10-Q 1 d356230d10q.htm FORM 10-Q Form 10-Q
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, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 000-21771

 

 

West Corporation

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   47-0777362
(State or other jurisdiction of 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  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At July 25, 2012, 491,076,652.2403 shares of the registrant’s common stock were outstanding.

 

 

 


Table of Contents

INDEX

 

             Page No.  

PART I. FINANCIAL INFORMATION

     3   
 

Item 1.

  Financial Statements   
    Report of Independent Registered Public Accounting Firm      3   
    Condensed Consolidated Statements of Operations — Three and Six Months Ended June 30, 2012 and
2011 (unaudited)
     4   
    Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended June 30, 2012 and 2011 (unaudited)      5   
    Condensed Consolidated Balance Sheets — June 30, 2012 (unaudited) and December 31, 2011      6   
    Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 2012 and
2011 (unaudited)
     7   
    Condensed Consolidated Statements of Stockholders’ Deficit — Six Months Ended June 30, 2012 and
2011 (unaudited)
     8   
    Notes to Condensed Consolidated Financial Statements (unaudited)      9   
 

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      37   
 

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      52   
 

Item 4.

  Controls and Procedures      53   

PART II. OTHER INFORMATION

     53   
 

Item 1.

  Legal Proceedings      53   
 

Item 6.

  Exhibits      53   

SIGNATURES

     54   

EXHIBIT INDEX

     55   

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

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

West Corporation and subsidiaries

Omaha, Nebraska

We have reviewed the accompanying condensed consolidated balance sheet of West Corporation and subsidiaries (the “Company”) as of June 30, 2012, and the related condensed consolidated statements of operations and of comprehensive income for the three-month and six-month periods ended June 30, 2012 and 2011, and of stockholders’ deficit and of cash flows for the six-month periods ended June 30, 2012 and 2011. 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, 2011, 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 13, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2011 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

July 27, 2012

 

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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,
 
     2012     2011     2012     2011  

REVENUE

   $ 661,895      $ 622,820      $ 1,300,957      $ 1,233,638   

COST OF SERVICES

     307,286        276,220        598,988        547,823   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     233,110        223,849        466,228        444,257   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     121,499        122,751        235,741        241,558   

OTHER INCOME (EXPENSE):

        

Interest expense, net of interest income of $82, $118, $184 and $217

     (60,625     (68,418     (122,687     (136,143

Other

     (1,691     1,120        1,039        5,812   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

     (62,316     (67,298     (121,648     (130,331
  

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

     59,183        55,453        114,093        111,227   

INCOME TAX EXPENSE

     22,489        21,075        43,355        42,269   

NET INCOME

   $ 36,694      $ 34,378      $ 70,738      $ 68,958   
  

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS (LOSS) PER COMMON SHARE:

        

Basic Class L

     N/A      $ 4.58        N/A      $ 8.97   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Class L

     N/A      $ 4.39        N/A      $ 8.60   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic Common

   $ 0.07      $ (0.13   $ 0.14      $ (0.23
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Common

   $ 0.07      $ (0.13   $ 0.14      $ (0.23
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

        

Basic Class L Shares

     N/A        9,972        N/A        9,985   

Dilutive impact of potential common shares from stock options

     N/A        429        N/A        425   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Class L Shares

     N/A        10,401        N/A        10,410   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic Common

     491,009        87,834        490,763        87,936   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted Common

     508,376        87,834        508,201        87,936   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Net income

   $ 36,694      $ 34,378      $ 70,738      $ 68,958   

Foreign currency translation adjustments, net of tax of $6,871, $(4,778), $2,134 and $(6,166)

     (11,210     7,795        (3,482     10,060   

Reclassification of a cash flow hedge into earnings, net of tax of $0, $(1,193), $0 and $(2,386)

     —          1,946        —          3,891   

Unrealized gain (loss) on cash flow hedges, net of tax of $(549), $152, $(817) and $(1,320)

     896        (248     1,333        2,154   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income — West Corporation

   $ 26,380      $ 43,871      $ 68,589      $ 85,063   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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WEST CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

     June 30,
2012
    December 31,
2011
 

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 84,855      $ 93,836   

Trust and restricted cash

     14,595        16,446   

Accounts receivable, net of allowance of $10,264 and $11,627

     456,039        413,813   

Deferred income taxes receivable

     19,170        10,068   

Prepaid assets

     47,284        37,042   

Other current assets

     53,929        50,581   
  

 

 

   

 

 

 

Total current assets

     675,872        621,786   

PROPERTY AND EQUIPMENT:

    

Property and equipment

     1,168,331        1,133,070   

Accumulated depreciation and amortization

     (821,958     (782,215
  

 

 

   

 

 

 

Total property and equipment, net

     346,373        350,855   

GOODWILL

     1,811,086        1,762,635   

INTANGIBLE ASSETS, net of accumulated amortization of $445,508 and $424,705

     320,040        333,147   

OTHER ASSETS

     180,225        159,095   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 3,333,596      $ 3,227,518   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 77,880      $ 79,439   

Accrued expenses

     322,595        323,436   

Current maturities of long-term debt

     15,425        15,425   
  

 

 

   

 

 

 

Total current liabilities

     415,900        418,300   

LONG-TERM OBLIGATIONS, less current maturities

     3,493,228        3,500,940   

DEFERRED INCOME TAXES

     138,388        121,521   

OTHER LONG-TERM LIABILITIES

     110,069        83,170   
  

 

 

   

 

 

 

Total liabilities

     4,157,585        4,123,931   

COMMITMENTS AND CONTINGENCIES (Note 11)

    

STOCKHOLDERS’ DEFICIT

    

Common stock $0.001 par value, $1,000,000 shares authorized, 491,463, and 490,650 shares issued and 491,072 and 490,271 shares outstanding

     491        491   

Additional paid-in capital

     1,699,363        1,695,477   

Retained deficit

     (2,485,787     (2,556,525

Accumulated other comprehensive loss

     (34,185     (32,036

Treasury stock at cost (391 and 379 shares)

     (3,871     (3,820
  

 

 

   

 

 

 

Total stockholders’ deficit

     (823,989     (896,413
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

   $ 3,333,596      $ 3,227,518   
  

 

 

   

 

 

 

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

 

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WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

     Six Months Ended
June 30,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 70,738      $ 68,958   

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

    

Depreciation

     53,196        51,297   

Amortization

     36,349        32,488   

Asset impairment

     3,715        —     

Provision for share based compensation

     2,650        2,303   

Deferred income tax expense

     7,707        20,005   

Amortization of debt acquisition costs

     6,786        6,693   

Other

     171        161   

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

    

Accounts receivable

     (31,278     (42,507

Other assets

     (36,340     (13,086

Accounts payable

     2,566        4,541   

Accrued expenses, other liabilities and income tax payable

     19,114        17,572   
  

 

 

   

 

 

 

Net cash flows from operating activities

     135,374        148,425   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Business acquisitions, net of cash acquired of $1,350 and $4,780

     (77,201     (188,914

Purchases of property and equipment

     (58,429     (49,378

Other

     —          90   
  

 

 

   

 

 

 

Net cash flows from investing activities

     (135,630     (238,202
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from revolving credit and accounts receivable securitization facilities

     305,800        369,500   

Payments on revolving credit and accounts receivable securitization facilities

     (305,800     (294,000

Principal repayments on long-term obligations

     (7,712     (17,201

Repurchase of common stock

     (51     (4,617

Payments of capital lease obligations

     (35     (460

Other

     380        (262
  

 

 

   

 

 

 

Net cash flows from financing activities

     (7,418     52,960   
  

 

 

   

 

 

 

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

     (1,307     6,794   

NET CHANGE IN CASH AND CASH EQUIVALENTS

     (8,981     (30,023

CASH AND CASH EQUIVALENTS, Beginning of period

     93,836        97,793   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, End of period

   $ 84,855      $ 67,770   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

    

Cash paid during the period for interest

   $ 124,320      $ 117,788   
  

 

 

   

 

 

 

Cash paid during the period for income taxes, net of refunds of $1,858 and $1,440

   $ 43,132      $ 16,719   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:

    

Accrued obligations for the purchase of property and equipment

   $ 6,481      $ 7,292   
  

 

 

   

 

 

 

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

 

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WEST CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(AMOUNTS IN THOUSANDS )

(UNAUDITED)

 

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

BALANCE, January 1, 2012

   $ 491       $ 1,695,477      $ (2,556,525   $ (3,820   $ (32,036   $ (896,413

Net income

          70,738            70,738   

Foreign currency translation adjustment, net of tax of $2,134

              (3,482     (3,482

Unrealized gain on cash flow hedges, net of tax of $(817)

              1,333        1,333   

Purchase of stock (12,000 shares)

            (51       (51

Executive Deferred Compensation Plan contributions

        1,783              1,783   

Stock options exercised including related tax benefits (645,582 shares)

        82              82   

Share based compensation

        2,021              2,021   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, June 30, 2012

   $ 491       $ 1,699,363      $ (2,485,787   $ (3,871   $ (34,185   $ (823,989
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, January 1, 2011

   $ 88       $ —        $ (2,516,315   $ (1,023   $ (26,250   $ (2,543,500

Net income

          68,958            68,958   

Foreign currency translation adjustment, net of tax of $(6,166)

              10,060        10,060   

Reclassification of cash flow hedges into earnings, net of tax of $(2,386)

              3,891        3,891   

Unrealized gain on cash flow hedges, net of tax of $(1,320)

              2,154        2,154   

Purchase of stock (194,764 shares)

            (2,055       (2,055

Executive Deferred Compensation Plan contributions

        1,668              1,668   

Stock options exercised including related tax benefits (12,000 shares)

        24              24   

Share based compensation

        1,038              1,038   

Accretion of Class L common stock priority return preference

        (2,730     (86,825         (89,555
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE, June 30, 2011

   $ 88       $ —        $ (2,534,182   $ (3,078   $ (10,145   $ (2,547,317
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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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 leading provider of technology-driven communication services. “We,” “us” and “our” also refer to West and its consolidated subsidiaries, as applicable. The scale and processing capacity of our proprietary technology platforms, combined with our expertise in managing voice and data transactions, enable us to offer a broad portfolio of services, including conferencing and collaboration, unified communications, alerts and notifications, emergency communications and business processing outsourcing. Our services provide reliable, high-quality, mission-critical communications designed to maximize return on investment for our clients. Our clients include Fortune 1000 companies, along with small and medium enterprises in a variety of industries, including telecommunications, retail, financial services, public safety, technology and healthcare. We have sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific, Latin America and South America.

We operate in two business segments:

 

   

Unified Communications, including conferencing and collaboration services, event services, alerts and notification services and IP-based unified communication solutions; and

 

   

Communication Services, including emergency communication services, automated call processing, agent-based services and telephony / interconnect services.

Unified Communications

Conferencing & Collaboration Services. Operating under the InterCall® brand, we are the largest conferencing services provider in the world based on conferencing revenue, according to Wainhouse Research. We managed approximately 121 million conference calls in 2011, a 13 percent increase over 2010. We provide our clients with an integrated global suite of meeting services. These include on-demand audio conferencing services, video managed services and web collaboration tools that allow clients to make presentations and share applications and documents over the Internet.

Event Services. InterCall offers an event services team to help clients who would like extra assistance planning, conducting and gathering report information for large scale or high-value meetings or conferences. Event services include audio and video webcasting services, virtual event design and hosting, operator-assisted audio conferencing services and web event services.

Alerts & Notifications Services. Our technology platforms allow clients to manage and deliver automated, proactive and personalized communications. We use multiple delivery channels (voice, text messaging, email, social media and fax) based on the preference of the recipient. For example, we deliver patient notifications, send and confirm appointments and prescription reminders on behalf of our healthcare clients, provide travelers with flight arrival and departure updates on behalf of our transportation clients, send and receive automated outage notifications on behalf of our utility clients and transmit emergency evacuation notices on behalf of municipalities. Our scalable platform enables a high volume of messages to be sent in a short amount of time. Our platform also enables two-way communication which allows the recipients of a message to respond with relevant information to our clients.

IP-Based Unified Communications Solutions. We provide our clients with enterprise class IP-based communications solutions enabled by our technology. We offer hosted IP-private branch exchange (“PBX”) and enterprise call management, hosted and managed multi-protocol label switching (“MPLS”) network solutions, unified communications partner solution portfolio services, cloud-based security services, integrated conferencing/desktop messaging and presence tools, and professional services and systems integration expertise.

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Communication Services

Emergency Communications Services. We believe we are one of the largest providers of emergency communications services, based on the number of 9-1-1 calls that we and other participants in the industry facilitate. Our services are critical in facilitating public safety agencies’ ability to receive emergency calls from citizens. Our clients generally enter into long-term contracts and fund their obligations through monthly charges on users’ telephone bills.

Automated Call Processing. We believe we have developed a best-in-class automated customer service platform. Our services allow our clients to effectively communicate with their customers through inbound and outbound interactive voice response (“IVR”) applications using natural language speech recognition, automated voice prompts and network-based call routing services. In addition to these front-end customer service applications, we also provide analyses that help our clients improve their automated communications strategy. Our open standards-based platform allows the flexibility to integrate new capabilities, such as mobility, social media and cloud-based services.

Agent-Based Services. We provide our clients with large-scale, agent-based services, including inbound customer care, customer retention, business-to-business, account management, receivables management, overpayment identification and recovery solutions, as well as direct response and language services. We target opportunities to provide our agent-based services as part of larger strategic client engagements and with clients for whom these services can add value. We believe that we are known in the industry as a premium provider of these services. We have a flexible model that offers on-shore, off-shore and virtual home-based capabilities to fit our clients’ needs.

Telephony / Interconnect Services. Our Telephony / Interconnect services support the merging of traditional telecom, mobile and IP technologies to service providers and enterprises. We are a leading provider of local and national tandem switching services in the middle mile to carriers throughout the United States. We leverage our proprietary customer traffic information system, sophisticated call routing and control facility to provide tandem interconnection services to the competitive marketplace, including wireless, wire-line, cable telephony and Voice over Internet Protocol (“VoIP”) companies. We entered this market through the acquisition of HyperCube LLC (“HyperCube”) in March, 2012.

Basis of Consolidation — The unaudited condensed consolidated financial statements include the accounts of West and our wholly-owned subsidiaries and reflect all adjustments (all of which are normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results, and cash flows for the interim periods. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with 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, 2011. All intercompany balances and transactions have been eliminated. Our results for the three and six months ended June 30, 2012 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.

