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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 2001.
Commission file number: 0-27778
PTEK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Georgia 59-3074176
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3399 Peachtree Road, N.E., The Lenox Building, Suite 600, Atlanta, Georgia 30326
(address of principal executive office)
(Registrant's telephone number, including area code): (404) 262-8400
Securities registered pursuant to Section 12(b) of the Act:
None None
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the registrant, based upon the closing sale price of common stock on March 26,
2002 as reported by The Nasdaq Stock Market's National Market, was approximately
$181,906,653.
As of March 26, 2002 there were 53,738,271 shares of the registrant's
common stock outstanding.
List hereunder the documents incorporated by reference and the part of
the Form 10-K (e.g., Part I. Part II, etc.) into which the document is
incorporated: Portions of the registrant's Proxy Statement for its 2002 meeting
of shareholders are incorporated by reference in Part III.
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INDEX
Page
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Part I
Item 1. Business..................................................................................... 3
Item 2. Properties................................................................................... 9
Item 3. Legal Proceedings............................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 11
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 12
Item 6. Selected Financial Data...................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................... 48
Item 8. Financial Statements and Supplementary Data.................................................. 49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 88
Part III
Item 10. Directors and Executive Officers of the Registrant........................................... 89
Item 11. Executive Compensation....................................................................... 89
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 89
Item 13. Certain Relationships and Related Transactions............................................... 89
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 90
Signatures.............................................................................................. 99
Exhibits ............................................................................................... 100
FORWARD LOOKING STATEMENTS
When used in this Form 10-K and elsewhere by management or PTEK Holdings,
Inc. ("PTEK" or the "Company") from time to time, the words "believes,"
"anticipates," "expects," "will" "may," "should," "intends," "plans,"
"estimates," "predicts," "potential," "continue" and similar expressions are
intended to identify forward-looking statements concerning our operations,
economic performance and financial condition. These include, but are not
limited to, forward-looking statements about our business strategy and means to
implement the strategy, our objectives, the amount of future capital
expenditures, the likelihood of our success in developing and introducing new
products and services and expanding our business, and the timing of the
introduction of new and modified products and services. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. These
statements are based on a number of assumptions and estimates that are
inherently subject to significant risks and uncertainties, many of which are
beyond our control, and reflect future business decisions which are subject to
change. A variety of factors could cause actual results to differ materially
from those anticipated in PTEK's forward-looking statements, including the
following factors:
. Competitive pressures among communications services providers,
including pricing pressures, may increase significantly;
. Our ability to respond to rapid technological change, the
development of alternatives to our products and services and the
risk of obsolescence of our products, services and technology;
. Market acceptance of new products and services;
. Our ability to manage our growth;
. Costs or difficulties related to the integration of businesses and
technologies, if any, acquired or that may be acquired by us may be
greater than expected;
. Expected cost savings from past or future mergers and acquisitions
may not be fully realized or realized within the expected time
frame;
. Revenues following past or future mergers and acquisitions may be
lower than expected;
. Operating costs or customer loss and business disruption following
past or future mergers and acquisitions may be greater than
expected;
. The success of our strategic relationships, including the amount of
business generated and the viability of the strategic partners, may
not meet expectations;
. Possible adverse results of pending or future litigation or adverse
results of current or future infringements claims;
. Our services may be interrupted due to failure of the platforms
and network infrastructure utilized in providing our services;
. Domestic and international terrorist activity, war and political
instability may adversely affect the level of services utilized by
our customers and the ability of those customers to pay for
services utilized;
. Risks associated with expansion of our international operations;
. General economic or business conditions, internationally,
nationally or in the local jurisdiction in which we are doing
business, may be less favorable than expected;
. Legislative or regulatory changes may adversely affect the
businesses in which we are engaged;
. Changes in the securities markets may negatively impact us;
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. The failure of the purchaser to pay the liabilities assumed in
the sale of the Voicecom business unit;
. Factors described under the caption "Factors Affecting Future
Performance" in this Form 10-K; and
. Factors described from time to time in our press releases, reports
and other filings made with the Securities and Exchange Commission.
PTEK cautions that these factors are not exclusive. Consequently, all
of the forward-looking statements made in this Form 10-K and in documents
incorporated in this Form 10-K are qualified by these cautionary statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Form 10-K. PTEK takes on no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date of this Form 10-K, or the date of the statement, if a different
date.
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PART I
ITEM 1. BUSINESS
OVERVIEW
PTEK Holdings, Inc., a Georgia corporation ("PTEK" or the "Company"),
is a global provider of communications and data services, including
conferencing (audio conference calling and Web-based collaboration), multimedia
messaging (high-volume fax, e- mail, wireless messaging and voice message
delivery), IVR (interactive voice response), network based voice messaging and
unified personal communications (advanced personal communications management
systems that integrate voice mail, e-mail and fax messaging). The Company's
services are directed primarily at the enterprise marketplace and the Company
has more than 80,000 corporate accounts, including almost 70% of the Fortune
500. PTEK believes that corporate customers will increasingly rely on outsource
providers for these communications and data services because these tasks are
too complex and/or costly to handle internally and do not represent a core
competency.
In 1997 and 1998, the Company focused on acquiring market leaders in
communications and data service categories, which are now operated as separate
business units. They include Premiere Conferencing, an industry leader for
enhanced, automated and Web conferencing solutions; Xpedite, the global leader
in multimedia messaging services; and Voicecom, a leading provider of unified
communications and IVR solutions.
To better serve PTEK's global corporate customer base, over the last
few years the Company has funded new technology development in each of its
business units to help position them in larger market categories. Premiere
Conferencing has expanded into automated and Web conferencing services; Xpedite
has developed a suite of e-mail, wireless and voice-based messaging services;
and Voicecom has expanded its IVR services.
On March 26, 2002 the Company sold substantially all the assets of its
Voicecom business unit in exchange for cash and the assumption of certain
liabilities. As a result, the Company has exited in all material respects the
IVR, network based voice messaging and unified personal communications
businesses. See the "Subsequent Events" section of Management's Discussion and
Analysis below and Note 23 to the Consolidated Financial Statements.
PTEK was incorporated in Florida in 1991 and reincorporated in Georgia
in 1995. The corporate headquarters for PTEK are located at 3399 Peachtree Road,
NE, Lenox Building, Suite 600, Atlanta, GA 30326, and the telephone number is
(404) 262-8400.
INDUSTRY BACKGROUND
Nearly everywhere in the world, the bulk of business communication is
done through telephone and Web-based conferencing, e-mail, fax and voice mail
messaging. This explosion of communications in various forms has forced more and
more companies to outsource their managed group communications needs.
Conferencing and Web collaboration is projected to be an $11 billion
market by 2005 (Source: Wainhouse Research). The multimedia messaging segment,
which combines fax, e-mail and voice and video distribution, is projected to be
a $10.5 billion market within three years (Source: IDC and Forrester). PTEK
provides market leading solutions in both of these categories.
