June 30, 2014 contributed approximately $18.9 million to our cash flows from operating activities.

Net cash flows used in continuing investing activities was $83.7 million for the six months ended June 30, 2015, a decrease of $325.1 million compared to net cash flows used in continuing investing activities of $408.8 million for the six months ended June 30, 2014. During the six months ended June 30, 2015, our business acquisition investing was $324.6 million less than the six months ended June 30, 2014, as a result of the acquisitions of SchoolMessenger and Health Advocate in the first six months of 2014 and SharpSchool in 2015. During the six months ended June 30, 2015, cash used for capital expenditures was $64.9 million compared to $66.3 million for the six months ended June 30, 2014.

 

37


Table of Contents

Net cash flows used in continuing financing activities was $290.7 million for the six months ended June 30, 2015, an increase of $435.5 million compared to net cash flows from continuing financing activities of $144.7 million for the six months ended June 30, 2014. We used a portion of the $275.0 million proceeds received from the divestiture, completed on March 3, 2015, to repay $185.0 million that had been outstanding under our Securitization Facility. During the six months ended June 30, 2015, we completed the repurchase of 2,000,000 shares of common stock in two private transactions for an aggregate purchase price of approximately $60.0 million. During the six months ended June 30, 2014, net proceeds from revolving credit facilities were $185.0 million compared to net payments of $185.0 million during the six months ended June 30, 2015. During the six months ended June 30, 2015, dividends of $37.8 million were paid compared to $37.8 million of dividend and dividend equivalent payments during the six months ended June 30, 2014. During the six months ended June 30, 2015, we made principal repayments of $16.2 million of which $10.3 million of these principal repayments were prepaid. We did not make any principal repayments on long-term obligations during the six months ended June 30, 2014.

As of June 30, 2015, the amount of cash and cash equivalents held by our foreign subsidiaries was $96.6 million. We have accrued U.S. taxes on $201 million of unremitted foreign earnings and profits. We have determined foreign earnings of approximately $188 million will be indefinitely reinvested. 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 presently intend to pay a quarterly cash dividend at a rate equal to approximately $18.9 million per quarter (or an annual rate of $75.6 million). Based on approximately 84.3 million shares of common stock subject to dividends, 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 August 3, 2015, we announced a $0.225 per common share quarterly dividend. The dividend is payable September 3, 2015, to stockholders of record as of the close of business on August 24, 2015.

Given our current levels of cash on hand, anticipated cash flows from operations and available borrowing capacity, we believe we have sufficient liquidity to conduct our normal operations and pursue our business strategy in the ordinary course.

Senior Secured Term Loan Facility

On January 24, 2014, we modified our Senior Secured Credit Facilities by entering into the Fourth Amendment. The Fourth Amendment provided for a 25 basis point reduction in the applicable LIBOR interest rate margins and a 25 basis point reduction in the LIBOR interest rate floors of all Term Loans. As of June 30, 2015, the interest rate margins applicable to the 2018 Maturity Term Loans were 2.50% for LIBOR rate loans and 1.50% for base rate loans, and the interest rate margins applicable to the 2016 Maturity Term Loans were 2.0% for LIBOR rate loans and 1.00% for base rate loans. The Fourth Amendment also provides for interest rate floors applicable to the Term Loans. The interest rate floors as of June 30, 2015 were 0.75% for the LIBOR component of LIBOR rate Term Loans and 1.75% for the base rate component of base rate Term Loans.

On July 1, 2014, we used a portion of the net proceeds from the 2022 Senior Notes to repay a portion of the 2018 Maturity Term Loans. The total aggregate principal amount repaid on the 2018 Maturity Term Loans was $250.0 million. Our Senior Secured Credit Facilities bear interest at variable rates. At June 30, 2015, our Senior Secured Credit Facilities required annual principal payments for Term Loans of approximately $3.1 million, paid quarterly with balloon payments at maturity dates of July 15, 2016 and June 30, 2018 of approximately $305.9 million and $1,813.3 million respectively. The effective annual interest rates, inclusive of debt amortization costs, on the Senior Secured Credit Facilities for the three and six months ended June 30, 2015 were 3.91% and 3.91%, respectively, compared to 3.93% and 4.00%, respectively, during the three and six months ended June 30, 2014.