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Revenue Recognition — In our Unified Communications segment, our conferencing and collaboration services, event services and IP-based unified communications solutions are generally billed and revenue recognized on a per participant minute basis or per seat basis and our alerts and notifications services are generally billed, and revenue recognized, on a per message or per minute basis. We also charge clients for additional features, such as conference call recording, transcription services or professional services. Our Communication Services segment recognizes revenue for platform-based and agent-based services in the month that services are performed and services are generally billed based on call duration, hours of input, number of calls or a contingent basis. Emergency communications services revenue within the Communication Services segment is generated primarily from monthly fees based on the number of billing telephone numbers and cell towers covered under contract. In addition, product sales and installations are generally recognized upon completion of the installation and client acceptance of a fully functional system or, for contracts that are completed in stages, recognized upon completion of such stages. Contracts for annual recurring services such as support and maintenance agreements are generally billed in advance and are recognized as revenue ratably (on a monthly basis) over the contractual periods. Nonrefundable up-front fees and related costs are recognized ratably over the term of the contract except in certain instances where the future benefit is linked to the customer relationship, which may necessitate a longer recognition period.

Revenue for contingent collection services and overpayment identification and recovery services is recognized in the month collection payments are received based upon a percentage of cash collected or other agreed upon contractual parameters.

Revenue for telephony / interconnect services is recognized in the period the service is provided and when collection is reasonably assured. These telephony / interconnect services are primarily comprised of switched access charges for toll-free origination services, which are paid primarily by interexchange carriers.

Conversion — On December 30, 2011, we completed the conversion of our outstanding Class L Common Stock into shares of Class A Common Stock (the “Conversion”) by filing amendments to our amended and restated certificate of incorporation (the “Charter Amendments”) with the Delaware Secretary of State. Upon the effectiveness of the filing of the Charter Amendments, each share of our outstanding Class L Common Stock was converted into 40.29 shares of Class A Common Stock.

Prior to the Conversion, our equity investors (i.e., the Sponsors, the Founders and certain members of management) owned a combination of Class L and Class A shares (in strips of eight Class A shares and one Class L share per strip). Supplemental management incentive equity awards (restricted stock and option programs) were implemented with Class A shares/options only.

As the Class L stockholders controlled a majority of the votes of the board of directors through direct representation on the board of directors and the conversion and redemption features were considered to be outside the control of the Company, all shares of Class L common stock, prior to the Conversion, were presented outside of permanent equity in accordance with ASC 480-10-599, Classification and Measurement of Redeemable Securities. Subsequent to the Conversion, the Class L accreted value was reclassified to Common Stock and Additional Paid-In Capital.

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

A reconciliation of the Class L common shares is presented below, in thousands:

 

     Six months
ended June 30,
2011
 

January 1, 2011

   $ 1,504,445   

Accretion of Class L common stock priority return preference

     89,555   

Executive Deferred Compensation Plan activity

     2,206   

Purchase of Class L shares

     (2,562
  

 

 

 

June 30, 2011

   $ 1,593,644   
  

 

 

 

Reclassification of Common Stock — On December 30, 2011, following the Conversion, all of the then outstanding shares of Class A Common Stock were reclassified as shares of Common Stock pursuant to the filing of the Charter Amendments (the “Reclassification”). Following the Reclassification, all shares of Common Stock share proportionately in dividends. The Charter Amendments also increased our number of authorized shares to nine hundred million (900,000,000) shares of Class A Common Stock and one hundred million (100,000,000) shares of Class L Common Stock. Following consummation of the Conversion and the Reclassification, we had one billion authorized shares of Common Stock.

As a result of the reclassification of Class A common stock to common stock, references to “Class A common stock” have been changed to “common stock” for all periods presented.

Foreign Currency and Translation of Foreign Subsidiaries — The functional currencies of the Company’s foreign operations generally are the respective local currencies. All assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at fiscal period-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal period. The resulting translation adjustments are recorded as a component of stockholders’ deficit and comprehensive income. Foreign currency transaction gains or losses are recorded in the statement of operations.

Subsequent Events — In accordance with the provisions of ASC 855, we have evaluated subsequent events. No subsequent events requiring recognition were identified and therefore none were incorporated into the condensed consolidated financial statements presented herein.

Recent Accounting Pronouncements — In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U. S. GAAP and IFRS. The amendments in ASU 2011-04 change the wording used to describe many of the requirements in U. S. Generally Accepted Accounting Principles (“GAAP”) for measuring fair value and disclosing information about fair value measurements. Some of the amendments clarify FASB’s intent about the application of existing fair value measurement and disclosure requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This guidance became effective for the Company January 1, 2012, and the adoption had no immediate effect on our financial position, results of operations or cash flows.

In June 2011, the FASB issued ASU No. 2011- 05, Comprehensive Income (Topic 220), requiring entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. ASU No. 2011-05 is effective for statements issued by the Company after January 1, 2012. In December 2011, the FASB issued ASU 2011-12 Comprehensive Income, which defers certain portions of ASU 2011-05 and indefinitely deferred the requirement to

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

present reclassification adjustments out of accumulated other comprehensive income by component. The Company early adopted the provisions of ASU No. 2011-05 and ASU No. 2011-12 and accordingly all previous periods have been retrospectively presented.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (Topic 350), permitting entities the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. ASU No. 2011-08 became effective for the Company January 1, 2012 and the adoption had no immediate effect on our financial position, results of operations or cash flows.

2. ACQUISITIONS

HyperCube

On March 23, 2012, we completed the acquisition of HyperCube, a provider of switching services to telecommunications carriers throughout the United States. HyperCube exchanges or interconnects communications traffic to all carriers, including wireless, wire-line, cable telephony and VoIP companies. The purchase price was $77.9 million and was funded by cash on hand and partial use of our asset securitization financing facility. The results of HyperCube have been included in the Communication Services segment since March 23, 2012.

Factors that contributed to a purchase price resulting in the recognition of goodwill, partially deductible for tax purposes, for the purchase of HyperCube included the synergy related to telecommunication transport costs and new products and services related to IP and mobile communications.

PivotPoint

On August 10, 2011, we completed the acquisition of substantially all of the telecommunication business assets of PivotPoint Solutions, LLC (“PivotPoint”), a provider of wireless location accuracy compliance reporting, analysis and optimization. PivotPoint’s technology allows wireless carriers to monitor and optimize their location finding networks. The purchase price was $22.9 million and was funded by cash on hand and partial use of our revolving credit facilities. The results of the acquired PivotPoint assets have been included in the Communication Services segment since August 10, 2011.

Factors that contributed to a purchase price resulting in the recognition of goodwill, non-deductible for tax purposes, for the purchase of the PivotPoint assets included PivotPoints’ expertise in location accuracy compliance reporting mandated by the Federal Communications Commission, expansion of 9-1-1 products and services, market expansion and operational efficiencies.

Contact One

On June 7, 2011, we completed the acquisition of substantially all of the assets of Contact One, Inc. (“Contact One”), a provider of 9-1-1 database, mapping/GIS (Geographic Information System) and 9-1-1 products and services. The purchase price was $7.6 million and was funded by cash on hand and partial use of our revolving credit facilities. The results of the acquired Contact One assets have been included in the Communication Services segment since June 7, 2011.

Factors that contributed to a purchase price resulting in the recognition of goodwill, non-deductible for tax purposes, for the purchase of the Contact One assets included Contact One’s expertise in 9-1-1 database, mapping/GIS and expansion of 9-1-1 products and services.

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Smoothstone

On June 3, 2011, we completed the acquisition of Smoothstone IP Communications Corporation, now known as West IP Communications, Inc. (“WIPC”), a provider of cloud-based communications for the enterprise. The acquisition of WIPC added cloud-based IP telephony and network management to our Unified Communications solutions portfolio. The purchase price was $120.0 million and was funded by cash on hand and partial use of our revolving credit facilities. The results of WIPC have been included in the Unified Communications segment since June 3, 2011.

Factors that contributed to a purchase price resulting in the recognition of goodwill, non-deductible for tax purposes, for the purchase of WIPC included a complete product portfolio of cloud-based, network-centric Unified Communications solutions, a flexible deployment model which enables a menu of solutions to be implemented to replace or complement customers’ existing on-premise equipment, expansion of the target market of potential clients and capital expenditure and operating cost avoidance.

Unisfair

On March 1, 2011, we completed the acquisition of Unisfair, Inc. (“Unisfair”), a provider of hosted virtual events and business environments. These virtual events and environments offer a highly interactive experience through speaking sessions, exhibition floors and networking areas that support many business purposes, including sales and lead generation, training, product marketing and corporate and employee communications. The addition of Unisfair enhances our virtual event offering by permitting us to offer a complete end-to-end solution on a proprietary platform within our Unified Communications segment. The purchase price was $19.5 million and was funded by cash on hand. The results of Unisfair have been included in the Unified Communications segment since March 1, 2011.

A factor that contributed to a purchase price resulting in the recognition of goodwill, non-deductible for tax purposes, for the purchase of Unisfair included enhancement of our virtual events and business environment services offering.

TFCC

On February 1, 2011, we completed the acquisition of Twenty First Century Communications, Inc. (“TFCC”), a provider of automated alerts and notification solutions to the electric utilities industry, government, public safety and corporate markets. The addition of TFCC enhances our alerts and notifications platform and our position as a service provider to the U.S. utility industry. The purchase price was $40.5 million and was funded by cash on hand and partial use of our revolving credit facilities. The results of TFCC have been included in the Unified Communications segment since February 2, 2011.

Factors that contributed to a purchase price resulting in the recognition of goodwill, deductible for tax purposes, for the purchase of TFCC included expansion of our presence in emergency alerts and notification services particularly in the utilities industry and the potential to drive additional services into this market.

POSTcti

On February 1, 2011, we completed the acquisition of Preferred One Stop Technologies Limited (“POSTcti”), a provider of unified communications solutions and services in Europe. POSTcti enables and provides single source communication convergence from best-of-breed industry-leading providers, combined with customized professional services implementation and dedicated ongoing product support. The purchase price included $4.3 million of non-contingent consideration paid in Sterling at closing and was funded with cash on hand. The purchase agreement for POSTcti also includes a three year contingent earn-out provision with a maximum payment of approximately £12.0 million and £0.4 million (approximately $18.8 million and $0.6 million at the June

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

30, 2012 exchange rate) of additional non-contingent deferred consideration withheld to secure sellers’ indemnification obligations. The contingent earn-out will be determined based on the achievement of specified revenue and EBITDA objectives. Based on a weighted average probability analysis, we have accrued $8.1 million at June 30, 2012 for the contingent earn-out. The results of POSTcti have been included in the Unified Communications segment since February 1, 2011.

A factor that contributed to a purchase price resulting in the recognition of goodwill, non-deductible for tax purposes, for the purchase of POSTcti included the expansion of our hosted and managed unified communications solutions to Europe.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates for HyperCube, PivotPoint, Contact One, WIPC, Unisfair, TFCC and POSTcti,. The finite lived intangible assets are comprised of trade names, technology, non-competition agreements and customer relationships.

 

(Amounts in thousands)    HyperCube     PivotPoint      Contact One     WIPC      Unisfair     TFCC      POSTcti  

Working Capital

   $ (79   $ 231       $ (390   $ 4,635       $ (3,732   $ 1,080       $ (1,255

Property and equipment

     10,114        307         56        1,484         339        3,304         18   

Other assets, net

     391        30         —          —           42        —           —     

Intangible assets

     19,110        10,791         2,785        48,610         10,960        17,250         3,859   

Goodwill

     50,989        11,542         5,189        79,538         15,343        18,870         11,221   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total assets acquired

     80,525        22,901         7,640        134,267         22,952        40,504         13,843   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Non-current deferred taxes

     2,594        —           —          13,182         3,452        —           1,013   

Long-term liabilities

     50        —           —          1,047         —          —           8,537   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total liabilities assumed

     2,644        —           —          14,229         3,452        —           9,550   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net assets acquired

   $ 77,881      $ 22,901       $ 7,640      $ 120,038       $ 19,500      $ 40,504       $ 4,293   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Pro forma

Assuming the acquisitions of HyperCube, PivotPoint, Contact One, WIPC, Unisfair, TFCC and POSTcti, 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, 2012 and 2011 would have been, in thousands, (except per share amount) as follows:

 

     Three months ended June 30,     Six months ended June 30,  
          2012                2011          2012      2011  

Revenue

   $ 661,895       $ 656,822      $ 1,317,332       $ 1,301,725   

Net Income

   $ 36,694       $ 34,304      $ 70,685       $ 65,900   

Earnings per common L share — basic

     N/A       $ 4.58        N/A       $ 8.97   

Earnings per common L share — diluted

     N/A       $ 4.39        N/A       $ 8.60   

Income (loss) per share — basic

   $ 0.07       $ (0.16   $ 0.14       $ (0.30

Income (loss) per share — diluted

   $ 0.07       $ (0.16   $ 0.14       $ (0.30

 

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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 dates indicated, nor are they necessarily indicative of future results of the combined companies.

For the three months ended June 30, 2012 and 2011, our acquisitions were included in the consolidated results of operations from their respective dates of acquisition and included revenue of $32.8 million and $17.8 million, respectively. For the six months ended June 30, 2012 and 2011, our acquisitions were included in the consolidated results of operations from their respective dates of acquisition and included revenue of $51.6 million and $29.9 million, respectively. The net income for the three and six months ended June 30, 2012 and 2011 of those acquisitions were not material. Acquisition costs for the three months ended June 30, 2012 and 2011 were $0.1 million and $0.7 million, respectively, and are included in selling, general and administrative expenses. Acquisition costs for the six months ended June 30, 2012 and 2011 were $0.5 million and $2.2 million, respectively, and are included in selling, general and administrative expenses.

3. GOODWILL AND INTANGIBLE ASSETS

The following table presents the activity in goodwill by reporting segment, in thousands, for the year ended December 31, 2011 and the six months ended June 30, 2012:

 

     Unified
Communications
    Communication
Services
    Consolidated  

Balance at January 1, 2011

   $ 843,558      $ 823,513      $ 1,667,071   

Accumulated impairment losses

     —          (37,675     (37,675
  

 

 

   

 

 

   

 

 

 

Net balance at January 1, 2011

     843,558        785,838        1,629,396   

Acquisitions

     124,989        16,839        141,828   

Acquisition accounting adjustments

     —          (3,023     (3,023

Foreign currency translation adjustment

     (5,565     (1     (5,566
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     962,982        837,328        1,800,310   
  

 

 

   

 

 

   

 

 

 

Accumulated impairment losses

     —          (37,675     (37,675
  

 

 

   

 

 

   

 

 

 

Net balance at December 31, 2011

   $ 962,982      $ 799,653      $ 1,762,635   
  

 

 

   

 

 

   

 

 

 
     Unified
Communications
    Communication
Services
    Consolidated  

Balance at January 1, 2012

   $ 962,982      $ 837,328      $ 1,800,310   

Accumulated impairment losses

     —          (37,675     (37,675
  

 

 

   

 

 

   

 

 

 

Net balance at January 1, 2012

     962,982        799,653        1,762,635   

Acquisitions

     —          50,989        50,989   

Acquisition accounting adjustments

     970        (108     862   

Foreign currency translation adjustment

     (3,417     17        (3,400
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

     960,535        888,226        1,848,761   
  

 

 

   

 

 

   

 

 

 

Accumulated impairment losses

     —          (37,675     (37,675
  

 

 

   

 

 

   

 

 

 

Net balance at June 30, 2012

   $ 960,535      $ 850,551      $ 1,811,086   
  

 

 

   

 

 

   

 

 

 

The excess of the acquisition costs over the fair value of the assets acquired and liabilities assumed for the purchase of HyperCube and PivotPoint 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

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

completing the acquisition accounting involves numerous time consuming steps for information gathering, verification and review. We expect to finalize this process within twelve months following the respective acquisition dates.