Today, PTEK's services, combined with its global infrastructure, are
the primary conduits for literally billions of business communications each
year.
SERVICE OFFERINGS
PTEK's communications and data service offerings have been provided
through its three business units -- Premiere Conferencing, Xpedite and Voicecom.
Premiere Conferencing offers a full range of enhanced, automated and
Web conferencing services for all forms of group communications activities.
Customers use Premiere Conferencing for a wide range of communications from very
large events such as investor relations calls, press conferences and training
seminars with hundreds or thousands of participants, to smaller four-to-six
person conference calls. Premiere Conferencing provides group communications
services for leading companies in a variety of vertical industries, including
technology, healthcare, financial services, public relations and market
research. Premiere Conferencing hosted almost 2 million calls comprising more
than 600 million minutes in 2001.
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Through its own proprietary software technology, Premiere Conferencing
offers ReadyConference(SM), its automated service that does not require hands-on
involvement from an operator. These automated services allow users to begin and
conduct their conference calls without the assistance of an operator, or the
need of a reservation, via a dedicated dial-in number and passcode available for
use anytime. ReadyConference can be used for a variety of group communications,
including any meeting requiring instant access by a number of participants.
Premiere Conferencing's PremiereCall service includes assistance from
an operator or operators to ensure participants are on line, to begin the
conference and conduct a roll call. In addition, complete event management
services that include a dedicated team and professional announcer to work more
closely with the client throughout the event are available. Typical applications
include sales meetings, earnings releases, press conferences, customer seminars
and product rollouts. Premiere Conferencing's client services team understands
the importance of professional, secure communications and works closely with its
customers to ensure a successful conference.
Premiere Conferencing also offers Web-conferencing services,
VisionCast(R) and ReadyCast(SM), that combine the power of the Internet with its
audio conferencing offerings to provide real-time, multimedia presentation
solutions. VisionCast gives customers the interactivity and collaborative nature
of an in-person meeting while maintaining the cost and time savings of a
traditional conference call. Customers use VisionCast to conduct distance
learning, training, seminars, company meetings, focus groups and media
conferences. VisionCast includes features such as chat, Web tours, polling,
white boarding functions, record and playback capabilities, roll call and live
demo options. ReadyCast combines similar data collaboration capabilities with
the cost efficiency and convenience of Premiere Conferencing's ReadyConference
automated conferencing service. As part of its Web-based services, Premiere
Conferencing also offers SoundCast(R), an audio streaming technology that
provides live Internet streaming to simulcast a live conference call or recorded
presentation over the Web.
Premiere Conferencing services are available in ten countries with
bridging and sales infrastructure in the United States, Canada, Australia, New
Zealand, Hong Kong, Singapore, Japan, France, Germany and England, and Premiere
Conferencing plans to open a European operations center in Ireland in the second
quarter of 2002.
Xpedite offers a comprehensive suite of value-added multimedia
messaging services that manage and facilitate the electronic distribution of
information to all types of electronic addresses including fax, e-mail, voice
and wireless. Customers use Xpedite to manage critical information distribution
for transaction-based services such as bank statements, subscription renewals,
promotional offers, purchase orders, newsletters, research reports, rate sheets
and pricing/product announcements. Xpedite provides services to almost half of
the global Fortune 500 companies across nearly every business sector, including
financial services, professional associations, travel, hospitality, publishing,
technology and manufacturing. Xpedite processed approximately 2 billion messages
in 2001 through its proprietary messaging platforms.
In 2000, Xpedite launched messageREACH(SM), an e-mail service that
provides control, tracking, security, personalization and automated
administration for high volume e-mail and e-commerce applications. Xpedite has
added several significant service enhancements to messageREACH, including
improved HTML message support, transactional message support for applications
such as trade and account balance confirmations, billing and invoicing, as well
as campaign management capabilities for large scale e-marketing applications.
Among the advanced features built into the service are support for the
distribution and collection of forms, multiple layers of encryption and levels
of password protection, anti-spam, "opt-out" protection, automated
personalization of messages with text and graphical inserts, opt-in list
building, viral marketing and the hosting of customer databases for campaign
management.
messageREACH customers can access a proprietary software tool,
intelliSEND(SM) Wizard, to help with the creation of graphically rich HTML
documents for e-mail, and for the insertion of trackable hyperlinks to documents
or Web sites. The proprietary messageREACH delivery engine and infrastructure
operate solely for the support of messageREACH customers and were custom
designed by Xpedite's technical team, incorporating leading Internet technology.
Xpedite also provides Short Message Services (SMS) for wireless users in Europe
and South Asia, which allows text messages to be delivered to GSM phones using
existing Xpedite access methods.
Xpedite also launched voiceREACH(SM), a new automated service that
simultaneously delivers large volumes of prerecorded voice messages to any size
list of phone numbers, voice mailboxes or other answering devices. Typical users
of voiceREACH services include associations, political organizations, securities
firms and trade show operators.
Xpedite supports multiple protocols and can be accessed through a
variety of methods including ftp, TCP/IP, PC-Xpedite software, or Simple Mail
Transfer Protocol (SMTP). Xpedite services are available throughout the world
with local sales and customer support available in 18 countries throughout
Europe, Asia, Australia and North America.
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Voicecom offers a suite of integrated communications solutions
including network based voice messaging, IVR and unified personal
communications. Voicecom services are used by geographically dispersed companies
to increase communications and to improve productivity and customer care.
Voicecom's services support a variety of applications including customer care,
interpersonal messaging and enterprise communications, in a variety of
industries including financial services, healthcare, marketing and real estate.
Voicecom processed over 55 million messages and handled hundreds of millions of
calls in 2001.
Voicecom's network based voice messaging services allow a user to
record a voice message and send it to one voice mailbox or many voice mailboxes
on the network. Users can respond to a network voice message and messages can
also be easily forwarded or copied. Voicecom's network is effectively a "voice
intranet." Voicecom is able to provide its voice messaging service via local
numbers in more than 4,500 cities throughout North America. This network-based
solution is well suited for geographically dispersed companies such as direct
selling organizations, real estate and insurance.
In addition to its local based network voice messaging services,
Voicecom also offers centralized, 800-based corporate voice messaging services.
For certain large corporate customers, Voicecom purchases and installs voice
messaging equipment on the customers' premises. In those cases, Voicecom
provides full facilities management, including equipment maintenance and end
user service and support. All of Voicecom's central voice messaging services
(800-based, premise-based and pure facilities management) include end user
support services, such as development and distribution of voice mail
directories, generation and maintenance of large voice mail distribution lists,
administration services (adds, deletes and changes) and customer or end-user
training.