 

38


Table of Contents

On July 1, 2014, we further modified our Senior Secured Credit Facilities by entering into the Fifth Amendment. The Fifth Amendment provided for a new TLA facility to be made available, in a single borrowing, at any time on or before December 31, 2014 in the form of TLA loans having terms substantially similar to the existing term loans under our Senior Secured Credit Facilities, except with respect to pricing, amortization and maturity, in an aggregate principal amount of $350.0 million. The TLA matures on July 1, 2019, provided that the maturity date shall be April 2, 2018 if an aggregate principal amount of $500.0 million or greater of 2018 Maturity Term Loans remain outstanding on such date. The proceeds of the TLA were used to redeem in full the 2019 Senior Notes, accrued and unpaid interest on the 2019 Senior Notes and debt redemption premiums on the redemption of the 2019 Senior Notes. Annual amortization (payable in quarterly installments) in respect of the TLA will be payable at: a 2.5% annual rate in the two quarters ended June 30, 2015 (amortization to be at a 0.625% quarterly rate for the full fiscal quarters following incurrence); a 5.0% annual rate in the year ending June 30, 2016; a 7.5% annual rate in the year ending June 30, 2017; and a 10.0% annual rate thereafter until the maturity date, at which point all remaining outstanding TLA shall become due and payable.

The TLA notes bear interest at variable rates. The interest rate margin applicable to the TLA are based on the Company’s total leverage ratio and range from 1.50% to 2.25% for LIBOR rate loans (LIBOR plus 2.25% at June 30, 2015) and from 0.50% to 1.25% for base rate loans (base rate plus 1.25% at June 30, 2015).

Senior Secured Revolving Credit Facility

Prior to the Fifth Amendment, our senior secured revolving credit facility provided senior secured financing of up to $201.0 million and matured on January 15, 2016. We were required to pay each non-defaulting lender a commitment fee of 0.375% 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 was subject to adjustment based upon our total leverage ratio.

The Fifth Amendment provided for a new senior secured revolving credit facility (the “Senior Secured Revolving Credit Facility”) to be made available under our Amended Credit Agreement in replacement of, and in the form of revolving credit loans having terms substantially similar to the $201.0 million senior secured revolving credit facility referred to above (except with respect to pricing and maturity) in an aggregate principal amount of $300.0 million that mature on July 1, 2019 provided that the maturity date shall be April 2, 2018 if an aggregate principal amount of $500.0 million or greater of 2018 Maturity Term Loans remains outstanding on such date. The proceeds of the Senior Secured Revolving Credit Facility are to be used solely (i) to prepay in full revolving credit loans outstanding under the previous senior secured credit facilities, and pay accrued but unpaid interest thereon, and to terminate all commitments under, in each case, the previous senior secured revolving credit facility in effect immediately prior to giving effect to the Fifth Amendment, (ii) for working capital and general corporate purposes (including dividends and distributions and acquisitions) and (iii) to pay fees and expenses incurred in connection with the establishment and incurrence of the TLA, the Senior Secured Revolving Credit Facility and any related transactions.

The interest rate margin applicable to the Senior Secured Revolving Credit Facility is based on our total leverage ratio and ranges from 1.50% to 2.25% for LIBOR rate loans (LIBOR plus 2.25% at June 30, 2015), and from 0.50% to 1.25% for base rate loans (base rate plus 1.25% at June 30, 2015). We are required to pay each non-defaulting lender a commitment fee of 0.375% 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 Fifth Amendment revised certain negative covenants contained in the Credit Agreement to reflect the size of the Company and current market terms and to extend the total leverage ratio financial covenant under the Credit Agreement in effect immediately prior to the Fifth Amendment through the maturity of the TLA and the Senior Secured Revolving Credit Facility with certain step downs in such ratio levels for test periods ending after December 31, 2015.