During the six months ended June 30, 2012, we completed the acquisition accounting for Unisfair, TFCC, POSTcti, Smoothstone and Contact One with no significant changes required to our provisional acquisition accounting estimates.

Other intangible assets

Below is a summary of the major intangible assets and weighted average amortization periods (in years) for each identifiable intangible asset, in thousands:

 

      As of June 30, 2012      Weighted
Average
Amortization
Period (Years)
 

Intangible assets

   Acquired
Cost
     Accumulated
Amortization
    Net Intangible
Assets
    

Client Relationships

   $ 540,927       $ (351,199   $ 189,728         9.5   

Technology & Patents

     135,406         (67,006     68,400         10.3   

Trade names

     47,110         —          47,110         Indefinite   

Trade names (finite-lived)

     27,205         (14,841     12,364         4.3   

Other intangible assets

     14,900         (12,462     2,438         4.6   
  

 

 

    

 

 

   

 

 

    

Total

   $ 765,548       $ (445,508   $ 320,040      
  

 

 

    

 

 

   

 

 

    
     As of December 31, 2011      Weighted
Average
Amortization
Period (Years)
 

Intangible assets

   Acquired
Cost
     Accumulated
Amortization
    Net Intangible
Assets
    

Client Relationships

   $ 538,154       $ (341,236   $ 196,918         9.2   

Technology & Patents

     131,446         (61,098     70,348         10.3   

Trade names

     47,110         —          47,110         Indefinite   

Trade names (finite-lived)

     26,690         (12,423     14,267         4.3   

Other intangible assets

     14,452         (9,948     4,504         4.6   
  

 

 

    

 

 

   

 

 

    

Total

   $ 757,852       $ (424,705   $ 333,147      
  

 

 

    

 

 

   

 

 

    

Amortization expense for finite-lived intangible assets was $17.1 million and $14.7 million for the three months ended June 30, 2012 and 2011, respectively, and $32.0 million and $29.6 million for the six months ended June 30, 2012 and 2011, respectively. Estimated amortization expense for the intangible assets noted above for 2012 and the next five years is as follows:

 

2012

   $ 64.8 million   

2013

   $ 54.1 million   

2014

   $ 44.0 million   

2015

   $ 35.4 million   

2016

   $ 26.4 million   

2017

   $ 19.8 million   

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

4. ACCRUED EXPENSES

Accrued expenses, in thousands, consisted of the following as of:

 

     June 30,
2012
     December 31,
2011
 

Deferred revenue and customer deposits, net of long-term deferred revenue of $23,721 and $4,463

   $ 72,714       $ 78,173   

Accrued wages

     52,845         54,259   

Accrued other taxes (non-income related)

     44,160         37,980   

Accrued phone

     42,659         27,500   

Interest payable

     39,460         47,724   

Accrued employee benefit costs

     15,560         12,763   

Accrued lease expense

     9,217         7,211   

Income taxes payable

     9,188         17,997   

Interest rate hedge position

     4,955         5,194   

Other current liabilities

     31,837         34,635   
  

 

 

    

 

 

 
   $ 322,595       $ 323,436   
  

 

 

    

 

 

 

5. LONG-TERM OBLIGATIONS

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

 

     June 30,
2012
    December 31,
2011
 

Senior Secured Term Loan Facility, due 2013

   $ 448,434      $ 448,434   

Senior Secured Term Loan Facility, due 2016

     1,460,219        1,467,931   

11% Senior Subordinated Notes, due 2016

     450,000        450,000   

8 5/8% Senior Notes, due 2018

     500,000        500,000   

7 7/8% Senior Notes, due 2019

     650,000        650,000   
  

 

 

   

 

 

 
     3,508,653        3,516,365   
  

 

 

   

 

 

 

Less: current maturities

     (15,425     (15,425
  

 

 

   

 

 

 

Long-term obligations

   $ 3,493,228      $ 3,500,940   
  

 

 

   

 

 

 

6. HEDGING ACTIVITIES

Periodically, we have entered into interest rate swaps to hedge the cash flows from our variable rate debt, which effectively converts the hedged portion under our outstanding senior secured term loan facility to fixed rate debt. The initial assessments of hedge effectiveness were performed using regression analysis. The periodic measurements of hedge ineffectiveness are performed using the change in variable cash flows method.

The cash flow hedges are recorded at fair value with a corresponding entry, net of taxes, recorded in other comprehensive income (“OCI”) until earnings are affected by the hedged item. At June 30, 2012, the notional amount of debt outstanding under interest rate swap agreements was $500.0 million. The fixed interest rate on the interest rate swaps ranges from 1.685% to 1.6975%.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table presents, in thousands, the fair value of the Company’s derivatives and consolidated balance sheet location.

 

    

Liability Derivatives

 
    

June 30, 2012

    

December 31, 2011

 
    

Balance Sheet Location

   Fair Value     

Balance Sheet Location

   Fair Value  

Derivatives designated as hedging instruments:

           

Interest rate swaps

   Accrued expenses    $ 4,955       Accrued expenses    $ 5,194   

Interest rate swaps

   Other long-term liabilities      —         Other long-term liabilities      1,911   
     

 

 

       

 

 

 

Total derivatives

      $ 4,955          $ 7,105   
     

 

 

       

 

 

 

The following presents, in thousands, the impact of interest rate swaps on the consolidated statement of operations for the three and six months ended June 30, 2012 and 2011, respectively.

 

Derivatives designated    Amount of gain (loss)
recognized in OCI
For the three months
ended June 30,
   

Location of gain (loss)

reclassified from OCI

   Amount of gain
reclassified from OCI
into net income for the
three months ended
June 30,
     Amount of gain (loss)
recognized in net
income on hedges
(ineffective portion)
for the three months
ended June 30,
 

as hedging instruments

       2012              2011        

into net income

       2012              2011              2012              2011      

Interest rate swaps

   $ 896       $ (248   Interest expense    $ —         $ 1,946       $ —         $ —     
  

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

 
     For the six months
ended June 30,
         For the six months
ended June 30,
     For the six months
ended June 30,
 
     2012      2011          2012      2011      2012      2011  

Interest rate swaps

   $ 1,333       $ 2,154      Interest expense    $ —         $ 3,891       $ —         $ 202   
  

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

 

 

 

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

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 Non-qualified Deferred Compensation Plan represent mutual funds, invested in debt and equity securities, classified as trading securities in accordance with ASC 320 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.

Interest rate swaps. The effect of the interest rate swaps is to change a variable rate debt obligation to a fixed rate for that portion of the debt that is hedged. We record the interest rate swaps at fair value. The fair value of the interest rate swaps is based on a model whose inputs are observable (LIBOR swap rates); therefore, the fair value of these interest rate swaps is based on a Level 2 input.

The Company looks at 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 in the table below.

Assets and liabilities measured at fair value on a recurring basis, in thousands, are summarized below:

 

            Fair Value Measurements at June 30, 2012 Using  

Description

   Carrying
Amount
     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Assets /
Liabilities
at Fair
Value
 

Assets

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Trading securities

   $ 31,937       $ 31,937       $ —         $ —         $ 31,937   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate swaps

   $ 4,955       $ —         $ 4,955       $ —         $ 4,955   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

            Fair Value Measurements at December 31, 2011 Using  

Description

   Carrying
Amount
     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Assets /
Liabilities
at Fair
Value
 

Assets

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Trading securities

   $ 29,535       $ 29,535       $ —         $ —         $ 29,535   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

              
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest rate swaps

   $ 7,105       $ —         $ 7,105       $ —         $ 7,105   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The fair value of our senior secured term loan facility, 11% senior subordinated notes, 8 5/8% senior notes and 7 7/8% senior notes based on market quotes, which we determined to be Level 1 inputs, at June 30, 2012 was approximately $3,587.8 million compared to the carrying amount of $3,508.7 million. The fair value of our senior secured term loan facility, 11% senior subordinated notes, 8 5/8% senior notes and 7 7/8% senior notes based on market quotes, which we determined to be Level 1 inputs, at December 31, 2011 was approximately $3,529.0 million compared to the carrying amount of $3,516.4 million.

8. STOCK-BASED COMPENSATION

On December 30, 2011, our Board of Directors approved amendments to certain of our compensation plans. The Board of Directors approved an amendment to the Company’s 2006 Executive Incentive Plan (“EIP”) which amendment increased the maximum number of shares of common stock of the Company, par value $0.001 per share (“Common Stock”) that may be issued pursuant to or subject to outstanding awards under the 2006 EIP from 11,276,291 to 38,435,427. Such increased pool is in addition to shares issuable upon exercise of executive rollover options. The Board of Directors also took action in accordance with the terms of the 2006 EIP to adjust the number and kind of shares of stock or securities subject to awards outstanding under the 2006 EIP to give effect to the Conversion and the Reclassification.

Awards under the EIP are intended to align the incentives of the Company’s executives and investors and to improve the performance of the Company. The administrator will select participants from among those key employees and directors of and consultants and advisors to, the Company or its affiliates who, in the opinion of the administrator, are in a position to make a significant contribution to the success of the Company and its affiliates.

Stock options granted under the EIP prior to 2012 become exercisable over a period of five years, with 20% of the stock option becoming exercisable on each of the first through fifth anniversaries of the grant date. During 2012, a form of option certificate was adopted such that the 2012 grants become exercisable over a period of four years, with 25% of the stock option becoming exercisable on each of the first through fourth anniversaries of the grant date. Once an option has vested, it generally remains exercisable until the tenth anniversary of the grant date so long as the participant continues to provide services to the Company.

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Stock Options

The following table presents the stock option activity under the EIP for the six months ended June 30, 2011 and 2012, respectively:

 

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

Balance at January 1, 2011

     333,447        2,544,000      $ 3.00   

Granted

     (160,000     160,000        10.60   

Canceled

     65,500        (65,500     5.76   

Exercised

     —          (12,000     1.97   
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2011

     238,947        2,626,500      $ 3.40   
  

 

 

   

 

 

   

 

 

 

Balance at January 1, 2012

     27,434,083        2,524,500      $ 3.38   

Granted

     (20,920,000     20,920,000        4.19   

Canceled

     142,000        (142,000     5.68   

Exercised

     —          (57,500     1.64   
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

     6,656,083        23,245,000      $ 4.10   
  

 

 

   

 

 

   

 

 

 

At June 30, 2012, we expect that approximately 72% of options granted will vest over the vesting period.

At June 30, 2012, the intrinsic value of vested options was approximately $3.4 million.

The following table summarizes the information on the options granted under the EIP at June 30, 2012:

 

Outstanding     Exercisable  

Range of
Exercise Prices

    Number of
Options
    Average
Remaining
Contractual
Life (years)
    Weighted
Average
Exercise
Price
    Number of
Options
    Weighted
Average
Exercise
Price
 
$ 1.64        1,649,000        4.44      $ 1.64        1,649,000      $ 1.64   
  3.61        208,000        6.50        3.61        129,000        3.61   
  4.19        20,855,000        9.75        4.19        —          —     
  6.36        215,000        5.58        6.36        172,000        6.36   
  9.04        193,000        7.83        9.04        77,200        9.04   
  10.60        125,000        8.58        10.60        25,000        10.60   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
$ 1.64 - $10.60        23,245,000        9.28      $ 3.40        2,052,200      $ 2.55   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

            Options Outstanding  

Executive Management Rollover Options

   Options
Available
for Grant
     Number
of Shares
    Weighted
Average
Exercise Price
 

Balance at January 1, 2011

     17         287,326      $ 33.34   

Canceled

     —           —          —     

Exercised

     —           —          —     
  

 

 

    

 

 

   

 

 

 

Balance at June 30, 2011

     17         287,326      $ 33.34   
  

 

 

    

 

 

   

 

 

 

Balance at January 1, 2012

     821         12,958,670      $ 0.6923   

Canceled

     —           —          —     

Exercised

     —           (708,584     0.6959   
  

 

 

    

 

 

   

 

 

 

Balance at June 30, 2012

     821         12,250,086      $ 0.6921   
  

 

 

    

 

 

   

 

 

 

Prior to the Conversion and Reclassification in December 2011, an Equity Strip was comprised of eight shares of Class A common stock and one share of Class L common stock. The executive rollover options are fully vested.

The following table summarizes the outstanding and exercisable information on executive management rollover options granted under the EIP at June 30, 2012:

 

Outstanding and Exercisable  

Range of
Exercise Prices

    Number of
Options
    Average
Remaining
Contractual
Life (years)
    Weighted
Average
Exercise
Price
 
$ 0.5846        147,115        0.25      $ 0.5846   
  0.6834        10,964,003        1.29        0.6834   
  0.7900        1,138,968        0.75        0.7900   

 

 

   

 

 

   

 

 

   

 

 

 
$ 0.5846 - $0.79        12,250,086        1.23      $ 0.6921   

 

 

   

 

 

   

 

 

   

 

 

 

The aggregate intrinsic value of these options at June 30, 2012 was approximately $42.8 million.

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

We account for the stock option grants under the EIP in accordance with Accounting Standards Codification 718, Compensation-Stock Compensation (“ASC 718”). The fair value of option awards granted under the EIP during the six months ended June 30, 2012 and 2011 were $1.53 and $3.92, respectively. We have estimated the fair value of EIP option awards on the grant date using a Black-Scholes option pricing model that uses the assumptions noted in the following table:

 

     Six months ended
June 30,
 
     2012     2011  

Risk-free interest rate

     1.35     1.87

Dividend yield

     0.0     0.0

Expected volatility

     34.7     33.2

Expected life (years)

     6.25        6.5   

The risk-free rate for periods within the expected life of the option is based on the zero-coupon U.S. government treasury strip with a maturity which approximates the expected life of the option at the time of grant.