Voicecom's call answering and IVR services reduce the burden of
incoming calls and increase customer satisfaction. These services range from
after hour call handling and automated attendant solutions to more complex IVR
solutions. IVR is a 24/7 automated system that answers all incoming calls to a
location or central phone number and presents callers with a brief menu of
choices to meet their needs. The choices typically include location hours,
directions, account information and emergency services. Voicecom supports a
variety of IVR applications using custom voice prompts and commands from a
caller's telephone keypad to retrieve, process and route certain information or
telephone calls. For instance, financial institutions can use this service to
allow bank customers to access existing account information, open new accounts,
apply for loans, use online financial services and receive directions to banking
and ATM locations. IVR services are primarily designed for financial
institutions, retail outlets and property management companies.
Voicecom's unified communications services provide the ability for
businesses and consumers alike to streamline their communications by integrating
multiple mechanisms for information delivery - e-mail, fax and voicemail. All of
Voicecom's unified communications solutions provide advanced calling (including
calling card and conference calling) and message management capabilities and are
highly suited for the mobile professional. The Voicecom Assistant and
Orchestrate(R) services effectively allow for "anywhere" messaging regardless of
the medium used to communicate.
On March 26, 2002 the Company sold substantially all the assets of its
Voicecom business unit in exchange for cash and the assumption of certain
liabilities. See the "Subsequent Events" section of Management's Discussion and
Analysis below and Note 23 to the Consolidated Financial Statements.
CUSTOMER BASE
PTEK customers represent nearly every major industry, serving almost
70% of the Fortune 500. Millions of business people worldwide depend on PTEK
services everyday.
Premiere Conferencing has approximately 5,600 domestic and
international corporate accounts, supporting almost 72,000 moderators. The
business unit has successfully penetrated key accounts in various industries
including technology, healthcare, investor relations, financial services, public
relations and market research. Premiere Conferencing has long-term customer
relationships with well respected companies and organizations such as IBM
Corporation, HCA, The Healthcare Company, Novell, SGI, Hewlett Packard, Merck,
Merrill Lynch, UBS/PaineWebber, the NCAA and the National Institutes of Health.
Xpedite has more than 90,000 domestic and international corporate
accounts, representing over 175,000 users. Xpedite serves almost half of the
Fortune 500 companies. The business unit has successfully targeted industries
such as securities, banking, mortgage, publishing, healthcare, associations,
investor relations, public relations, travel and hospitality. Xpedite's diverse
customer base includes globally recognized companies such as Boeing, Bank One,
Marriott, Merck, Xerox, Chase Manhattan, Nippon Life Insurance, Sam's Club,
Bertelesmann, Dell Computer, United Airlines, British Airways, Bank of America,
McGraw Hill, Toyota, Federal Express and Salomon Smith Barney.
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Voicecom has approximately 5,000 corporate accounts and nearly 375,000
users. The business unit initially was successful in penetrating direct selling
organizations such as Amway, Mary Kay, Primerica, Avon and others. Voicecom now
targets key vertical markets such as financial services with existing customers
including Bank of America, Key Bank and PNC Bank; telecom providers with
existing customers including Sprint PCS, Verizon and TalkAmerica; the retail
industry with existing customers such as LensCrafters; the government sector
with existing customers such as the USDA; property management with existing
customers including AIMCO and Equity Properties; and real estate with existing
customers including Prudential, Northwest Century 21 and RE/MAX.
SALES AND MARKETING
Each of PTEK's business units markets its services through direct sales
employing a regional reporting structure and a centrally managed national and
global accounts program. The Company's sales force targets large and mid-size
enterprises. The centrally managed national and global accounts program focuses
on multi-location businesses that are better served by dedicated representatives
with responsibility across different geographic regions. The direct sales force
is organized by services and by industry on a global scale. The company employs
nearly 600 sales professionals around the world.
In addition to direct sales, the Company has begun to develop a network
of independent agents who can sell Premiere Conferencing, Xpedite and Voicecom
services primarily to middle market accounts.
As a service organization, PTEK's customer service teams play a major
role in managing customer relationships, as well as selling additional
value-added services to existing accounts. PTEK employs more than 750 customer
service professionals.
PLATFORMS AND NETWORK INFRASTRUCTURE
The Company, through its three business units, operates global Internet
and telecom-based networks that allow customers access to the Company's various
services through the Internet and through local and/or 800 telephone numbers.
Premiere Conferencing services are provided from full-service
operations centers in Colorado Springs, Colorado, and Lenexa, Kansas, and from
Conalkilty, Ireland starting in the second quarter of 2002. Automated bridging
nodes are maintained in Canada, Australia, New Zealand, Hong Kong, Singapore,
Japan, France, Germany and England. Complex, operator-assisted calls are
supported on various commercially available bridging platforms. Internally
developed conference bridges are used to support automated conferencing
services. Customers access the conferencing platform through direct inward
dialing, 800 numbers, the Internet and virtual network access.
Xpedite services are provided primarily through an electronic messaging
platform that uses servers to perform all primary processing and switching
functions. This platform supports multiple input methods including, but not
limited to, fax-to-fax, priority PC-based software, e-mail gateways and high
speed IP based interconnects. Outgoing fax- and voice-based messages are
delivered through line group controllers, which are deployed in a decentralized
fashion to exploit local delivery costs. The remote line group controllers are
connected to the servers over a wide area network via either private lines or
Xpedite's global TCP/IP based network. Messages are transported in bulk from one
location domain to another using MCP to MCP protocol. The current domains
include Australia, Hong Kong, Japan, Korea, Singapore, Switzerland, the United
Kingdom, the United States, Germany and France. Remote nodes on the network are
located in Belgium, Canada, Denmark, Italy, Malaysia, the Netherlands, New
Zealand and Taiwan.
Voicecom offers advanced network-based voice messaging services through
its platforms located in the United States, Canada, Taiwan, Australia and the
United Kingdom. The telephony service platforms are interconnected via
Voicecom's highly available data network infrastructure. This network transports
the subscriber messages between the distributed systems. The local numbers are
routed back from the local markets to these hubs over leased fixed facilities.
Voicecom also offers outsourced voice messaging services to large corporate
clients via toll-free access to voice messaging platforms located in Atlanta,
Georgia; Reno, Nevada; Arlington, Virginia; and Oakbrook, Illinois. In addition,
certain corporate voice messaging services are provided using equipment that is
installed on the customers' premises. Voicecom's Orchestrate service is provided
on a highly available and highly scaleable platform that includes servers and
third-party software integrated and enhanced with Voicecom's unified
communications middleware. The primary Orchestrate service hubs are located in
Atlanta, Georgia and Dallas, Texas. Voicecom's IVR services are provided on a
variety of platforms. The platform utilized for any particular application is
determined by the specific requirements for that application.
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RESEARCH AND DEVELOPMENT
PTEK's ability to design, develop, test and support new software
technology for product enhancements in a timely manner is an important
ingredient to its future success. Next generation services such as VisionCast,
ReadyCast, messageREACH and VoiceREACH are critical additions to the suite of
communications and data services PTEK provides to its customers, not only to
position the operating units in larger market segments, but more importantly to
meet changing customer needs and respond to the overall technological changes in
the marketplace.