 

39


Table of Contents

After giving effect to the Fifth Amendment, which provided for a reset to the availability under the uncommitted incremental facilities, the Company may request additional tranches of term loans or increases to the revolving credit facility in an aggregate amount not to exceed $500.0 million, plus the aggregate principal payments made in respect of the term loans thereunder following July 1, 2014 (other than such payments made with the proceeds of the 2022 Notes or the proceeds of the TLA). 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.

The Senior Secured Revolving Credit Facility was undrawn at June 30, 2015. The average daily outstanding balance of the Senior Secured Revolving Credit Facility during the six months ended June 30, 2015 was $10.0 million. The highest balance outstanding on the Senior Secured Revolving Credit Facility during the six months ended June 30, 2015 was $100.0 million. The Senior Secured Revolving Credit Facility was undrawn during the six months ended June 30, 2014.

2018 Senior Notes

On October 5, 2010, we issued $500.0 million aggregate principal amount of 2018 Senior Notes.

In connection with the issuance of the 2022 Senior Notes on June 17, 2014, we commenced a tender offer to purchase any and all of our outstanding $500 million in aggregate principal amount of the 2018 Senior Notes. Total offer consideration for each $1,000 principal amount of the 2018 Senior Notes tendered was $1,063.09, including an early tender premium of $20.00 per $1,000 principal amount of the 2018 Senior Notes for those holders who properly tendered their 2018 Senior Notes on or before June 30, 2014. Upon consummation of the tender offer on July 1, 2014, approximately $270.8 million aggregate principal amount of the 2018 Senior Notes was purchased. Total additional consideration paid for the tender offer, including early tender premium payment and accrued interest, was approximately $298.7 million.

The redemption date for the call of the 2018 Senior Notes was July 17, 2014, and the redemption price was 105.953% of the principal amount of the 2018 Senior Notes. In addition, the Company paid accrued and unpaid interest on the redeemed 2018 Senior Notes up to, but not including, the redemption date. Following this redemption, none of the 2018 Senior Notes remained outstanding.

2019 Senior Notes

On November 24, 2010, we issued $650.0 million aggregate principal amount of 2019 Senior Notes.

In connection with the issuance of the 2022 Notes on June 17, 2014, we commenced a tender offer to purchase up to $200.0 million in aggregate principal amount of the 2019 Senior Notes. Total offer consideration for each $1,000 principal amount of the 2019 Senior Notes tendered was $1,066.29, including an early tender premium of $20.00 per $1,000 principal amount of the 2019 Senior Notes for those holders who properly tendered their 2019 Senior Notes on or before June 30, 2014. Upon consummation of the tender offer on July 1, 2014, $200.0 million aggregate principal amount of the 2019 Senior Notes was purchased. Total additional consideration paid for the tender offer, including early tender premium payment and accrued interest, was approximately $215.3 million.

On October 16, 2014, we delivered a redemption notice for the 2019 Senior Notes. The redemption date for the call of the 2019 Senior Notes was November 14, 2014 and the redemption price was 103.938% of the principal amount of the 2019 Senior Notes. In addition, the Company paid accrued and unpaid interest on the redeemed 2019 Senior Notes up to, but not including, the redemption date. Following this redemption, none of the 2019 Senior Notes remained outstanding.

 

40


Table of Contents

2022 Senior Notes

On July 1, 2014 we issued $1.0 billion aggregate principal amount of 2022 Senior Notes. The 2022 Senior Notes mature on July 15, 2022 and were issued at par. The 2022 Senior Notes were offered in a private offering exempt from the registration requirements of the Securities Act.

At any time prior to July 15, 2017, we may redeem all or a part of the 2022 Senior Notes at a redemption price equal to 100% of the principal amount of 2022 Senior Notes redeemed plus the applicable premium (as defined in the indenture governing the 2022 Senior Notes) as of, and accrued and unpaid interest to, the date of redemption, subject to the right of holders of 2022 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.