There was approximately $24.5 million and $2.8 million of unrecorded and unrecognized compensation expense related to unvested share based compensation under the EIP at June 30, 2012 and 2011, respectively.

Stock-Based Compensation Expense

For the three months ended June 30, 2012 and 2011, stock-based compensation expense was $2.5 million and $1.3 million, respectively. For the six months ended June 30, 2012 and 2011, stock-based compensation expense was $2.6 million and $2.3 million, respectively.

9. EARNINGS PER SHARE

On October 2, 2009, the Company announced its intention to commence an equity offering and accordingly is providing the following information related to earnings per share.

On December 30, 2011, we completed the Conversion of our outstanding Class L Common Stock into shares of Class A Common Stock and thereafter the reclassification of all of our Class A Common Stock as a single class of Common Stock. As a result, earnings per share calculations in periods subsequent to the Conversion will be presented as a single class of Common Stock.

Through December 30, 2011, we had two classes of common stock (Class L stock and Class A stock) outstanding. Each Class L share was entitled to a priority return preference equal to the sum of (x) $90 per share base amount and (y) an amount sufficient to generate a 12% internal rate of return on that base amount from the date of the recapitalization until the priority return preference was paid in full or converted to Class A shares. Each Class L share also participated in any equity appreciation beyond the priority return on the same per share basis as the Class A shares. Class A shares participated in the equity appreciation after the Class L priority return was satisfied.

The Class L stock was considered a participating stock security requiring use of the “two-class” method for the computation of basic net income (loss) per share in accordance with ASC 260, Earnings Per Share. Losses were not allocated to the Class L stock in the computation of basic earnings per share as the Class L stock was not obligated to share in losses.

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Prior to the Conversion, basic earnings per share (“EPS”) excluded the effect of common stock equivalents and is computed using the “two-class” computation method, which divides earnings attributable to the Class L preference from total earnings. Any remaining income or loss is attributed to the common shares. 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 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,  
(Amount in thousands)        2012              2011             2012              2011      

Net Income

   $ 36,694       $ 34,378      $ 70,738       $ 68,958   

Less: accretion of Class L Shares (1)

     —           45,702        —           89,555   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income (loss) attributable to Class A Shares

   $ 36,694       $ (11,324   $ 70,738       $ (20,597
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Prior to the Conversion, the Class L shareholders were allocated their priority return which is equivalent to the accretion, while any losses were allocated to common shareholders as the Class L shareholders did not have a contractual obligation to share in losses.

 

     Three months ended June 30,     Six months ended June 30,  
(In thousands, except per share amounts)    2012      2011     2012      2011  

Earnings (Loss) Per Common Share:

          

Basic — Class L

     N/A       $ 4.58        N/A       $ 8.97   

Basic — Common

   $ 0.07       $ (0.13   $ 0.14       $ (0.23

Diluted — Class L

     N/A       $ 4.39        N/A       $ 8.60   

Diluted — Common

   $ 0.07       $ (0.13   $ 0.14       $ (0.23

Weighted Average Number of Shares Outstanding:

          

Basic — Class L

     N/A         9,972        N/A         9,985   

Basic — Common

     491,009         87,834        490,763         87,936   

Dilutive Impact of Stock Options:

          

Class L Shares

     N/A         429        N/A         425   

Diluted Class L Shares

     N/A         10,401        N/A         10,410   

Common Shares

     17,367         —          17,438         —     

Diluted Common Shares

     508,376         87,834        508,201         87,936   

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Diluted earnings per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares result from the assumed exercise of outstanding stock options, by application of the treasury stock method that have a dilutive effect on earnings per share. At June 30, 2012, 21,388,000 stock options were outstanding with an exercise price equal to or exceeding the market value of our common stock that were therefore excluded from the computation of shares contingently issuable upon exercise of the options. At June 30, 2011, for purposes of calculating the diluted earnings per share for the common shares, 2,626,500 options outstanding to purchase common shares were excluded from the computation of diluted common shares outstanding as the income allocable to the common shares was a loss therefore the effect was anti-dilutive.

10. BUSINESS SEGMENTS

Unified Communications, including on-demand audio conferencing, operator-assisted audio conferencing, web collaboration tools and video conferencing services, virtual event design and hosting, alerts and notification services and implementation of hosted and managed unified communications solutions; and

Communication Services, including emergency communications, automated call processing, agent-based services and telephony / interconnect services.

 

     For the three months ended June 30,     For the six months ended June 30,  
Amounts in thousands    2012     2011     2012     2011  

Revenue:

        

Unified Communications

   $ 369,527      $ 347,037      $ 729,174      $ 678,159   

Communication Services

     295,227        278,332        576,964        560,409   

Intersegment eliminations

     (2,859     (2,549     (5,181     (4,930
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 661,895      $ 622,820      $ 1,300,957      $ 1,233,638   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income:

        

Unified Communications

   $ 99,805      $ 96,470      $ 196,941      $ 190,481   

Communication Services

     21,694        26,281        38,800        51,077   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 121,499      $ 122,751      $ 235,741      $ 241,558   
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and Amortization:

        

(Included in Operating Income)

        

Unified Communications

   $ 22,137      $ 21,083      $ 44,483      $ 42,227   

Communication Services

     24,093        20,560        45,062        41,558   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 46,230      $ 41,643      $ 89,545      $ 83,785   
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital Expenditures:

        

Unified Communications

   $ 12,425      $ 10,936      $ 21,534      $ 19,342   

Communication Services

     10,941        10,824        22,476        20,098   

Corporate

     2,142        2,429        5,374        3,913   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 25,508      $ 24,189      $ 49,384      $ 43,353   
  

 

 

   

 

 

   

 

 

   

 

 

 
     As of June 30,
2012
    As of December 31,
2011
       

Assets:

      

Unified Communications

   $ 1,631,962      $ 1,620,444     

Communication Services

     1,453,422        1,379,125     

Corporate

     248,212        227,949     
  

 

 

   

 

 

   

Total

   $ 3,333,596      $ 3,227,518     
  

 

 

   

 

 

   

 

26


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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

For the three months ended June 30, 2012 and 2011, our largest 100 clients represented 56% and 55% of our total revenue, respectively. For the six months ended June 30, 2012 and 2011, our largest 100 clients represented 55% of our total revenue. For the three and six months ended June 30, 2012, no client represented more than 10% of our aggregate revenue. For the three and six months ended June 30, 2011 our largest client, AT&T, represented approximately 10% of our aggregate revenue.

For the three months ended June 30, 2012 and 2011, revenues from non-U.S. countries were approximately 18% and 19% of consolidated revenues, respectively. For the six months ended June 30, 2012 and 2011, revenues from non-U.S. countries were approximately 19% and 18% of consolidated revenues, respectively. During these periods no individual foreign country accounted for greater than 10% of revenue. Revenue is attributed to an organizational region based on location of the billed customer’s account. Geographic information by organizational region, in thousands, is noted below:

 

     For the three months ended June 30,      For the six months ended June 30,  
     2012      2011      2012      2011  

Revenue:

           

Americas — United States

   $ 541,222       $ 501,923       $ 1,058,737       $ 998,026   

Americas — Other

     5,759         4,711         11,552         9,298   

Europe, Middle East & Africa (EMEA)

     73,052         76,426         148,873         150,844   

Asia Pacific

     41,862         39,760         81,795         75,470   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 661,895       $ 622,820       $ 1,300,957       $ 1,233,638   
  

 

 

    

 

 

    

 

 

    

 

 

 
     As of June 30,
2012
     As of December 31,
2011
        
     (amounts in thousands)     

Long-Lived Assets:

        

Americas — United States

   $ 2,434,428       $ 2,373,428      

Americas — Other

     3,052         4,107      

Europe, Middle East & Africa (EMEA)

     196,697         206,598      

Asia Pacific

     23,547         21,599      
  

 

 

    

 

 

    

Total

   $ 2,657,724       $ 2,605,732      
  

 

 

    

 

 

    

 

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WEST CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The aggregate gain on transactions denominated in currencies other than the functional currency of West Corporation or any of its subsidiaries was approximately $0.5 million and $0.4 million for the three months ended June 30, 2012 and 2011, respectively. The aggregate gain (loss) on transactions denominated in currencies other than the functional currency of West Corporation or any of its subsidiaries was approximately ($1.2) million and $2.7 million for the six months ended June 30, 2012 and 2011, respectively.

11. 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.

12. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND SUBSIDIARY NON-GUARANTORS

West Corporation and our U.S. based wholly owned subsidiary guarantors, jointly, severally, fully and unconditionally are responsible for the payment of principal, premium and interest on our senior notes and senior subordinated notes. Presented below, in thousands, is condensed consolidated financial information for West Corporation and our subsidiary guarantors and subsidiary non-guarantors for the periods indicated.

 

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WEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

 

     For the Three Months Ended June 30, 2012  
     Parent /
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations and
Consolidating
Entries
    Consolidated  

REVENUE

   $ —        $ 524,942      $ 136,953      $ —        $ 661,895   

COST OF SERVICES

     —          248,603        58,683        —          307,286   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     (1,348     194,658        39,800        —          233,110   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     1,348        81,681        38,470        —          121,499   

OTHER INCOME (EXPENSE):

          

Interest Expense, net of interest income

     (40,198     (24,650     4,223        —          (60,625

Subsidiary Income

     68,849        28,808        —          (97,657     —     

Other, net

     (1,337     3,947        (4,301     —          (1,691
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

     27,314        8,105        (78     (97,657     (62,316
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

     28,662        89,786        38,392        (97,657     59,183   

INCOME TAX EXPENSE (BENEFIT)

     (8,032     24,888        5,633        —          22,489   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 36,694      $ 64,898      $ 32,759      $ (97,657   $ 36,694   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustments, net of tax of $6,871

     (11,210     —          (11,210     11,210        (11,210

Unrealized gain on cash flow hedges net of tax of $(549)

     896        —          —          —          896   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income — West Corporation

   $ 26,380      $ 64,898      $ 21,549      $ (86,447   $ 26,380   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

WEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

 

     For the Three Months Ended June 30, 2011  
     Parent /
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations and
Consolidating
Entries
    Consolidated  

REVENUE

   $ —        $ 487,322      $ 135,498      $ —        $ 622,820   

COST OF SERVICES

     —          219,723        56,497        —          276,220   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     611        182,510        40,728        —          223,849   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     (611     85,089        38,273        —          122,751   

OTHER INCOME (EXPENSE):

          

Interest Expense, net of interest income

     (40,696     (30,921     3,199        —          (68,418

Subsidiary Income

     58,891        24,578        —          (83,469     —     

Other

     485        5,543        (4,908     —          1,120   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

     18,680        (800     (1,709     (83,469     (67,298
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

     18,069        84,289        36,564        (83,469     55,453   

INCOME TAX EXPENSE (BENEFIT)

     (16,309     24,920        12,464        —          21,075   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 34,378      $ 59,369      $ 24,100      $ (83,469   $ 34,378   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustments, net of tax of $(4,778)

   $ 7,795      $ —        $ 7,795      $ (7,795   $ 7,795   

Reclassification of a cash flow hedge into earnings, net of tax of $(1,193)

     1,946        —          —          —          1,946   

Unrealized loss on cash flow hedges, net of tax of $152

     (248     —          —          —          (248
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income — West Corporation

   $ 43,871      $ 59,369      $ 31,895      $ (91,264   $ 43,871   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


Table of Contents

WEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

 

 

     For the Six Months Ended June 30, 2012  
     Parent /
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations and
Consolidating
Entries
    Consolidated  

REVENUE

   $ —        $ 1,025,016      $ 275,941      $ —        $ 1,300,957   

COST OF SERVICES

     —          482,082        116,906        —          598,988   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     3,265        383,736        79,227        —          466,228   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     (3,265     159,198        79,808        —          235,741   

OTHER INCOME (EXPENSE):

          

Interest Expense, net of interest income

     (81,131     (50,178     8,622        —          (122,687

Subsidiary Income

     115,868        50,665        —          (166,533     —     

Other, net

     3,743        7,953        (10,657     —          1,039   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

     38,480        8,440        (2,035     (166,533     (121,648
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

     35,215        167,638        77,773        (166,533     114,093   

INCOME TAX EXPENSE (BENEFIT)

     (35,523     53,566        25,312        —          43,355   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 70,738      $ 114,072      $ 52,461      $ (166,533   $ 70,738   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustments, net of tax of $2,134

     (3,482     —          (3,482     3,482        (3,482

Unrealized gain on cash flow hedges net of tax of $(817)

     1,333        —          —          —          1,333   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income — West Corporation

   $ 68,589      $ 114,072      $ 48,979      $ (163,051   $ 68,589   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


Table of Contents

WEST CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

 

 

     For the Six Months Ended June 30, 2011  
     Parent /
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations and
Consolidating
Entries
    Consolidated  

REVENUE

   $ —        $ 972,072      $ 261,566      $ —        $ 1,233,638   

COST OF SERVICES

     —          440,408        107,415        —          547,823   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     3,309        362,791        78,157        —          444,257   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME (LOSS)

     (3,309     168,873        75,994        —          241,558   

OTHER INCOME (EXPENSE):

          

Interest Expense, net of interest income

     (81,751     (60,976     6,584        —          (136,143

Subsidiary Income

     135,506        55,877        —          (191,383     —     

Other

     2,998        10,908        (8,094     —          5,812   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense)

     56,753        5,809        (1,510     (191,383     (130,331
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME BEFORE INCOME TAX EXPENSE

     53,444        174,682        74,484        (191,383     111,227   

INCOME TAX EXPENSE (BENEFIT)

     (15,514     38,895        18,888        —          42,269   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME

   $ 68,958      $ 135,787      $ 55,596      $ (191,383   $ 68,958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign currency translation adjustments, net of tax of $(6,166)

   $ 10,060      $ —        $ 10,060      $ (10,060   $ 10,060   

Reclassification of a cash flow hedge into earnings, net of tax of $(2,386)

     3,891        —          —          —          3,891   

Unrealized gain on cash flow hedges, net of tax of $(1,320)

     2,154        —          —          —          2,154   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income — West Corporation

   $ 85,063      $ 135,787      $ 65,656      $ (201,443   $ 85,063   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


Table of Contents

WEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CONDENSED BALANCE SHEET

(AMOUNTS IN THOUSANDS)

 

     June 30, 2012  
     Parent /
Issuer
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations and
Consolidating
Entries
    Consolidated  

ASSETS

           

CURRENT ASSETS:

           