Each PTEK operating unit includes research, development and engineering
personnel who are responsible for designing, developing, testing and supporting
proprietary software applications, as well as creating and improving enhanced
system features and services. The Company's research and development strategy is
to focus its efforts on enhancing its proprietary software and integrating it
with readily available industry standard software and hardware when feasible.
Research, development and engineering personnel also engage in joint development
efforts with the Company's strategic partners and vendors.
PTEK employs 86 research and development professionals.
COMPETITION
PTEK competes with major communications service providers around the
world such as AT&T, WorldCom, Sprint, and the international PTTs. The Company
also competes with smaller companies in each of its service categories,
including Intercall, Raindance, ACT Teleconferencing, WebEx and Genesys in
conferencing; EasyLink, AVT, Critical Path and MessageMedia (f/k/a DoubleClick)
in multimedia messaging; J2 Global Communications, Webley, General Magic and
Net2Phone in unified communications; Avaya, Intervoice-Brite, Net2Phone- and
NetByTel in IVR; and Avaya and Intervoice-Brite in voice messaging. In all
cases, PTEK's strategy is to gain a competitive advantage in winning and keeping
customers by enabling its business units to deliver leading technology-driven
solutions to its customers and support them with superior customer service.
The markets for the Company's services are intensely competitive,
quickly evolving and subject to rapid technological change. The Company expects
competition to increase in the future. Many of the Company's current and
potential competitors have longer operating histories, greater name recognition,
larger customer bases and substantially greater financial, personnel, marketing,
engineering, technical and other resources than the Company. The Company
believes that existing competitors are likely to expand their product and
service offerings and that new competitors are likely to enter the Company's
markets. Such competition could materially adversely affect the Company's
business, financial condition and results of operations.
FINANCIAL INFORMATION ABOUT REPORTABLE SEGMENTS AND GEOGRAPHIC AREAS
For financial information about the Company's reportable segments and
geographic areas for the years ended December 31, 2001, 2000 and 1999, see Note
22--"Consolidated Financial Statements."
GOVERNMENT REGULATION
Premiere Communications, Inc. ("PCI"), which is part of the Company's
Voicecom business unit, provides both telecommunications and information
services. Consequently, PCI is, and certain other PTEK subsidiaries may be,
subject to federal, state and local telecommunications regulation in the United
States. Various international authorities may also seek to regulate the services
provided by PCI and possibly other PTEK subsidiaries.
The Federal Communications Commission ("FCC") classifies PCI as a
non-dominant carrier for its domestic interstate and international common
carrier telecommunications services. Generally, common carriers that provide
domestic interstate and international telecommunications services must maintain
and publicly disclose price lists, describing rates, terms and conditions of
service, must comply with federal regulatory programs such as universal service,
telecommunications relay service, and payphone compensation, and must comply
with decisions and policies adopted or enforced by the FCC. PCI exercises
reasonable efforts to comply with the various FCC decisions, policies and
regulatory programs. Most state public service or utility commissions ("PUCs")
also subject carriers such as PCI that provide intrastate, common carrier
telecommunications services to various compliance and approval requirements,
such as those in connection with entry certification, tariff filings, transfers
of control, mergers or other acquisitions, issuance of debt instruments,
periodic reporting and payment of regulatory fees, as well as others. PCI either
has applied for and received, or is in the process of applying for and
receiving, the necessary certificates or authorizations to provide intrastate,
long distance services. FCC or state PUC authorizations can generally be
conditioned, modified or revoked for failure to comply with applicable laws,
rules,
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regulations or regulatory policies. Fines or other penalties also may be
imposed for such violations. There can be no assurance that PCI is currently in
compliance with, or remitting all necessary fees in connection with, all
applicable FCC or state PUC requirements, or that the FCC, state PUCs or third
parties will not raise issues in the future with regard to PCI's compliance with
applicable laws or regulations.
A number of states have adopted laws restricting and/or governing the
distribution of unsolicited e-mails, or spam. Other states are considering
similar legislation. Congress has also considered such legislation, and could
enact legislation governing spam at some future point. The Company monitors such
legislation and regulatory developments to minimize the risk of its
participation in activities that violate anti-spam legislation. In addition, a
number of legislative and regulatory proposals are under consideration by
federal and state lawmakers and regulatory bodies and may be adopted with
respect to the Internet. Some of the issues that such laws or regulations may
cover include user privacy, obscenity, fraud, pricing and characteristics and
quality of products and services. The adoption of any such laws or regulations
may decrease the growth of the Internet, which could in turn decrease the
projected demand for the Company's products and services or increase its cost of
doing business. In addition, the sending of spam through the Company's network
could result in third parties asserting claims against the Company. Moreover,
the applicability to the Internet of existing U.S. and international laws
governing issues such as property ownership, copyright, trade secret, libel,
taxation and personal privacy is uncertain and developing. Any new legislation
or regulation, or application or interpretation of existing laws, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition, the Company's operations may be subject to federal and
state laws and regulations regulating the unsolicited transmission of
facsimiles. The Company monitors such laws and regulations and its service
agreements with customers state that customers are responsible for their
compliance with all applicable laws and regulations. The Company could,
nevertheless, be subject to litigation, fines, losses, and possible other relief
under such laws and regulations.
In conducting its business, the Company is subject to various laws and
regulations relating to commercial transactions generally, such as the Uniform
Commercial Code and is also subject to the electronic funds transfer rules
embodied in Regulation E promulgated by the Federal Reserve. It is possible that
Congress, the states or various government agencies could impose new or
additional requirements on the electronic commerce market or entities operating
therein. If enacted, such laws, rules and regulations could be imposed on the
Company's business and industry and could have a material adverse effect on the
Company's business, financial condition or results of operations. The Company's
proposed international activities also will be subject to regulation by various
international authorities and the inherent risk of unexpected changes in such
regulation.
PROPRIETARY RIGHTS AND TECHNOLOGY
The Company's ability to compete is dependent in part upon its
proprietary technology. The Company relies primarily on a combination of
intellectual property laws and contractual provisions to protect its proprietary
rights and technology. These laws and contractual provisions provide only
limited protection of the Company's proprietary rights and technology. The
Company's proprietary rights and technology include confidential information and
trade secrets that the Company attempts to protect through confidentiality and
nondisclosure provisions in its agreements. The Company typically attempts to
protect its confidential information and trade secrets through these contractual
provisions for the terms of the applicable agreement and, to the extent
permitted by applicable law, for some negotiated period of time following
termination of the agreement. PTEK currently has seven patents, five patent
applications pending, numerous worldwide registrations of trademarks and service
marks, and numerous worldwide trademark and service mark registrations pending.