At any time (which may be more than once) before July 15, 2017, we can choose to redeem up to 40% of the outstanding notes with money that we raise in one or more equity offerings, as long as (i) we pay 105.375% of the face amount of the notes, plus accrued and unpaid interest; (ii) we redeem the notes within 90 days after completing the equity offering; and (iii) at least 60% of the aggregate principal amount of the notes issued remains outstanding afterwards.

On and after July 15, 2017, we may redeem the 2022 Senior Notes in whole or in part at the redemption prices (expressed as percentages of principal amount of the 2022 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 2022 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 July 15 of each of the years indicated below:

 

Year

   Percentage  

2017

     104.031   

2018

     102.688   

2019

     101.344   

2020 and thereafter

     100.000   

We and our subsidiaries, affiliates or significant stockholders 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.

Securitization Facility

Our Securitization Facility provides for an unused commitment fee of 0.45% and a LIBOR spread on borrowings of 135 basis points. Under the Securitization 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.

The Securitization Facility has been amended from time to time to add originators, modify eligibility criteria for receivables and clarify the facility’s reporting metrics. The Securitization Facility was most recently amended as of February 25, 2015 by the 2015 Amendment primarily to provide for the divestiture of several of our agent-based businesses, a portion of which previously had been included in the Securitization Facility, to add

 

41


Table of Contents

originators and to modify certain concentration limits and reserves. After giving effect to the 2015 Amendment, based on the level of eligible receivables historically generated by participating originators, we anticipate between $120.0 million to $160.0 million in receivables financing to be available under the Securitization Facility.

West Receivables LLC and West Receivables Holdings LLC are consolidated in our condensed consolidated financial statements included elsewhere in this report. At June 30, 2015, the Securitization Facility was undrawn. At December 31, 2014, $185.0 million was outstanding under the Securitization Facility. The highest outstanding balance during the six months ended June 30, 2015 and year ended December 31, 2014 was $185.0 million.

Debt Covenants

Senior Secured Credit Facilities and Senior Secured Revolving Credit Facility—We are 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 Consolidated EBITDA (as defined in our Amended Credit Agreement) may not exceed 6.25 to 1.0 at June 30, 2015, and the interest coverage ratio of Consolidated 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 annually until the maximum leverage ratio reaches 5.5 to 1.0 as of December 31, 2017). Both ratios are measured on a rolling four-quarter basis. We were in compliance with these financial covenants at June 30, 2015. We previously reported a 4.6x ratio of total debt to Adjusted EBITDA for December 31, 2014 in our Annual Report on Form 10-K. The ratio reported in our Annual Report on Form 10-K was consistent with our historical debt covenant calculations and included both continuing operations and discontinued operations. Our ratio of total debt to Adjusted EBITDA was 4.82x and 4.9x at June 30, 2015 and December 31, 2014, respectively, when calculated on a continuing operations basis. The Amended Credit Agreement also contains 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, transactions with affiliates and changes in our lines of business.

The Amended Credit Agreement includes 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 we may have outstanding from time to time 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. We believe that for the foreseeable future, the Senior Secured Credit Facilities offer us sufficient capacity for our indebtedness financing requirements and we do not anticipate that the limitations on incurring additional indebtedness included in the Amended Credit Agreement will materially impair our financial condition or results of operations.

2022 Senior Notes—The indenture governing the 2022 Senior Notes contains 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. We were in compliance with these financial covenants at June 30, 2015.

Securitization Facility—The Securitization Facility contains various customary affirmative and negative covenants and also contains customary default and termination provisions, which provide for acceleration of

 

42


Table of Contents

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.

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 Amended Credit Agreement 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 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 indenture that governs the notes. The Amended Credit Agreement and the indenture that governs 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.