Cash and cash equivalents

   $ 11,777      $ —         $ 75,323      $ (2,245   $ 84,855   

Trust and restricted cash

     —          14,595         —          —          14,595   

Accounts receivable, net

     —          73,414         382,625        —          456,039   

Intercompany receivables

     —          584,210         —          (584,210     —     

Deferred income tax receivable

     4,844        8,786         5,540        —          19,170   

Prepaid assets

     3,072        33,444         10,768        —          47,284   

Other current assets

     5,090        312,208         (263,369     —          53,929   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     24,783        1,026,657         210,887        (586,455     675,872   

Property and equipment, net

     70,255        238,049         38,069        —          346,373   

INVESTMENT IN SUBSIDIARIES

     1,561,439        351,436         —          (1,912,875     —     

GOODWILL

     —          1,638,839         172,247        —          1,811,086   

INTANGIBLES, net

     —          278,458         41,582        —          320,040   

OTHER ASSETS

     95,434        82,465         2,326        —          180,225   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,751,911      $ 3,615,904       $ 465,111      $ (2,499,330   $ 3,333,596   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

           

CURRENT LIABILITIES:

           

Accounts payable

   $ 2,660      $ 58,208       $ 19,257      $ (2,245   $ 77,880   

Intercompany payables

     572,706        —           11,504        (584,210     —     

Accrued expenses

     18,326        250,963         53,306        —          322,595   

Current maturities of long-term debt

     2,354        13,071         —          —          15,425   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     596,046        322,242         84,067        (586,455     415,900   

LONG-TERM OBLIGATIONS, less current maturities

     1,888,957        1,604,271         —          —          3,493,228   

DEFERRED INCOME TAXES

     33,282        86,905         18,201        —          138,388   

OTHER LONG-TERM LIABILITIES

     57,615        42,562         9,892        —          110,069   

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

     (823,989     1,559,924         352,951        (1,912,875     (823,989
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

   $ 1,751,911      $ 3,615,904       $ 465,111      $ (2,499,330   $ 3,333,596   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

WEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS)

 

     December 31, 2011   
     Parent /
Issuer
    Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations and
Consolidating
Entries
    Consolidated  

ASSETS

           

CURRENT ASSETS:

           

Cash and cash equivalents

   $ 10,503      $ —         $ 89,572      $ (6,239   $ 93,836   

Trust cash

     —          16,446         —          —          16,446   

Accounts receivable, net

     —          50,480         363,333        —          413,813   

Intercompany receivables

     —          573,280         —          (573,280     —     

Deferred income taxes receivable

     73,709        13,034         462        (77,137     10,068   

Prepaid assets

     3,222        25,232         8,588        —          37,042   

Other current assets

     5,089        306,273         (260,781     —          50,581   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     92,523        984,745         201,174        (656,656     621,786   

Property and equipment, net

     73,105        243,170         34,580        —          350,855   

INVESTMENT IN SUBSIDIARIES

     1,460,108        351,329         —          (1,811,437     —     

GOODWILL

     —          1,586,988         175,647        —          1,762,635   

INTANGIBLES, net

     —          283,807         49,340        —          333,147   

OTHER ASSETS

     98,673        58,378         2,044        —          159,095   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,724,409      $ 3,508,417       $ 462,785      $ (2,468,093   $ 3,227,518   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

           

CURRENT LIABILITIES:

           

Accounts payable

   $ 5,001      $ 68,317       $ 12,360      $ (6,239   $ 79,439   

Intercompany payables

     572,554        —           726        (573,280     —     

Accrued expenses

     70,680        260,490         69,403        (77,137     323,436   

Current maturities of long-term debt

     2,354        13,071         —          —          15,425   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     650,589        341,878         82,489        (656,656     418,300   

LONG-TERM OBLIGATIONS, less current maturities

     1,890,134        1,610,806         —          —          3,500,940   

DEFERRED INCOME TAXES

     22,766        84,918         13,837        —          121,521   

OTHER LONG-TERM LIABILITIES

     57,333        16,299         9,538        —          83,170   

TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)

     (896,413     1,454,516         356,921        (1,811,437     (896,413
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

   $ 1,724,409      $ 3,508,417       $ 462,785      $ (2,468,093   $ 3,227,518   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

WEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Condensed Consolidating Statements of Cash Flows

(AMOUNTS IN THOUSANDS)

 

     Six Months Ended June 30, 2012  
     Parent /
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination and
Consolidating
Entries
    Consolidated  

NET CASH PROVIDED BY OPERATING ACTIVITIES:

   $ —        $ 82,727      $ 54,892      $ (2,245   $ 135,374   

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Business acquisitions

     —          (77,158     (43     —          (77,201

Purchase of property and equipment

     (5,374     (40,933     (12,122     —          (58,429
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows from investing activities

     (5,374     (118,091     (12,165     —          (135,630
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Proceeds from revolving credit and accounts receivable securitization facilities

     133,300        —          172,500        —          305,800   

Payments on revolving credit and accounts receivable securitization facilities

     (133,300     —          (172,500     —          (305,800

Principal repayments on long-term obligations

     (1,177     (6,535     —          —          (7,712

Repurchase of common stock

     (51     —          —          —          (51

Payments of capital lease obligations

     —          (21     (14     —          (35

Other

     380        —          —          —          380   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows from financing activities

     (848     (6,556     (14     —          (7,418
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intercompany

     7,496        41,920        (55,655     6,239        —     

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

     —          —          (1,307     —          (1,307

NET CHANGE IN CASH AND CASH EQUIVALENTS

     1,274        —          (14,249     3,994        (8,981

CASH AND CASH EQUIVALENTS, Beginning of period

     10,503        —          89,572        (6,239     93,836   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, End of period

   $ 11,777      $ —        $ 75,323      $ (2,245   $ 84,855   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

35


Table of Contents

WEST CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Condensed Consolidating Statements of Cash Flows

(AMOUNTS IN THOUSANDS)

 

 

     Six Months Ended June 30, 2011  
     Parent /
Issuer
    Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Elimination and
Consolidating
Entries
    Consolidated  

NET CASH PROVIDED BY OPERATING ACTIVITIES:

   $ —        $ 195,269      $ (43,389   $ (3,455   $ 148,425   

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Business acquisitions

     —          (166,435     (22,479     —          (188,914

Purchase of property and equipment

     (3,913     (39,731     (5,734     —          (49,378

Other

     —          90        —          —          90   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows from investing activities

     (3,913     (206,076     (28,213     —          (238,202
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Proceeds from revolving credit and accounts receivable securitization facilities

     107,500        —          262,000        —          369,500   

Payments on revolving credit and accounts receivable securitization facilities

     (61,500     —          (232,500     —          (294,000

Principal payments on the senior secured term loan facility

     (5,327     (11,874     —          —          (17,201

Repurchase of common stock

     (4,617     —          —          —          (4,617

Payments of capital lease obligations

     (413     (34     (13     —          (460

Other

     (262     —          —          —          (262
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows from financing activities

     35,381        (11,908     29,487        —          52,960   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intercompany

     (28,526     22,715        1,219        4,592        —     

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

     —          —          6,794        —          6,794   

NET CHANGE IN CASH AND CASH EQUIVALENTS

     2,942        —          (34,102     1,137        (30,023

CASH AND CASH EQUIVALENTS, Beginning of period

     —          —          102,385        (4,592     97,793   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, End of period

   $ 2,942      $ —        $ 68,283      $ (3,455   $ 67,770   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements include estimates regarding:

 

 

the impact of changes in government regulation and related litigation;

 

 

the impact of pending litigation;

 

 

the impact of integrating or completing mergers or strategic acquisitions;

 

 

the cost and reliability of voice and data services;

 

 

the adequacy of our available capital for future capital requirements;

 

 

our future contractual obligations;

 

 

our capital expenditures;

 

 

the cost of labor and turnover rates;

 

 

the impact of changes in interest rates;

 

 

substantial indebtedness incurred in connection with the 2006 recapitalization, subsequent refinancings and acquisitions; and

 

 

the impact of foreign currency fluctuations;

as well as other statements regarding our future operations, financial condition and prospects, and business strategies.

Forward-looking statements can be identified by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report.

All forward-looking statements included in this report are based on information available to us on the date hereof. We assume no obligation to update any forward-looking statements.

 

Item 2. 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.

Business Overview

We are a leading provider of technology-driven communication services. The scale and processing capacity of our proprietary technology platforms, combined with our expertise in managing voice and data transactions, enable us to offer a broad portfolio of services, including conferencing and collaboration, unified communications, alerts and notifications, emergency communications, business processing outsourcing and telephony / interconnect. Our services provide reliable, high-quality, mission-critical communications designed to maximize return on investment for our clients. Our clients include Fortune 1000 companies, along with small and medium enterprises in a variety of industries, including telecommunications, retail, financial services, public safety, technology and healthcare. We have sales and operations in the United States, Canada, Europe, the Middle East, Asia Pacific, Latin America and South America.

Since our founding in 1986, we have invested significantly to expand our technology platforms and develop our operational processes to meet the complex communication needs of our clients. We have evolved our business mix from labor-intensive communication services to focus more on diversified and platform-based, technology-driven services.

 

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Investing in technology and developing specialized expertise in the industries we serve are critical components to our strategy of enhancing our services and our value proposition. In 2011, we managed approximately 27 billion telephony minutes and approximately 121 million conference calls, facilitated over 260 million 9-1-1 calls, and delivered over 1 billion notification calls and data messages. With approximately 638,000 telephony ports to handle conference calls, alerts and notifications and customer service at June 30, 2012, we believe our platforms provide scale and flexibility to handle greater transaction volume than our competitors, offer superior service and develop new offerings. These ports include approximately 317,000 Internet Protocol (“IP”) ports, which we believe provide us with the only large-scale proprietary IP-based global conferencing platform deployed and in use today. Our technology-driven platforms allow us to provide a broad range of complementary automated and agent-based service offerings to our diverse client base.

Financial Operations Overview

Revenue

In our Unified Communications segment, our conferencing and collaboration services, event services and IP-based unified communication solutions are generally billed on a per participant minute or per seat basis and our alerts and notifications services are generally billed on a per message or per minute basis. Billing rates for these services vary depending on participant geographic location, type of service (such as audio, video or web conferencing) and type of message (such as voice, text, email or fax). We also charge clients for additional features, such as conference call recording, transcription services or professional services. Since we entered the conferencing services business, the average rate per minute that we charge has declined while total minutes sold has increased. This is consistent with industry trends. We expect this trend to continue for the foreseeable future.

In our Communication Services segment, our emergency communications solutions are generally billed per month based on the number of billing telephone numbers or cell towers covered under each client contract. We also bill monthly for our premise-based database solution. In addition, we bill for sales, installation and maintenance of our communication equipment technology solutions. Our platform-based and agent-based customer service solutions are generally billed on a per minute or per hour basis. We are generally paid on a contingent fee basis for our receivables management and overpayment identification and recovery services as well as for certain other agent-based services. Our telephony / interconnect services are generally billed based on usage for toll-free origination services.

Cost of Services

The principal component of cost of services for our Unified Communications segment is our variable telephone expense. Significant components of our cost of services in this segment also include labor expense, primarily related to commissions for our sales force. Because the services we provide in this segment are largely platform-based, labor expense is less significant than the labor expense we experience in our Communication Services segment.

The principal component of cost of services for our Communication Services segment is labor expense. Labor expense included in costs of services primarily reflects compensation for the agents providing our agent-based services, but also includes compensation for personnel dedicated to emergency communications database management, manufacturing and development of our premise-based public safety solution as well as collection expenses, such as costs of letters and postage, incurred in connection with our receivables management services. We generally pay commissions to sales professionals on both new sales and incremental revenue generated from existing clients. Significant components of our cost of services in this segment also include variable telephone expense.

 

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Table of Contents

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, and amortization of finite-lived intangible assets.

Key Drivers Affecting Our Results of Operations

Evolution to Automated Technologies. We have evolved into a diversified and platform-based technology-driven service provider. Since 2005, our revenue from platform-based services has grown from 37% of total revenue to 72% for the six months ended June 30, 2012 and our operating income from platform-based services has grown from 53% of total operating income to 93% over the same period. As in the past, we will continue to seek and invest in higher margin businesses, irrespective of whether the associated services are delivered to our customers through an agent-based or a platform-based environment. We expect our platform-based service lines to grow at a faster pace than agent-based services and as a result will continue to increase as a percentage of our total revenue. However, many of our customers require an integrated service offering that incorporates both agent-based and platform-based services — for example, an automated voice response system with the option for the client’s customer to speak to an agent. Accordingly, we expect agent-based services will continue to represent a meaningful portion of our service offerings for the foreseeable future.

Acquisition Activities. Identifying and successfully integrating acquisitions of value-added service providers has been a key component of our growth strategy. We will continue to seek opportunities to expand our suite of communication services across industries, geographies and end-markets. While we expect this will occur primarily through organic growth, we have and will continue to acquire assets and businesses that strengthen our value proposition to clients and drive value to us. We have developed an internal capability to source, evaluate and integrate acquisitions that we believe has created value for shareholders. Since 2005, we have invested approximately $2.0 billion in strategic acquisitions. We believe there are acquisition candidates that will enable us to expand our capabilities and markets and intend to continue to evaluate acquisitions in a disciplined manner and pursue those that provide attractive opportunities to enhance our growth and profitability.

Comparison of the Three and Six Months Ended June 30, 2012 and 2011

Revenue: Total revenue for the three months ended June 30, 2012 increased $39.1 million, or 6.3%, to $661.9 million from $622.8 million for the three months ended June 30, 2011. This increase included revenue of $32.8 million from entities acquired since April 1, 2011.

For the six months ended June 30, 2012, total revenue increased $67.3 million, or 5.5%, to $1,301.0 million from $1,233.6 million for the six months ended June 30, 2011. This increase included revenue of $51.6 million from entities acquired since January 1, 2011. During the six months ended June 30, 2012, the HyperCube acquisition closed. The HyperCube results have been included in the Communication Services segment since the March 23, 2012 acquisition date.

For the three months ended June 30, 2012 and 2011, our largest 100 clients represented 56% and 55% of our total revenue, respectively. For the six months ended June 30, 2012 and 2011, our largest 100 clients represented 55% of our total revenue. No client represented 10% of our aggregate revenue during the three and six months ended June 30, 2012 and no client other than AT&T represented 10% of our aggregate revenue for the three and six months ended June 30, 2011.