Despite the Company's efforts to protect its proprietary rights and technology,
there can be no assurance that others will not be able to copy or otherwise
obtain and use the Company's proprietary technology without authorization, or
independently develop technologies that are similar or superior to the Company's
technology. However, the Company believes that, due to the rapid pace of
technological change in communications and data services, factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements and the timeliness and quality of support services
are of equal or greater importance to establishing and maintaining a competitive
advantage in the industry.
EMPLOYEES
As of December 31, 2001, PTEK employed 2,240 people. PTEK employees are
not represented by a labor union or covered by any collective bargaining
agreements.
8
ITEM 2. PROPERTIES
PTEK's corporate headquarters occupy approximately 21,000 square feet
of office space in Atlanta, Georgia under a lease expiring August 31, 2007. As
of December 31, 2001, the headquarters of the Company's Voicecom business unit
occupied approximately 74,000 square feet of office space in the same building
under leases expiring August 31, 2007 and August 31, 2006 plus approximately
19,000 square feet in a nearby building whose lease expires December 31, 2003.
Xpedite occupies approximately 90,000 square feet of office space in Tinton
Falls, New Jersey under a 15-year lease. Premiere Conferencing occupies
approximately 105,000 square feet of office space in Colorado Springs, Colorado
under a lease expiring August 31, 2006, and approximately 46,000 square feet of
office space in Lenexa, Kansas under a lease expiring August 31, 2009.
The Company also has data and switching centers and sales offices
within and outside the United States. The Company believes that its current
facilities and office space are sufficient to meet its present needs and does
not anticipate any difficulty securing additional space, as needed, on terms
acceptable to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company has several litigation matters pending, as described below,
which it is defending vigorously. Due to the inherent uncertainties of the
litigation process and the judicial system, the Company is unable to predict the
outcome of such litigation matters. If the outcome of one or more of such
matters is adverse to the Company, it could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company and certain of its officers and directors have been named
as defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals (including a subclass of former Voice-Tel
Enterprises, Inc. ("Voice-Tel") franchisees and a subclass of former Xpedite
Systems, Inc. ("Xpedite") shareholders) who purchased or otherwise acquired the
Company's common stock from as early as February 11, 1997 through June 10, 1998.
Plaintiffs allege the Company admitted it had experienced difficulty in
achieving its anticipated revenue and earnings from voice messaging services due
to difficulties in consolidating and integrating its sales function. Plaintiffs
allege, among other things, violation of Sections 10(b), 14(a) and 20(a) of the
Securities Exchange Act of 1934 and Sections 11, 12 and 15 of the Securities Act
of 1933. The Company filed a motion to dismiss the complaint on April 14, 1999.
On December 14, 1999, the court issued an order that dismissed the claims under
Sections 10(b) and 20 of the Exchange Act without prejudice, and dismissed the
claims under Section 12(a)(1) of the Securities Act with prejudice. The effect
of this order was to dismiss from this lawsuit all open-market purchases by the
plaintiffs. The plaintiffs filed an amended complaint on February 29, 2000. The
defendants filed a motion to dismiss on April 14, 2000, which was granted in
part and denied in part on December 8, 2000. The defendants filed an answer on
January 8, 2001. On January 22, 2002, the court ordered the parties to mediate.
The parties did so on February 8, 2002, and the mediation process is continuing.
A lawsuit was filed on November 4, 1998 against the Company and certain
of its officers and directors in the Southern District of New York. Plaintiffs
are shareholders of Xpedite who acquired common stock of the Company as a result
of the merger between the Company and Xpedite in February 1998. Plaintiffs'
allegations are based on the representations and warranties made by the Company
in the prospectus and the registration statement related to the merger, the
merger agreement and other documents incorporated by reference, regarding the
Company's acquisitions of Voice-Tel and VoiceCom Systems, Inc. ("VoiceCom
Systems"), the Company's roll-out of Orchestrate, the Company's relationship
with customers Amway Corporation and DigiTEC, 2000, and the Company's 800-based
calling card service. Plaintiffs allege causes of action against the Company for
breach of contract, against all defendants for negligent misrepresentation,
violations of Sections 11 and 12(a)(2) of the Securities Act of 1933 and against
the individual defendants for violation of Section 15 of the Securities Act.
Plaintiffs seek undisclosed damages together with pre- and post-judgment
interest, recission or recissory damages as to violation of Section 12(a)(2) of
the Securities Act, punitive damages, costs and attorneys' fees. The defendants'
motion to transfer venue to Georgia was granted. The defendants' motion to
dismiss was granted in part and denied in part. The defendants filed an answer
on March 30, 2000. On January 22, 2002, the court ordered the parties to
mediate. The parties did so on February 8, 2002, and the mediation process is
continuing.
On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a
complaint in the Superior Court of Union County, New Jersey against 15 named
defendants including Xpedite and certain of its alleged current and former
officers, directors, agents and representatives. The plaintiffs allege that the
15 named defendants and certain unidentified "John Doe defendants" engaged in
wrongful activities in connection with the management of the plaintiffs'
investments with Equitable Life Assurance Society of the United States and/or
Equico Securities, Inc. (collectively "Equitable"). The complaint asserts
wrongdoing in connection with the plaintiffs' investment in securities of
Xpedite and in unrelated investments involving
9
insurance-related products. The defendants include Equitable and certain of its
current or former representatives. The allegations in the complaint against
Xpedite are limited to plaintiffs' investment in Xpedite. The plaintiffs have
alleged that two of the named defendants, allegedly acting as officers,
directors, agents or representatives of Xpedite, induced the plaintiffs to make
certain investments in Xpedite but that the plaintiffs failed to receive the
benefits that they were promised. Plaintiffs allege that Xpedite knew or should
have known of alleged wrongdoing on the part of other defendants. Plaintiffs
seek an accounting of the corporate stock in Xpedite, compensatory damages of
approximately $4.85 million, plus $200,000 in "lost investments," interest
and/or dividends that have accrued and have not been paid, punitive damages in
an unspecified amount, and for certain equitable relief, including a request
for Xpedite to issue 139,430 shares of common stock in the plaintiffs' names,
attorneys' fees and costs and such other and further relief as the court deems
just and equitable. This case has been dismissed without prejudice and
compelled to NASD arbitration, which has commenced. In August 2000, the
plaintiffs filed a statement of claim with the NASD against 12 named
respondents, including Xpedite (the "Nobis Respondents"). The claimants allege
that the 12 named respondents engaged in wrongful activities in connection with
the management of the claimants' investments with Equitable. The statement of
claim asserts wrongdoing in connection with the claimants' investment in
securities of Xpedite and in unrelated investments involving insurance-related
products. The allegations in the statement of claim against Xpedite are limited
to claimants' investment in Xpedite. Claimants seek, among other things, an
accounting of the corporate stock in Xpedite, compensatory damages of not less
than $415,000, a fair conversion rate on stock options, losses on the
investments, plus interest and all dividends, punitive damages, attorneys' fees
and costs. Hearings before the NASD panel were held on November 27-29, 2001,
January 22-24, 2002 and February 4-7, 2002.