Contractual Obligations

We have contractual obligations that may affect our financial condition. However, based on management’s 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 June 30, 2015 (amounts in thousands):

 

Contractual Obligations

   Total      Less than
1 year
     1 - 3 years      4 - 5 years      After
5 years
 

Senior Secured Term Loan Facility, due 2016

   $ 307,415       $ 1,560       $ 305,855       $ —         $ —     

Senior Secured Term Loan Facility, due 2018

     1,813,250         —           1,813,250         —           —     

TLA Facility, due 2019

     336,875         8,750         61,250         266,875         —     

5.375% Senior Notes, due 2022

     1,000,000         —           —           —           1,000,000   

Interest payments on fixed rate debt

     403,125         53,750         107,500         107,500         134,375   

Estimated interest payments on variable rate debt (1)

     276,353         80,257         182,698         13,398         —     

Operating leases

     129,094         25,526         38,811         25,148         39,609   

Contractual minimums under telephony agreements

     92,600         79,100         13,500         —           —     

Purchase obligations (2)

     89,539         78,444         10,780         315         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

$ 4,448,251    $ 327,387    $ 2,533,644    $ 413,236    $ 1,173,984   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest rate assumptions based on June 30, 2015 LIBOR U.S. dollar swap rate curves for the next five years.
(2) Represents future obligations for capital and expense projects that are in progress or are committed.

 

43


Table of Contents

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 June 30, 2015, we had accrued $36.1 million, including interest and penalties for uncertain tax positions.

Capital Expenditures

Our continuing operations require significant capital expenditures for technology, capacity expansion and upgrades. Capital expenditures were $64.9 million for the six months ended June 30, 2015 compared to $66.3 million for the six months ended June 30, 2014. We currently estimate our capital expenditures for 2015 to be between $150.0 million to $170.0 million primarily for software and computer equipment.

Off – Balance Sheet Arrangements

Performance obligations of several of our subsidiaries are supported by performance bonds and letters of credit. These obligations will expire at various dates through 2015 and are renewed as required. The outstanding commitment on these obligations at June 30, 2015 was $6.8 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 management’s 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 “Management’s 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, 2014. There have not been any significant changes with respect to these policies during the six months ended June 30, 2015.

 

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.”

 

44


Table of Contents

Interest Rate Risk

As of June 30, 2015, we had $2,120.7 million outstanding under our Senior Secured Credit Facilities, $1.0 billion outstanding under our 2022 Senior Notes, and $336.9 million outstanding under our TLA facility.

Due to the interest rate floors on the Senior Secured Credit Facilities, our variable rate debt on these facilities would be subject to interest rate risk only if current LIBOR rates exceed the interest rate floors of 75 basis points. At June 30, 2015, the 30 and 90 day LIBOR rates were approximately 0.1866% and 0.28175%, respectively. A 50 basis point change in the variable interest rate at June 30, 2015 would have little to no impact on the variable interest rates of the senior secured term loan facilities due in 2016 and 2018, respectively. Every 50 basis point increase in variable interest rates above the LIBOR interest rate floor would increase our quarterly interest expense by approximately $2.7 million on our senior secured term loan facilities due in 2016 and 2018, respectively. The TLA does not include an interest rate floor. A 50 basis point increase in the variable rate of the TLA at June 30, 2015 would increase our quarterly interest expense by approximately $0.4 million. As a result of the interest rate floors and prevailing LIBOR rates, material rate increases on our variable rate debt in the immediate and near term are unlikely.

Foreign Currency Risk

Revenue and expenses from our foreign operations are typically denominated in local currency, thereby creating exposure to changes in exchange rates. Generally, we do not hedge our 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 and six months ended June 30, 2015, a ten 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 approximately 1.2%.