 

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Table of Contents

Revenue by business segment:

 

     For the three months ended June 30,     For the six months ended June 30,  
     2012     2011     Change     % Change     2012     2011     Change     % Change  

Revenue in thousands:

                  

Unified Communications

   $ 369,527      $ 347,037      $ 22,490        6.5   $ 729,174      $ 678,159      $ 51,015        7.5

Communication Services

     295,227        278,332        16,895        6.1     576,964        560,409        16,555        3.0

Intersegment eliminations

     (2,859     (2,549     (310     NM        (5,181     (4,930     (251     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 661,895      $ 622,820      $ 39,075        6.3   $ 1,300,957      $ 1,233,638      $ 67,319        5.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NM — Not Meaningful

For the three months ended June 30, 2012, Unified Communications revenue increased $22.5 million, or 6.5%, to $369.5 million from $347.0 million for the three months ended June 30, 2011. The $22.5 million of Unified Communications revenue growth achieved includes a $5.5 million negative impact as a result of changes in foreign currency rates; accordingly, Unified Communications revenue growth would have been 8.1%, or $5.5 million higher with the foreign currency rates in effect for the three months ended June 30, 2011. The increase in revenue for the three months ended June 30, 2012 included $11.7 million from acquisitions. The remaining $10.8 million increase was attributable primarily to the addition of new customers as well as an increase in usage primarily of our web and audio-based services by our existing customers. Revenue attributable to increased usage and new customer usage was partially offset by a decline in the rates charged to existing customers for those services. The volume of minutes used for our on-demand audio conferencing services, which accounts for the majority of our Unified Communications revenue, grew approximately 8.0% for the three months ended June 30, 2012 over the three months ended June 30, 2011, while the average rate per minute for reservationless services declined by approximately 6.2% (or 3.8% using the same foreign currency rates in effect during the prior year period). Since we entered the conferencing services business, the average rate per minute that we charge has declined while total minutes sold has increased. This is consistent with industry trends which we expect to continue for the foreseeable future.

For the six months ended June 30, 2012, Unified Communications revenue increased $51.0 million, or 7.5%, to $729.2 million from $678.2 million for the six months ended June 30, 2011. The $51.0 million of Unified Communications revenue growth achieved includes a $6.2 million negative impact as a result of changes in foreign currency rates; accordingly, Unified Communications revenue growth would have been 8.4%, or $6.2 million higher with the foreign currency rates in effect for the six months ended June 30, 2011. The increase in revenue for the six months ended June 30, 2012 included $27.4 million from acquisitions. The remaining $23.6 million increase was attributable primarily to the addition of new customers as well as an increase in usage primarily of our web and audio-based services by our existing customers. Revenue attributable to increased usage and new customer usage was partially offset by a decline in the rates charged to existing customers for those services. The volume of minutes used for our on-demand audio conferencing services, which accounts for the majority of our Unified Communications revenue, grew approximately 9.9% for the six months ended June 30, 2012 over the six months ended June 30, 2011, while the average rate per minute for reservationless services declined by approximately 7.2% (or 5.8% using the same foreign currency rates in effect during the prior year period).

During the three months ended June 30, 2012, revenue in the Asia Pacific (“APAC”) and Europe, Middle East and Africa (“EMEA”) regions was $113.5 million, a decrease of 0.8% over the three months ended June 30, 2011. Using the same foreign currency rates in effect during the prior year period, revenue in APAC and EMEA increased 4.0% during the three months ended June 30, 2012. During the six months ended June 30, 2012, revenue in APAC and EMEA regions grew to $227.7 million, an increase of 2.0% over the six months ended June 30, 2011. Using the same foreign currency rates in effect during the prior year period, revenue in APAC and EMEA increased 4.8% during the six months ended June 30, 2012.

For the three months ended June 30, 2012, Communication Services revenue increased $16.9 million, or 6.1%, to $295.2 million from $278.3 million for the three months ended June 30, 2011. The increase in revenue for the three months ended June 30, 2012 included $21.2 million from acquisitions. The increase was partially offset by a $4.0 million decrease in revenue from our automated services. Revenue from agent-based services for the three months ended June 30, 2012 increased $1.6 million compared with revenue for the three months ended June 30, 2011.

 

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For the six months ended June 30, 2012, Communication Services revenue increased $16.6 million, or 3.0%, to $577.0 million from $560.4 million for the six months ended June 30, 2011. The increase in revenue for the six months ended June 30, 2012 included $24.2 million from acquisitions. The increase was partially offset by a $13.7 million decrease in revenue from our automated services. Revenue from agent-based services for the six months ended June 30, 2012 increased $9.3 million compared with revenue for the six months ended June 30, 2011.

Cost of services: Cost of services consists of direct labor, telephone expense, sales commissions and other costs directly related to providing services to clients. Cost of services for the three months ended June 30, 2012 increased $31.1 million, or 11.2%, to $307.3 million, from $276.2 million for the three months ended June 30, 2011. The increase in cost of services for the three months ended June 30, 2012 included $19.7 million from acquired entities. As a percentage of revenue, cost of services increased to 46.4% for the three months ended June 30, 2012, compared to 44.3% for the three months ended June 30, 2011. Cost of services for the six months ended June 30, 2012 increased $51.2 million, or 9.3%, to $599.0 million from $547.8 million for the six months ended June 30, 2011. The increase in cost of services for the three months ended June 30, 2012 included $30.0 million from acquired entities. As a percentage of revenue, cost of services increased to 46.0% for the six months ended June 30, 2012, compared to 44.4% for the six months ended June 30, 2011.

Cost of services by business segment:

 

    For the three months ended June 30,             For the six months ended June 30,  
          % of           % of           %                   % of           % of           %  
    2012     Revenue     2011     Revenue     Change     Change             2012     Revenue     2011     Revenue     Change     Change  

In thousands:

                             

Unified Communications

  $ 156,550        42.4   $ 142,498        41.1   $ 14,052        9.9         $ 305,291        41.9   $ 275,113        40.6   $ 30,178        11.0

Communication Services

    153,053        51.8     135,844        48.8     17,209        12.7           297,796        51.6     276,752        49.4     21,044        7.6

Intersegment eliminations

    (2,317     NM        (2,122     NM        (195     NM              (4,099     NM        (4,042     NM        (57     NM   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 307,286        46.4   $ 276,220        44.3   $ 31,066        11.2         $ 598,988        46.0   $ 547,823        44.4   $ 51,165        9.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NM — Not Meaningful

Unified Communications cost of services for the three months ended June 30, 2012 increased $14.1 million, or 9.9%, to $156.6 million from $142.5 million for the three months ended June 30, 2011. The increase in cost of services for the three months ended June 30, 2012 included $7.6 million from acquired entities. The remaining increase is primarily driven by increased service volume. As a percentage of this segment’s revenue, Unified Communications cost of services increased to 42.4% for the three months ended June 30, 2012 from 41.1% for the three months ended June 30, 2011.

Unified Communications cost of services for the six months ended June 30, 2012 increased $30.2 million, or 11.0%, to $305.3 million from $275.1 million for the six months ended June 30, 2011. The increase in cost of services for the six months ended June 30, 2012 included $16.6 million from acquired entities. The remaining increase is primarily driven by increased service volume. As a percentage of this segment’s revenue, Unified Communications, cost of services increased to 41.9% for the six months ended June 30, 2012 from 40.6% for the six months ended June 30, 2011. The increase in cost of services as a percentage of revenue for the three and six months ended June 30, 2012 is due primarily to changes in the product mix, geographic mix and the impact of acquired entities.

Communication Services cost of services for the three months ended June 30, 2012 increased $17.2 million, or 12.7%, to $153.1 million from $135.8 million for the three months ended June 30, 2011. The increase in cost of services for the three months ended June 30, 2012 included $12.1 million from acquired entities. As a percentage of this segment’s revenue, Communication Services cost of services increased to 51.8% for the three months ended June 30, 2012, compared to 48.8% for the three months ended June 30, 2011.

 

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Communication Services cost of services for the six months ended June 30, 2012 increased $21.0 million, or 7.6%, to $297.8 million from $276.8 million for the six months ended June 30, 2011. The increase in cost of services for the six months ended June 30, 2012 included $13.4 million from acquired entities. As a percentage of this segment’s revenue, Communication Services cost of services increased to 51.6% for the six months ended June 30, 2012, compared to 49.4% for the six months ended June 30, 2011. The increase in cost of services for the three and six months ended June 30, 2012 was the result of additional costs from acquired entities and a changing mix of automated and agent based services.

Selling, general and administrative (“SG&A”) expenses: SG&A expenses increased $9.3 million, or 4.1%, to $233.1 million for the three months ended June 30, 2012 from $223.8 million for the three months ended June 30, 2011. The increase in SG&A expenses for the three months ended June 30, 2012 reflected an improvement in our SG&A expense margin that was offset by $11.9 million of additional SG&A expenses from acquired entities. As a percentage of revenue, SG&A expenses improved to 35.2% for the three months ended June 30, 2012 from 35.9% for the three months ended June 30, 2011.

SG&A expenses increased $22.0 million, or 4.9%, to $466.2 million for the six months ended June 30, 2012 from $444.3 million for the six months ended June 30, 2011. The increase in SG&A expenses for the six months ended June 30, 2012 reflected an improvement in our SG&A expense margin that was offset by $22.6 million of additional SG&A expenses from acquired entities. As a percentage of revenue, SG&A expenses improved to 35.8% for the six months ended June 30, 2012, compared to 36.0% for the six months ended June 30, 2011.

Selling, general and administrative expenses by business segment:

 

    For the three months ended June 30,             For the six months ended June 30,  
          % of           % of           %                   % of           % of           %  
    2012     Revenue     2011     Revenue     Change     Change             2012     Revenue     2011     Revenue     Change     Change  

In thousands:

                           

Unified Communications

  $ 113,171        30.6   $ 108,069        31.1   $ 5,102        4.7       $ 226,941        31.1   $ 212,565        31.3   $ 14,376        6.8

Communication Services

    120,480        40.8     116,207        41.8     4,273        3.7         240,369        41.7     232,580        41.5     7,789        3.3

Intersegment eliminations

    (541     NM        (427     NM        (114     NM            (1,082     NM        (888     NM        (194     NM   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 233,110        35.2   $ 223,849        35.9   $ 9,261        4.1       $ 466,228        35.8   $ 444,257        36.0   $ 21,971        4.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NM — Not Meaningful

Unified Communications SG&A expenses for the three months ended June 30, 2012 increased $5.1 million, or 4.7%, to $113.2 million from $108.1 million for the three months ended June 30, 2011. The increase in SG&A expenses for the three months ended June 30, 2012 reflected an improvement in our SG&A expense margin that was partially offset by $4.3 million of additional SG&A expenses from acquired entities. As a percentage of this segment’s revenue, Unified Communications SG&A expenses improved to 30.6% for the three months ended June 30, 2012 compared to 31.1% for the three months ended June 30, 2011.

Unified Communications SG&A expenses for the six months ended June 30, 2012 increased $14.4 million, or 6.8%, to $226.9 million from $212.6 million for the six months ended June 30, 2011. The increase in SG&A for the six months ended June 30, 2012 reflected an improvement in our SG&A expense margin that was partially offset by $13.7 million of additional SG&A expenses from acquired entities. As a percentage of this segment’s revenue, Unified Communications SG&A expenses improved to 31.1% for the six months ended June 30, 2012 compared to 31.3% for the six months ended June 30, 2011.

Communication Services SG&A expenses for the three months ended June 30, 2012 increased $4.3 million, or 3.7%, to $120.5 million from $116.2 million for the three months ended June 30, 2011. The increase in SG&A expenses for the three months ended June 30, 2012 reflected an improvement in our SG&A expense margin that was offset by $7.6 million of additional SG&A expenses from acquired entities. During the three months ended June 30, 2012, this segment recorded an SG&A expense of $3.4 million for site closure and severance activities and $0.9 million for cash losses in a foreign bank that went into receivership. As a percentage of this segment’s

 

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revenue, Communication Services SG&A expenses improved to 40.8% for the three months ended June 30, 2012, compared to 41.8% for the three months ended June 30, 2011. The site closure accrual, related severance and foreign bank charge had a 1.45% impact on SG&A as a percentage of revenue for the Communication Services segment.

Communication Services SG&A expenses for the six months ended June 30, 2012 increased $7.8 million, or 3.3%, to $240.4 million from $232.6 million for the six months ended June 30, 2011. The increase in SG&A expenses for the six months ended June 30, 2012 was primarily the result of $10.2 million recorded for site closure and related severance charges, asset impairments and the foreign bank expense. Also, $8.9 million of additional SG&A expenses from acquired entities was recorded during the six months ended June 30, 2012. As a percentage of this segment’s revenue, Communication Services SG&A expenses increased to 41.7% for the six months ended June 30, 2012, compared to 41.5% for the six months ended June 30, 2011. The asset impairment, site closure and related severance expenses and the foreign bank charge recorded during the six months ended June 30, 2012 had a 1.77% impact on SG&A as a percentage of revenue for the Communications Services segment.

Operating income: Operating income for the three months ended June 30, 2012 decreased $1.3 million, or 1.0%, to $121.5 million from $122.8 million for the three months ended June 30, 2011. As a percentage of revenue, operating income for the three months ended June 30, 2012 decreased to 18.4%, from 19.7% for the three months ended June 30, 2011.

Operating income for the six months ended June 30, 2012 decreased by $5.8 million, or 2.4%, to $235.7 million from $241.6 million for the six months ended June 30, 2011. As a percentage of revenue, operating income for the six months ended June 30, 2012 decreased to 18.1%, from 19.6% for the six months ended June 30, 2011.

Operating income by business segment:

 

    For the three months ended June 30,             For the six months ended June 30,  
          % of           % of           %                   % of           % of           %  
    2012     Revenue     2011     Revenue     Change     Change             2012     Revenue     2011     Revenue     Change     Change  

In thousands:

                           

Unified Communications

  $ 99,805        27.0   $ 96,470        27.8   $ 3,335        3.5       $ 196,941        27.0   $ 190,481        28.1   $ 6,460        3.4

Communication Services

    21,694        7.3     26,281        9.4     (4,587     -17.5         38,800        6.7     51,077        9.1     (12,277     -24.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 121,499        18.4   $ 122,751        19.7   $ (1,252     -1.0       $ 235,741        18.1   $ 241,558        19.6   $ (5,817     -2.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unified Communications operating income for the three months ended June 30, 2012 increased $3.3 million, or 3.5%, to $99.8 million from $96.5 million for the three months ended June 30, 2011. As a percentage of this segment’s revenue, Unified Communications operating income decreased to 27.0% for the three months ended June 30, 2012 from 27.8% for the three months ended June 30, 2011 due to the factors discussed above for revenue, cost of services and SG&A expenses.