On September 3, 1999, Elizabeth Tendler filed a complaint in the
Superior Court of New Jersey Law Division, Union County, against 17 named
defendants including the company and Xpedite, and various alleged current and
former officers, directors, agents and representatives of Xpedite. Plaintiff
alleges that the defendants engaged in wrongful activities in connection with
the management of the plaintiff's investments, including investments in Xpedite.
The allegations against Xpedite and the Company are limited to plaintiff's
investment in Xpedite. Plaintiff's claims against Xpedite and the Company
include breach of contract, breach of fiduciary duty, unjust enrichment,
conversion, fraud, interference with economic advantage, liability for ultra
vires acts, violation of the New Jersey Consumer Fraud Act and violation of New
Jersey RICO. Plaintiff seeks an accounting of the corporate stock of Xpedite,
compensatory damages of approximately $1.3 million, accrued interest and/or
dividends, a constructive trust on the proceeds of the sale of any Xpedite or
PTEK stock, shares of Xpedite and/or PTEK to satisfy defendants' obligations to
plaintiff, attorneys' fees and costs, punitive and exemplary damages in an
unspecified amount, and treble damages. On February 25, 2000, Xpedite filed its
answer, as well as cross claims and third party claims. This case has been
dismissed without prejudice and compelled to NASD arbitration, which has
commenced. In August 2000, a statement of claim was also filed with the NASD
against all but one of the Nobis Respondents making virtually the same
allegations on behalf of claimant Elizabeth Tendler. Claimant seeks an
accounting of the corporate stock in Xpedite, compensatory damages of not less
than $265,000, a fair conversion rate on stock options, losses on other
investments, interest and/or unpaid dividends, punitive damages, attorneys fees
and costs. Hearings before the NASD panel were held on November 27-29, 2001,
January 22-24, 2002 and February 4-7, 2002.
On or about May 19, 2000, the Company was served with a Complaint filed
by Robert Cowan in the Circuit Court of Jackson County, Missouri, alleging
claims for breach of contract, fraudulent misrepresentation, negligent
misrepresentation, breach of duty of good faith and fair dealings, unjust
enrichment, and violation of Georgia and Missouri blue sky laws. Plaintiff's
claims arise out of the Company's acquisition of American Teleconferencing
Services, Ltd. ("ATS") in April 1998. Plaintiff was a shareholder of ATS who
received shares of PTEK stock in the transaction. The Company removed the case
to the United States District Court for the Western District of Missouri, and
filed a Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. Plaintiff filed a Motion to Remand the
case back to state court. By order dated March 28, 2001, the court granted
plaintiff's Motion to Remand and dismissed as moot the Company's Motion to
Compel Arbitration, or Alternatively to Transfer Venue, or Alternatively to
Dismiss the Compliant. By Order dated July 25, 2001, the state court denied the
Company's Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. This case is in discovery and is set for
trial in June 2002.
On November 3, 2000, a complaint was filed by BGL Development, Inc.
d/b/a The Bristol Group in the United States District Court for the Southern
District of New York. Plaintiff alleges that it had a contract with Xpedite
whereby Xpedite would pay certain commissions for new customers that plaintiff
brought to Xpedite. Plaintiff claims back commissions are due and that they have
not been paid in breach of the contract. Plaintiff claims damages of not less
than $185,000. On November 20, 2000, the Company filed its answer and
affirmative defenses. On October 2, 2001, Xpedite filed a request with the court
for leave to file its Motion for Summary Judgment. Following a hearing on
January 17, 2002, the Court denied Xpedite's motion. The trial was held on
January 29-31, 2002, which resulted in a verdict for the Plaintiff in the amount
of $103,000. Xpedite is presently evaluating its options with respect to an
appeal.
10
On May 14, 2001, Voice-Tel filed two complaints against Quixtar, Inc.
and Alticor Inc., f/k/a Amway Corporation, and Amway Corporation, in the State
Court of Fulton County, Georgia, which were subsequently removed to the U.S.
District Court for the Northern District of Georgia. Voice-Tel alleged, among
other things, fraud in the inducement of a contract to market voice messaging
services and sought a declaratory judgment that contractual provisions which
alleged trade secrets and restrictions on competition were null and void. In
response to these lawsuits, Alticor and Quixtar asserted certain counterclaims
for breach of contract and to enjoin competitive behavior by PTEK and its
affiliates. On November 6, 2001, JOBA, Inc. ("JOBA"), a Voice-Tel franchisee,
filed an Application to Intervene in the Quixtar and Alticor lawsuits. In the
Application to Intervene, JOBA sought to file a Complaint that would include,
among other things, claims against not only Quixtar and Alticor but also against
Voice-Tel for an alleged breach of a franchise agreement and other alleged
agreements, and against PTEK for alleged tortuous interference of contract. On
December 3, 2001, Voice-Tel filed its Brief in Opposition to the Application to
Intervene. On December 4, 2001, Voice-Tel filed a Motion for Partial Summary
Judgment in the Quixtar and Alticor lawsuits. On December 10, 2001, Voice-Tel
filed a separate Complaint against JOBA and Digital Communication Services, Inc.
("Digital") in the U.S. District Court for the Northern District of Georgia. The
Complaint sought injunctive relief and a declaratory judgment with respect to
Voice-Tel's right to terminate the franchise agreements with JOBA and Digital.
JOBA and Digital subsequently dismissed their efforts to intervene in the
Quixtar and Alticor lawsuits, and on January 7, 2002 answered Voice-Tel's
Complaint and asserted counterclaims for breach of franchise agreement and
tortious interference of contract against Voice-Tel, Premiere Communications,
Inc. ("PCI") and PTEK. In addition, on January 7, 2002, JOBA and Digital sought
to stay the proceedings and compel arbitration as to Digital. On January 18,
2002, Voice-Tel, PCI and PTEK filed responses and answers to the counterclaims
and filed additional breach of contract and tort claims against JOBA and
Digital. Voice-Tel, PCI and PTEK also filed objections to the Motion to Stay
Proceedings as to Digital. On February 8, 2002, the Court denied the
JOBA/Digital Motion to Stay Proceedings. In March 2002, Voice-Tel and JOBA and
Digital sought leave of court to file amended complaints and answers. On March
14, 2002, the parties to the Quixtar and Alticor lawsuits entered into a
settlement agreement resolving in full all claims asserted by each party against
the other. The litigation with JOBA and Digital is ongoing and is in discovery.
The Company filed a complaint against Qwest Communications Corporation
("Qwest") in the State Court of Fulton County, Georgia on June 1, 2001. The case
was subsequently removed to the U.S. District Court for the Northern District of
Georgia. This complaint alleges a breach of contract by Qwest to purchase voice
conferencing services. In response to PTEK's breach of contract claim, Qwest
asserted a counterclaim for alleged breach of a contract to purchase certain
software licenses. The Company filed a Motion for Partial Summary Judgment on
October 19, 2001. The parties are now engaged in negotiations directed at
resolution of all claims and counterclaims.