For the three months ended June 30, 2015 and 2014, revenues from non-U.S. countries represented approximately 21% and 23% of consolidated revenues, respectively. During these periods, revenue from the United Kingdom accounted for 12% and 13% of consolidated revenue, respectively. For the six months ended June 30, 2015 and 2014, revenues from non-U.S. countries represented approximately 21% and 24% of consolidated revenues, respectively. During these periods, revenue from the United Kingdom accounted for 12% and 13% of consolidated revenue, respectively. The United Kingdom was the only foreign country which accounted for greater than 10% of revenue. At June 30, 2015 and December 31, 2014, long-lived assets from non-U.S. countries were approximately 6% and 7%, respectively, of consolidated long-lived assets. 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

Periodically, we have entered into interest rate swap agreements (also referred to as cash flow hedges) to convert variable long-term debt to fixed rate debt. At June 30, 2015, we had no cash flow hedges outstanding.

 

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 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

 

45


Table of Contents

concluded that, as of June 30, 2015, 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 Commission’s rules and forms and (ii) that such information is accumulated and communicated to our 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 current quarterly 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.

PART II. OTHER INFORMATION

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

In addition to the other information set forth in this report, you should carefully consider the risks described under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2014. If any of the risks described therein occur, our business, financial condition, liquidity and results of operations could be materially affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows our purchases of our common stock during the six months ended June 30, 2015:

 

Period

   (a)
Total Number of
Shares Purchased (1)
     (b)
Average Price
Paid per Share
(or unit)
     (c)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
     (d)
Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plans
or Programs
 

January 1, 2015 to January 31, 2015

     —        $ —           —           —     

February 1, 2015 to February 28, 2015

     —           —           —           —     

March 1, 2015 to March 31, 2015

     1,000,000         29.60         —           —     

April 1, 2015 to April 30, 2015

     —           —           —           —     

May 1, 2015 to May 31, 2015

     —           —           —           —     

June 1, 2015 to June 30, 2015

     1,000,000         30.36         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,000,000       $ 29.98         —           —     

 

(1) On March 18, 2015 we purchased 1,000,000 shares of our common stock from the selling stockholders in a private transaction for an aggregate purchase price of approximately $29.6 million. This private transaction was concurrent with an underwritten public offering of 12,650,000 shares of common stock by certain of our existing stockholders at a public offering price of $30.75 per share. On June 24, 2015 we purchased 1,000,000 shares of our common stock from the selling stockholders in a private transaction for an aggregate purchase price of approximately $30.4 million. This private transaction was concurrent with an underwritten public offering of 7,000,000 shares of common stock by certain of our existing stockholders at a public offering price of $30.75 per share.

 

46


Table of Contents

Item 6. Exhibits

 

10.01 Stock Repurchase Agreement, dated June 18, 2015, by and among West Corporation and the stockholders listed on Schedule A thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 24, 2015)
10.02 West Corporation Stock Deferral Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 5, 2015) (1)
15.01 Awareness letter of Independent Registered Public Accounting Firm **
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 June 30, 2015, filed on August 5, 2015, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Statements of Comprehensive Income; (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 **

 

(1) Indicates management contract or compensation plan or arrangement.
** Filed herewith

 

47


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

WEST CORPORATION
By:

/s/ Thomas B. Barker

Thomas B. Barker

Chief Executive Officer

By:

/s/ Jan D. Madsen

Jan D. Madsen
Chief Financial Officer and Treasurer
By:

/s/ R. Patrick Shields

R. Patrick Shields

Senior Vice President -

Chief Accounting Officer

Date: August 5, 2015

 

48


Table of Contents

EXHIBIT INDEX

 

Number

  

Description

10.01    Stock Repurchase Agreement, dated June 18, 2015, by and among West Corporation and the stockholders listed on Schedule A thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed on June 24, 2015)
10.02    West Corporation Stock Deferral Plan (incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 5, 2015) (1)
15.01    Awareness Letter of Independent Registered Public Accounting Firm **
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 June 30, 2015, filed on August 5, 2015, formatted in XBRL: (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Statements of Comprehensive Income; (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 **

 

(1) Indicates management contract or compensation plan or arrangement.
** Filed herewith

 

49