Unified Communications operating income for the six months ended June 30, 2012 increased $6.5 million, or 3.4%, to $196.9 million from $190.5 million for the six months ended June 30, 2011. As a percentage of this segment’s revenue, Unified Communications operating income decreased to 27.0% for the six months ended June 30, 2012 from 28.1% for the six months ended June 30, 2011 due to the factors discussed above for revenue, cost of services and SG&A expenses.

Communication Services operating income for the three months ended June 30, 2012 decreased $4.6 million, or 17.5%, to $21.7 million from $26.3 million for the three months ended June 30, 2011. This $4.6 million reduction is primarily attributed to the $4.3 million SG&A expense for site closure and related severance charges, asset impairments and the foreign bank expense. As a percentage of this segment’s revenue, Communication Services operating income decreased to 7.3% for the three months ended June 30, 2012 from 9.4% for the three months ended June 30, 2011 due to the factors discussed above for revenue, cost of services and SG&A expenses for Communication Services.

 

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Communication Services operating income for the six months ended June 30, 2012 decreased $12.3 million, or 24.0%, to $38.8 million from $51.1 million for the six months ended June 30, 2011. This $12.3 million reduction is primarily attributed to the $10.2 million SG&A expense for site closure and related severance charges, asset impairments and the foreign bank expense. As a percentage of this segment’s revenue, Communication Services operating income decreased to 6.7% for the six months ended June 30, 2012 from 9.1% for the six months ended June 30, 2011 due to the factors discussed above for revenue, cost of services and SG&A expenses for Communication Services.

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 and interest income from short-term investments. Other income (expense) for the three months ended June 30, 2012 was ($62.3) million compared to ($67.3) million for the three months ended June 30, 2011. Other income (expense) for the six months ended June 30, 2012 was ($121.6) million compared to ($130.3) million for the six months ended June 30, 2011. Interest expense for the three and six months ended June 30, 2012 was $60.7 million and $122.9 million, respectively, compared to $68.5 million and $136.4 million, respectively, for the three and six months ended June 30, 2011. This decrease in interest expense was due primarily to lower effective interest rates on our variable rate senior secured term loan facilities.

During the three and six months ended June 30, 2012, we recognized a $0.3 million gain and $0.2 million loss, respectively, on affiliate foreign currency transactions denominated in currencies other than the functional currency. During the three and six months ended June 30, 2011, we recognized a $0.8 million gain and $3.9 million gain, respectively, on affiliate foreign currency transactions denominated in currencies other than the functional currency.

Net income: Net income for the three months ended June 30, 2012 increased $2.3 million, or 6.7%, to $36.7 million from net income of $34.4 million for the three months ended June 30, 2011. Our net income for the six months ended June 30, 2012 increased $1.8 million, or 2.6%, to $70.7 million from net income of $69.0 million for the six months ended June 30, 2011. Net income includes a provision for income tax expense at an effective rate of approximately 38.0% for the three and six months ended June 30, 2012, compared to an effective tax rate of approximately 38.0% for the three and six months ended June 30, 2011.

Earnings (loss) per common share: On December 30, 2011, we completed the Conversion of our outstanding Class L Common Stock into shares of Class A Common Stock and thereafter the Reclassification of all of our Class A Common Stock as a single class of Common Stock. As a result, subsequent earnings per share calculations are presented as a single class of Common Stock and references to Class A common stock have been changed to common stock for all periods. Earnings per common share-basic and diluted for the three and six months ended June 30, 2012 were $0.07 and $0.14, respectively. Earnings per common L share-basic for the three months and six months ended June 30, 2011 were $4.58 and $8.97, respectively. Earnings per common L share-diluted for the three and six months ended June 30, 2011 were $4.39 and $8.60, respectively. Loss per common A share-basic and diluted for the three and six months ended June 30, 2011 was ($0.13) and ($0.23), respectively.

Diluted earnings per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares result from the assumed exercise of outstanding stock options, by application of the treasury stock method that have a dilutive effect on earnings per share. At June 30, 2012, 21,388,000 stock options were outstanding with an exercise price at or exceeding the market value of our common stock, which market value was determined based on the results of an independent appraisal preformed as of November 30, 2011 by Corporate Valuation Advisors, Inc. These options were therefore excluded from the computation of shares contingently issuable upon exercise of the options.

 

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Liquidity and Capital Resources

We have historically financed our operations and capital expenditures primarily through cash flows from operations, supplemented by borrowings under our bank and asset securitization credit facilities.

On October 2, 2009, we filed a Registration Statement on Form S-1 (Registration No. 333-162292) under the Securities Act of 1933 and amendments to the Registration Statement on November 6, 2009, December 1, 2009, December 16, 2009, February 16, 2010, April 14, 2011, August 17, 2011, September 9, 2011, November 2, 2011, February 24, 2012 and May 15, 2012 pursuant to which we proposed to offer up to $500.0 million of our common stock (“Proposed Offering”). We expect to use a part of the net proceeds from the Proposed Offering received by us to repay or repurchase indebtedness. We also expect to use a part of the net proceeds from this offering to fund the amounts payable upon the termination of the management agreement entered into in connection with the consummation of our recapitalization in 2006 between us and the Sponsors. We may also use a portion of the net proceeds received by us for working capital and other general corporate purposes. Given current market conditions, the timing of our initial public offering is uncertain.

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 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,  
In thousands:    2012     2011     Change     %
Change
 

Cash flows from operating activities

   $ 135,374      $ 148,425      $ (13,051     -8.8

Cash flows used in investing activities

   $ (135,630   $ (238,202   $ 102,572        43.1

Cash flows from (used in) financing activities

   $ (7,418   $ 52,960      $ (60,378     114.0

Net cash flows from operating activities decreased $13.1 million, or 8.8%, to $135.4 million for the six months ended June 30, 2012, compared to net cash flows from operating activities of $148.4 million for the six months ended June 30, 2011. The decrease in net cash flows from operating activities is primarily due to changes in working capital, the timing of interest payments and increases in foreign income tax payments due to the utilization of net operating loss carry forwards in prior periods.

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 63 days at June 30, 2012 compared to 61 days at June 30, 2011.

Net cash flows used in investing activities decreased $102.6 million, or 43.1%, to $135.6 million for the six months ended June 30, 2012, compared to net cash flows used in investing activities of $238.2 million for the six months ended June 30, 2011. During the six months ended June 30, 2012, our business acquisition investing was $111.7 million less than the comparable six months ended June 30, 2011. During the six months ended June 30, 2012, cash used for capital expenditures was $58.4 million compared to $49.4 million for the six months ended June 30, 2011.

Net cash flows used in financing activities increased $60.4 million, to $7.4 million for the six months ended June 30, 2012, compared to net cash flows from financing activities of $53.0 million for the six months ended June 30, 2011. During the six months ended June 30, 2011, to finance acquisitions, proceeds from our revolving credit facilities exceeded payments by $75.5 million. Also, during the six months ended June 30, 2011, we made a $5.8 million payment on our senior secured term loan based upon an excess cash flow calculation provision in the senior secured term loan facility and a voluntary $7.7 million prepayment on the senior secured term loan facility.

As of June 30, 2012, the amount of cash and cash equivalents held by our foreign subsidiaries was $65.5 million. We have accrued U.S. taxes on $154.8 million of unremitted foreign earnings and profits. Our intent is to

 

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permanently reinvest a portion of these funds outside the U.S. for acquisitions and capital expansion, and to repatriate a portion of these funds. Based on our current projected capital needs and the current amount of cash and cash equivalents held by our foreign subsidiaries, we do not anticipate incurring any material tax costs beyond our accrued tax position in connection with such repatriation, but we may be required to accrue for unanticipated additional tax costs in the future if our expectations or the amount of cash held by our foreign subsidiaries change.

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 and Senior Secured Revolving Credit Facility.

Our senior secured term loan facility and senior secured revolving credit facility bear interest at variable rates. The amended and restated senior secured term loan facility requires annual principal payments of approximately $15.4 million, paid quarterly with balloon payments at maturity dates of October 24, 2013 and July 15, 2016 of approximately $448.4 million and $1,398.5 million, respectively. Pricing of the amended and restated senior secured term loan facility, due 2013, is based on our corporate debt rating and the grid ranges from 2.125% to 2.75% for LIBOR rate loans (LIBOR plus 2.375% at June 30, 2012), and from 1.125% to 1.75% for Base Rate loans (Base Rate plus 1.375% at June 30, 2012). The interest rate margins for the amended and restated senior secured term loans due 2016 are based on our corporate debt rating based on a grid, which ranges from 4.00% to 4.625% for LIBOR rate loans (LIBOR plus 4.25% at June 30, 2012), and from 3.00% to 3.625% for Base Rate loans (Base Rate plus 3.25% at June 30, 2012). The effective annual interest rates, inclusive of debt amortization costs, on the senior secured term loan facility for the three and six months ended June 30, 2012 were 4.97% and 5.01%, respectively, compared to 6.59% and 6.58%, respectively, during the three and six months ended June 30, 2011.

Our senior secured revolving credit facilities provide senior secured financing of up to $250 million, of which approximately $92 million matures October 2012 (original maturity) and approximately $158 million matures January 2016 (extended maturity). We have also received commitments for approximately $43 million of additional extended maturity senior secured revolving credit facility commitments, which commitments would replace a portion of the original maturity senior secured revolving credit facility.

The original maturity senior secured revolving credit facility pricing is based on our total leverage ratio and the grid ranges from 1.75% to 2.50% for LIBOR rate loans (LIBOR plus 1.75% at June 30, 2012), and the margin ranges from 0.75% to 1.50% for base rate loans (Base Rate plus 0.75% at June 30, 2012). We are required to pay each non-defaulting lender a commitment fee of 0.50% in respect of any unused commitments under the original maturity senior secured revolving credit facility. The commitment fee in respect of unused commitments under the original maturity senior secured revolving credit facility is subject to adjustment based upon our total leverage ratio. During the three and six months ended June 30, 2012, the original maturity senior secured revolving credit facility was undrawn.

The extended maturity senior secured revolving credit facility pricing is based on our total leverage ratio and the grid ranges from 2.75% to 3.50% for LIBOR rate loans (LIBOR plus 2.75% at June 30, 2012), and the margin ranges from 1.75% to 2.50% for base rate loans (Base Rate plus 1.75% at June 30, 2012). We are required to pay each non-defaulting lender a commitment fee of 0.50% in respect of any unused commitments under the extended maturity senior secured revolving credit facility. The commitment fee in respect of unused commitments under the extended maturity senior secured revolving credit facility is subject to adjustment based upon our total leverage ratio. The average daily outstanding balance of the extended maturity senior secured revolving credit facility during the three months ended June 30, 2012 and 2011 was $4.3 million and $3.4 million, respectively. The average daily outstanding balance of the extended maturity senior secured revolving credit facility during the six month ended June 30, 2012 and 2011 was $2.6 million and $2.0 million, respectively. The highest outstanding balance on the extended maturity senior secured revolving credit facility during the three and six months ended June 30, 2012 was $19.9 million. The highest outstanding balance on the extended maturity senior secured revolving credit facility during the three and six months ended June 30, 2011 was $31.3 million.

 

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Subsequent to June 30, 2012, we may request additional tranches of term loans or increases to the revolving credit facility in an aggregate amount not to exceed $856.2 million, including $625.2 million of principal payments previously made in respect of the term loan facility. Availability of such additional tranches of term loans or increases to the revolving credit facility is subject to the absence of any default and pro forma compliance with financial covenants and, among other things, the receipt of commitments by existing or additional financial institutions.

2016 Senior Subordinated Notes

Our $450 million aggregate principal amount of 11% senior subordinated notes due 2016 (the “2016 Senior Subordinated Notes”) bear interest that is payable semiannually.

We may redeem the 2016 Senior Subordinated Notes in whole or in part at the redemption prices (expressed as percentages of principal amount of the senior subordinated 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 2016 Senior Subordinated Notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on October 15 of each of the years indicated below:

 

Year

   Percentage  

2011

     105.500   

2012

     103.667   

2013

     101.833   

2014 and thereafter

     100.000   

2018 Senior Notes

On October 5, 2010, we issued $500 million aggregate principal amount of 8 5/8% senior notes that mature on October 1, 2018 (the “2018 Senior Notes”).

At any time prior to October 1, 2014, we may redeem all or a part of the 2018 Senior Notes at a redemption price equal to 100% of the principal amount of 2018 Senior Notes redeemed plus the applicable premium (as defined in the indenture governing the 2018 Senior Notes) as of, and accrued and unpaid interest and all additional interest then owing pursuant to the registration rights agreement executed in connection with the 2018 Senior Notes, if any, to the date of redemption, subject to the rights of holders of 2018 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.

On and after October 1, 2014, we may redeem the 2018 Senior Notes in whole or in part at the redemption prices (expressed as percentages of principal amount of the 2018 Senior Notes to be redeemed) set forth below plus accrued and unpaid interest thereon and all additional interest then owing pursuant to the registration rights agreement executed in connection with the 2018 Senior Notes, if any, to the applicable date of redemption, subject to the right of holders of 2018 Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on October 1 of each of the years indicated below:

 

Year

   Percentage  

2014

     104.313   

2015

     102.156   

2016 and thereafter

     100.000   

 

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At any time (which may be more than once) before October 1, 2013, we can choose to redeem up to 35% of the outstanding notes with money that we raise in one or more equity offerings, as long as: we pay 108.625% of the face amount of the notes, plus accrued and unpaid interest; we redeem the notes within 90 days after completing the equity offering; and at least 65% of the aggregate principal amount of the applicable series of notes issued remains outstanding afterwards.

2019 Senior Notes

On November 24, 2010, we issued $650 million aggregate principal amount of 7 7/8% senior notes that mature January 15, 2019 (the “2019 Senior Notes”).

At any time prior to November 15, 2014, we may redeem all or a part of the 2019 Senior Notes at a redemption price equal to 100% of the principal amount of 2019 Senior Notes redeemed plus the applicable premium (as defined in the indenture governing the 2019 Senior Notes) as of, and accrued and unpaid interest and all additional interest then owing pursuant to the registration rights agreement executed in connection with the 2019 Senior Notes, if any, to the date of redemption, subject to the rights of holders of 2019 Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.

On and after November 15, 2014, we may redeem the 2019 Senior Notes in whole or in part at the redemption prices (expressed as percentages of principal amount of the 2019 Senior Notes to be redeemed) set forth below plus accrued and unpaid interest thereon and all additional interest then owing pursuant to the registration rights agreement executed in connection with the 2019 Senior Notes, if any, to the applicable date of redemption, subject to the right of holders of 2019 Senior Notes of record on the relevant record date to receive interest due on the relevant interest payment date, if redeemed during the twelve-month period beginning on November 15 of each of the years indicated below:

 

Year

   Percentage  

2014

     103.938   

2015

     101.969   

2016 and thereafter

     100.000   

At any time (which may be more than once) before November 15, 2013, we can choose to redeem up to 35% of the outstanding notes with money that we raise in one or more equity offerings, as long as: we pay 107.875% of the face amount of the notes, plus accrued and unpaid interest; we redeem the notes within 90 days after completing the equity offering; and at least 65% of the aggregate principal amount of the applicable series of notes issued remains outstanding afterwards.