On January 30, 2002, a complaint was filed by 15 Lake Bellevue, LLC in
the Superior Court of King County, Washington. Plaintiff seeks to enforce a
Lease Guaranty Agreement entered into by the Company on behalf of Webforia, Inc.
with respect to a lease for commercial real estate located in Bellevue, King
County, Washington. The Company's potential liability under the Guaranty is
limited to the lesser of the lease obligations or $2,000,000, together with
attorneys' fees, interest and collection expenses. The Company intends to file
an answer to the lawsuit.
The Company is also involved in various other legal proceedings which
the Company does not believe will have a material adverse effect upon the
Company's business, financial condition or results of operations, although no
assurance can be given as to the ultimate outcome of any such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
11
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $.01 par value per share (the "Common
Stock"), has traded on the Nasdaq National Market under the symbol "PTEK" since
its initial public offering on March 5, 1996. The following table sets forth the
high and low closing sales prices of the Common Stock as reported on the Nasdaq
National Market for the periods indicated.
2001 High Low
---- ---- ---
First Quarter................... $3.13 $1.31
Second Quarter.................. 2.95 2.13
Third Quarter................... 3.70 1.77
Fourth Quarter.................. 3.87 2.00
2000 High Low
---- ---- ---
First Quarter................... $11.44 $6.0
Second Quarter.................. 7.13 3.13
Third Quarter................... 4.19 2.63
Fourth Quarter.................. 3.44 0.91
The closing price of the Common Stock as reported on the Nasdaq
National Market on March 26, 2002 was $3.88. As of March 26, 2002 there were
approximately 599 record holders of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock, and the
current policy of the Company's Board of Directors is to retain any available
earnings for use in the operation and expansion of the Company's business. The
payment of cash dividends on the common stock is unlikely in the foreseeable
future. Any future determination to pay cash dividends will be at the discretion
of the Board of Directors and will depend upon the Company's earnings, capital
requirements, financial condition and any other factors deemed relevant by the
Board of Directors.
During the year ended December 31, 2001, one former employee exercised
an option to purchase an aggregate of 3,400 shares of Common Stock at a price
of $.52 per share in a transaction exempt from registration pursuant to Section
4(2) and Rule 701 of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated statement of operations data,
balance sheet data, and cash flow data as of and for the years ended December
31, 2001, 2000, 1999, 1998 and 1997 have been derived from the audited
consolidated financial statements of the Company. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto.
"Adjusted EBITDA" is defined by the Company as operating income or loss
before depreciation, amortization, restructuring costs, asset impairments,
equity based compensation, and net legal settlements and related expenses.
Adjusted EBITDA is management's primary measure of segment profit and loss.
Adjusted EBITDA is considered a key management performance indicator of
financial condition because it excludes the effects of goodwill and intangible
amortization and impairments attributable to acquisitions primarily acquired
using the Company's common stock, the effects of prior years' cash investing and
financing activities that affect current period profitability, the effects of
sales of marketable securities, the write down of assets, equity based
compensation, restructuring costs and net legal settlements and related
expenses. Adjusted EBITDA is used as an indicator of operating cash flow before
payments for interest, taxes and special charges, and may not be comparable to
similarly titled measures presented by other companies and could be misleading
unless all companies and analysts calculate them in the same manner.
12
Year Ended December 31,
-----------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations Data:
Revenues.............................................. $422,930 $436,935 $458,448 $444,818 $229,352
Gross profit.......................................... 320,122 321,495 328,757 309,782 165,378
Operating loss/(1)/................................... (230,726) (76,357) (138,081) (91,053) (16,714)
Net loss.............................................. (242,120) (58,866) (33,491) (84,254) (18,428)
Net loss attributable to common and
Common equivalent shares for shareholders for:
--basic and diluted net loss per share.............. (242,120) (58,866) (33,491) (84,254) (18,428)
Net loss per common and common Equivalent shares for:
--basic and diluted/(2)/............................ $ (4.84) $ (1.22) $ (0.72) $ (1.90) $ (0.57)
Shares used in computing net loss per
Common and common equivalent shares for:
--basic and diluted................................. 49,998 48,106 46,411 44,325 32,443
Balance Sheet Data (at period end):
Cash, cash equivalents and marketable securities...... $ 49,500 $29,716 $101,981 $ 40,609 $176,339
Working capital....................................... 13,116 15,949 34,746 (92,628) 132,906
Total assets.......................................... 386,438 630,933 770,481 796,416 379,593
Total debt............................................ 187,176 178,762 179,625 299,673 181,698
Total shareholders' equity............................ 79,032 313,406 422,220 397,793 107,761
Statement of Cash Flow Data:
Cash provided by operating activities................. $ 60,905 $17,929 $ 9,927 $ 22,248 $ 27,159
Cash (used in) provided by investing activities....... (35,405) (6,466) 107,216 21,292 (160,055)
Cash (used in) provided by financing activities....... (304) (2,394) (120,924) (46,115) 138,730
- --------------
/(1)/ Adjusted EBITDA was $63.8 million in 2001, $68.7 million in 2000, $52.4
million in 1999, $61.8 million in 1998 and $60.1 million in 1997.
Adjusted EBITDA prior to 2001 included Equity based compensation as a
deduction; thus Adjusted EDITDA in the preceding sentence for 1998
through 2000 differs from Adjusted EBITDA as originally reported.
/(2)/ Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted net loss
per share is computed using the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during the
period from convertible preferred stock, convertible subordinated notes
(using the if-converted method) and from stock options (using the
treasury stock method).
The Voicecom business unit was sold on March 26, 2002. See Note 23 to the
Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
PTEK Holdings, Inc., a Georgia corporation, and its subsidiaries
(collectively the "Company" or "PTEK") is a global provider of communications
and data services, including conferencing (audio conference calling and
Web-based collaboration), multimedia messaging (high-volume fax, e-mail,
wireless messaging and voice message delivery), IVR (interative voice response),
network based voice messaging and unified personal communications (advanced
personal communications management systems that integrate voice mail, e-mail and
fax messaging). The Company's reportable segments align the Company into three
operating segments based on product offering. These segments are Premiere
Conferencing, Xpedite and Voicecom. Premiere Conferencing offers a full range of
enhanced, automated and Web conferencing services for all forms of group
communications activities, primarily to Fortune 1000 customers. Xpedite offers a
full range of value-added multimedia messaging services through its worldwide
proprietary IP network for electronic information delivery. Xpedite's customers
are primarily global Fortune 1000 companies. Voicecom offers
13
a suite of integrated communications solutions including voice messaging, IVR
services and unified communications. Voicecom targets key vertical markets such
as direct selling organizations, financial services, telecom providers, real
estate and healthcare. Retail Calling Card Services is a business segment that
the Company exited through the sale of its revenue base effective August 1,
2000. The Company also exited the venture business in 2001, which was conducted
through PtekVentures, the Company's Internet investment arm. See "Subsequent
Events" in Management's Discussion and Analysis below for a discussion of the
Company's sale of Voicecom in the first quarter of 2002.