We and our subsidiaries, affiliates or significant shareholders may from time to time, in our and their 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.

Amended and Extended Asset Securitization

On September 12, 2011, the revolving trade accounts receivable financing facility between West Receivables LLC, a wholly-owned, bankruptcy-remote direct subsidiary of West Receivables Holdings LLC and Wells Fargo Bank, National Association, was amended and extended. The amended and extended facility provides for $150.0 million in available financing and is extended to September 12, 2014, reduces the unused commitment fee by 25 basis points and lowers the LIBOR spread on borrowings by 150 basis points. Under the amended and extended facility, West Receivables Holdings LLC sells or contributes trade accounts receivables to West Receivables LLC, which sells undivided interests in the purchased or contributed accounts receivables for cash to one or more financial institutions. The availability of the funding is subject to the level of eligible receivables after deducting certain concentration limits and reserves. The proceeds of the facility are available for general corporate purposes. West Receivables LLC and West Receivables Holdings LLC are consolidated in our condensed

 

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consolidated financial statements included elsewhere in this report. At June 30, 2012 and December 31, 2011, this facility was undrawn. The highest outstanding balance during the six months ended June 30, 2012 and 2011 was $39.0 million and $84.5 million, respectively.

The amended and extended asset securitization facility contains various customary affirmative and negative covenants and also contains customary default and termination provisions, which provide for acceleration of amounts owed under the program upon the occurrence of certain specified events, including, but not limited to, failure to pay yield and other amounts due, defaults on certain indebtedness, certain judgments, changes in control, certain events negatively affecting the overall credit quality of collateralized accounts receivable, bankruptcy and insolvency events and failure to meet financial tests requiring maintenance of certain leverage and coverage ratios, similar to those under our senior secured credit facility.

Debt Covenants

Senior Secured Term Loan Facility 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. The total leverage ratio of consolidated total debt to Consolidated EBITDA (as defined by our Restated Credit Agreement) may not exceed 5.25 to 1.0 at June 30, 2012 and the interest coverage ratio of Consolidated EBITDA (as defined in the Restated Credit Agreement) to the sum of consolidated interest expense must exceed 2.0 to 1.0 at June 30, 2012. Both ratios are measured on a rolling four-quarter basis. We were in compliance with these financial covenants at June 30, 2012. The leverage ratio covenant will become 5.00 to 1.0 in the fourth quarter of 2012. We believe that for the foreseeable future we will continue to be in compliance with our financial covenants. The senior secured credit facilities also contain various negative covenants, including limitations on indebtedness, liens, mergers and consolidations, asset sales, dividends and distributions or repurchases of our capital stock, investments, loans and advances, capital expenditures, payment of other debt, including the senior subordinated notes, transactions with affiliates, amendments to material agreements governing our subordinated indebtedness, including the senior subordinated notes and changes in our lines of business.

The senior secured credit facilities include certain customary representations and warranties, affirmative covenants, and events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments, the invalidity of material provisions of the documentation with respect to the senior secured credit facilities, the failure of collateral under the security documents for the senior secured credit facilities, the failure of the senior secured credit facilities to be senior debt under the subordination provisions of certain of the Company’s subordinated debt and a change of control of the Company. If an event of default occurs, the lenders under the senior secured credit facilities will be entitled to take certain actions, including the acceleration of all amounts due under the senior secured credit facilities and all actions permitted to be taken by a secured creditor.

2016 Senior Subordinated Notes, 2018 Senior Notes and 2019 Senior Notes — The 2016 Senior Subordinated Notes, the 2018 Senior Notes and the 2019 Senior Notes indentures contain covenants limiting, among other things, our ability and the ability of our restricted subsidiaries to: incur additional debt or issue certain preferred shares, pay dividends on or make distributions in respect of our capital stock or make other restricted payments, make certain investments, sell certain assets, create liens on certain assets to secure debt, consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets, enter into certain transactions with our affiliates and designate our subsidiaries as unrestricted subsidiaries. We were in compliance with these financial covenants at June 30, 2012.

Our failure to comply with these debt covenants may result in an event of default which, if not cured or waived, could accelerate the maturity of our indebtedness. If our indebtedness is accelerated, we may not have sufficient cash resources to satisfy our debt obligations and we may not be able to continue our operations as planned. If our cash flows and capital resources are insufficient to fund our debt service obligations and keep us in compliance with the covenants under our senior secured credit facilities or to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness including the notes. We cannot ensure that we would be able to take any of these

 

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actions, that these actions would be successful and would permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including our senior secured credit facilities and the indentures that govern the notes. Our senior secured credit facilities documentation and the indentures that govern the notes restrict our ability to dispose of assets and use the proceeds from the disposition. As a result, we may not be able to consummate those dispositions or use the proceeds to meet our debt service or other obligations, and any proceeds that are available may not be adequate to meet any debt service or other obligations then due.

If we cannot make scheduled payments on our debt, we will be in default, and as a result:

 

   

our debt holders could declare all outstanding principal and interest to be due and payable;

 

   

the lenders under our new 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, 2012 (amounts in thousands):

 

     Payment due by period  

Contractual Obligations

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

Senior Secured Term Loan Facility, due 2013

   $ 448,434       $ —         $ 448,434       $ —         $ —     

Senior Secured Term Loan Facility, due 2016

     1,460,219         15,425         30,850         1,413,944         —     

11% Senior Subordinated Notes, due 2016

     450,000         —           —           450,000         —     

8 5/8% Senior Notes, due 2018

     500,000         —           —           —           500,000   

7 7/8% Senior Notes, due 2019

     650,000         —           —           —           650,000   

Interest payments on fixed rate debt

     853,420         143,813         287,626         262,876         159,105   

Estimated interest payments on variable rate debt (1)

     312,990         98,395         141,499         73,096         —     

Operating leases

     130,494         34,499         47,571         21,637         26,787   

Capital lease obligations

     7         7         —           —           —     

Contractual minimums under telephony agreements (2)

     128,100         76,700         51,400         —           —     

Purchase obligations (3)

     78,533         77,526         1,007         —           —     

Interest rate swaps

     4,955         4,955         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

   $ 5,017,152       $ 451,320       $ 1,008,387       $ 2,221,553       $ 1,335,892   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest rate assumptions based on July 23, 2012 LIBOR U.S. dollar swap rate curves and LIBOR Euro and GBP swap rate curves for the next five years.
(2) Based on projected telephony minutes through 2014. The contractual minimum is usage based and could vary based on actual usage.
(3) Represents future obligations for capital and expense projects that are in progress or are committed.

The table above excludes amounts to be paid for taxes and long-term obligations under our Nonqualified Executive Retirement Savings Plan and Nonqualified Executive Deferred Compensation Plan. The table also excludes amounts to be paid for income tax contingencies because the timing thereof is highly uncertain. At June 30, 2012, we have accrued $22.9 million, including interest and penalties for uncertain tax positions.

 

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Capital Expenditures

Our operations continue to require significant capital expenditures for technology, capacity expansion and upgrades. Capital expenditures were $49.4 million for the six months ended June 30, 2012, compared to $43.4 million for the six months ended June 30, 2011. We currently estimate our capital expenditures for the remainder of 2012 to be approximately $75.6 million to $85.6 million primarily for equipment and upgrades at existing facilities.

Our senior secured term loan facility discussed above includes covenants which allow us the flexibility to issue additional indebtedness that is pari passu with or subordinated to our debt under our existing credit facilities in an aggregate principal amount not to exceed $856.2 million including the aggregate amount of principal payments made in respect of the senior secured term loan, incur capital lease indebtedness, finance acquisitions, construction, repair, replacement or improvement of fixed or capital assets, incur accounts receivable securitization indebtedness and non-recourse indebtedness; provided we are in pro forma compliance with our total leverage ratio and interest coverage ratio financial covenants. We or any of our affiliates may be required to guarantee any existing or additional credit facilities.

Off – Balance Sheet Arrangements

We utilize standby letters of credit to support primarily workers’ compensation policy requirements and certain operating leases. Performance obligations of several of our subsidiaries are supported by performance bonds and letters of credit. These obligations will expire at various dates through March 2013 and are renewed as required. The outstanding commitment on these obligations at June 30, 2012 was $18.6 million.

Effects of Inflation

We do not believe that inflation has had a material effect on our financial position or results of operations. However, there can be no assurance that our business will not be affected by inflation in the future.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires the use of estimates and assumptions on the part of management. The estimates and assumptions used by management are based on our historical experiences combined with 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, 2011. There have not been any significant changes with respect to these policies during the six months ended June 30, 2012.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Management

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and changes in the market value of investments. The effect of inflation on our variable interest rate debt is discussed below in “Interest Rate Risk.”

Interest Rate Risk

As of June 30, 2012, we had $1,908.7 million outstanding under our senior secured term loan facility, $450 million outstanding under our 2016 Senior Subordinated Notes, $500 million outstanding under our 2018 Senior Notes and $650 million outstanding under our 2019 Senior Notes.

Long-term obligations at variable interest rates subject to interest rate risk and the quarterly impact of a 50 basis point change in the variable interest rate, in thousands, at June 30, 2012 consisted of the following:

 

     Outstanding at
variable interest
rates
     Impact of a 0.5%
change in the
variable interest rate
 

Senior Secured Term Loan Facility (1)

   $ 1,408,653       $ 1,760.8   
  

 

 

    

 

 

 

Variable rate debt

   $ 1,408,653       $ 1,760.8   
  

 

 

    

 

 

 

 

(1) Net of $500.0 million interest rate swaps

Foreign Currency Risk

Our Unified Communications segment conducts business in countries outside of the United States. Revenue and expenses from these foreign operations are typically denominated in local currency, thereby creating exposure to changes in exchange rates. Generally, we do not hedge the foreign currency transactions. Changes in exchange rates may positively or negatively affect our revenue and net income attributed to these subsidiaries. Based on our level of operating activities in foreign operations during the six months ended June 30, 2012, a five percent change in the value of the U.S. dollar relative to the Euro and British Pound Sterling would have positively or negatively affected our net operating income by less than one percent.

On June 30, 2012 and 2011, the Communication Services segment had no material revenue outside the United States. Our facilities in Canada, Jamaica, Mexico and the Philippines receive calls only from customers in North America under contracts denominated in U.S. dollars and therefore our foreign currency exposure is primarily for expenses incurred in the respective country.

For the three and six months ended June 30, 2012, revenues from non-U.S. countries were approximately 18% and 19% of consolidated revenues, respectively. For the three and six months ended June 30, 2011, revenues from non-U.S. countries were approximately 19% and 18% of consolidated revenues, respectively. During these periods no individual foreign country accounted for greater than 10% of revenue. At June 30, 2012 and December 31, 2011, long-lived assets from non-U.S. countries were both approximately 9%. 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.

 

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Investment Risk

During 2009, we entered into three eighteen month forward starting interest rate swaps for a total notional value of $500.0 million. These forward starting interest rate swaps commenced during the third quarter of 2010. The fixed interest rate on these interest rate swaps ranged from 2.56% to 2.60%, and expired in January 2012. In 2010, we entered into three three-year interest rate swap agreements (cash flow hedges) to convert variable long-term debt to fixed rate debt. These swaps were for an aggregate notional value of $500.0 million, with interest rates ranging from 1.685% to 1.6975% and expire in June 2013. At June 30, 2012, the notional amount of debt outstanding under these interest rate swap agreements was $500.0 million of the outstanding $1,908.7 million senior secured term loan facility.

 

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Our management team continues to review our internal controls and procedures and the effectiveness of those controls. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer and Treasurer concluded that, as of June 30, 2012, 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 the Company’s management, including its Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting or in other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. No corrective actions were required or taken.

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 6. Exhibits

 

10.01    Supplemental Indenture, dated as of June 19, 2012, by and among Hypercube, LLC, Annex Holdings HC Corporation, Rubik Acquisition Company, LLC, West Corporation, and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of October 24, 2006, by and among West Corporation, the guarantors named therein and The Bank of New York, with respect to West Corporation’s $450.0 million aggregate principal amount of 11% senior subordinated notes due October 15, 2016
10.02    Supplemental Indenture, dated as of June 19, 2012, by and among Hypercube, LLC, Annex Holdings HC Corporation, Rubik Acquisition Company, LLC, West Corporation, and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of October 5, 2010, by and among West Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., with respect to West Corporation’s $500.0 million aggregate principal amount of 8 5/8% senior notes due 2018
10.03    Supplemental Indenture, dated as of June 19, 2012, by and among Hypercube, LLC, Annex Holdings HC Corporation, Rubik Acquisition Company, LLC, West Corporation, and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of November 24, 2010, by and among West Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., with respect to West Corporation’s $500.0 million aggregate principal amount of 7 7/8% senior notes due 2019
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, 2012, filed on July 27, 2012, 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 furnished herewith.

 

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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/ Paul M. Mendlik

  Paul M. Mendlik
  Chief Financial Officer and Treasurer
By:  

/s/ R. Patrick Shields

  R. Patrick Shields
  Senior Vice President —
  Chief Accounting Officer

Date: July 27, 2012

 

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EXHIBIT INDEX

 

Number

  

Description

10.01    Supplemental Indenture, dated as of June 19, 2012, by and among Hypercube, LLC, Annex Holdings HC Corporation, Rubik Acquisition Company, LLC, West Corporation, and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of October 24, 2006, by and among West Corporation, the guarantors named therein and The Bank of New York, with respect to West Corporation’s $450.0 million aggregate principal amount of 11% senior subordinated notes due October 15, 2016
10.02    Supplemental Indenture, dated as of June 19, 2012, by and among Hypercube, LLC, Annex Holdings HC Corporation, Rubik Acquisition Company, LLC, West Corporation, and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of October 5, 2010, by and among West Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., with respect to West Corporation’s $500.0 million aggregate principal amount of 8 5/8% senior notes due 2018
10.03    Supplemental Indenture, dated as of June 19, 2012, by and among Hypercube, LLC, Annex Holdings HC Corporation, Rubik Acquisition Company, LLC, West Corporation, and The Bank of New York Mellon Trust Company, N.A., to the Indenture, dated as of November 24, 2010, by and among West Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., with respect to West Corporation’s $500.0 million aggregate principal amount of 7 7/8% senior notes due 2019
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, 2012, filed on July 27, 2012, 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 furnished herewith.

 

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