The Company recognizes revenues when persuasive evidence of an
arrangement exists, services have been rendered, the price to the buyer is fixed
or determinable, and collectibility is reasonably assured. Revenues consist of
fixed monthly fees, usage fees generally based on per minute or transaction
rates, and service initiation fees. Deferred revenue consists of payments made
by customers in advance of the time services are rendered. The Company's revenue
recognition policies are consistent with the guidance in Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," as
amended by SAB No. 101A and 101B.
"Telecommunications costs" consist primarily of the cost of metered and
fixed telecommunications related costs incurred in providing the Company's
services.
"Direct operating costs" consist primarily of salaries and wages,
travel, consulting fees and facility costs associated with maintaining and
operating the Company's various revenue generating platforms and
telecommunications networks, regulatory fees and non-telecommunications costs
directly associated with providing services.
"Selling and marketing" costs consist primarily of salaries and wages,
travel and entertainment, advertising, commissions and facility costs associated
with the functions of selling or marketing the Company's services.
"General and administrative" costs consist primarily of salaries and
wages associated with billing, customer service, order processing, executive
management and administrative functions that support the Company's operations.
Bad debt expense associated with customer accounts is also included in this
caption.
"Research and development" costs consist primarily of salaries and
wages, travel, consulting fees and facilities costs associated with developing
product enhancements and new product development.
"Depreciation" and "amortization" includes depreciation of computer and
telecommunications equipment, furniture and fixtures, office equipment,
leasehold improvements and amortization of intangible assets. The Company
provides for depreciation using the straight-line method of depreciation over
the estimated useful lives of property and equipment, generally two to ten
years, with the exception of leasehold improvements which are depreciated on a
straight-line basis over the shorter of the term of the lease or the useful life
of the assets. Intangible assets being amortized include goodwill, customer
lists, developed technology and assembled work force. Intangible assets are
amortized over periods generally ranging from three to seven years.
"Restructuring costs" represent severance, exit costs and contractual
obligation costs associated with the realignment of workforces and the exit of
certain businesses.
"Asset impairments" represent the adjustment of the carrying value of
long-lived assets to current fair value under Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." Long-lived assets subject to this
fair value assessment were goodwill, customer lists, developed technology and
property, plant and equipment.
"Equity based compensation" relates primarily to restricted stock
granted to employees in exchange for options, restricted stock granted to
certain officers of PTEK and one of its operating units, and the cancellation of
notes receivable from certain executive officers of the Company for the taxes
owed by such officers with respect to certain restricted stock grants and the
taxes related thereto. In addition, it includes the non-cash cost of stock
options and restricted stock issued to consultants for services rendered.
"Net legal settlements and related expenses" represent the costs
incurred or management's estimate of costs that will more likely than not be
incurred related to various legal contingencies and related matters.
"Interest expense" includes the interest costs associated with the
Company's convertible subordinated notes, term equipment loan and various
capital lease obligations.
14
"Interest income" includes interest earned on highly liquid investments
with a maturity at date of purchase of three months or less.
"Gain on sale of marketable securities" includes proceeds less
commissions in excess of original cost on the sale of marketable securities
available for sale. These marketable securities are traded on a national
exchange with a readily determinable market price.
"Asset impairment and obligations - investments" includes the
adjustment of the carrying value of non-public investments accounted for under
the cost or equity method to current fair value and obligations incurred by the
Company as a result of these investments.
"Amortization of goodwill - equity investments" relates to the
amortization of the excess of purchase price over the pro-rata net carrying
value of investments accounted for under the equity method of accounting. The
equity method of accounting for an investment is used when the Company exerts
significant management influence over the investee.
"Adjusted EBITDA" is defined by the Company as operating income or loss
before depreciation, amortization, restructuring costs, asset impairments,
equity based compensation, and net legal settlements and related expenses.
Adjusted EBITDA is management's primary measure of segment profit and loss.
Adjusted EBITDA is considered a key financial management performance
indicator because it excludes the effects of goodwill and intangible
amortization and impairments attributable to acquisitions primarily acquired
using the Company's common stock, the effects of prior years' cash investing and
financing activities that affect current period profitability, the effects of
sales of marketable securities, the write down of assets, equity based
compensation, restructuring costs and net legal settlements and related
expenses. Adjusted EBITDA provides each segment's management team with a
consistent measurement tool for evaluating the operating profit of the business
before investing activities, taxes and special charges. Adjusted EBITDA may not
be comparable to similarly titled measures presented by other companies and
could be misleading unless all companies and analysts calculate them in the same
manner. Adjusted EBITDA is not a standard accounting term as defined by
generally accepted accounting principles in the United States ("GAAP").
The preparation of financial statements in conformity with GAAP
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 reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from the estimates. See also the section entitled "Critical Accounting
Policies." The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
On January 1, 2001, management responsibility for international
conferencing and voice messaging services was transferred from Xpedite to
Premiere Conferencing and Voicecom, respectively. Prior to that date, these
international revenues were reported in the Xpedite operating segment. Beginning
January 1, 2001, these international revenues have been reported in the Premiere
Conferencing and Voicecom operating segments. In order to report comparable
operating segment financial results, certain financial information for years
prior to 2001 has been reclassified in Management's Discussion and Analysis to
reflect the pro forma effect of this management change.
SUBSEQUENT EVENTS
Consistent with the Company's increased focus on extending its market
leadership in conferencing and multimedia messaging services for global
enterprise customers, in 2001 the Company retained a financial advisor to assist
in evaluating strategic alternatives for portions of its business. As a result
of that evaluation, the Company decided to pursue the separation of Voicecom
from the rest of PTEK. Since that time the Company has explored several
possibilities, including a spin-off of Voicecom to the Company's shareholders
and a sale of the unit. On March 26, 2002 the Company sold substantially all the
assets of its Voicecom business unit to an affiliate of Gores Technology Group
for the purchase price of approximately $22.4 million, comprised of cash and the
assumption of Voicecom liabilities. In accordance with SFAS No. 144, the
transaction will be accounted for as a discontinued operation in the first
quarter of 2002. The Voicecom discontinued operations will include the loss from
operations through the closing date and the loss on disposal. See Note 23 to the
Consolidated Financial Statements.
15
RESULTS OF OPERATIONS
The following table presents the percentage relationship of certain
statements of operations items to total revenues for the Company's consolidated
operating results for the periods indicated:
Year Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
REVENUES........................................................................ 100.0% 100.0% 100.0%
TELECOMMUNICATIONS COSTS........................................................ 24.3 26.4 28.3
------- ------- -------
GROSS PROFIT.................................................................... 75.7 73.6 71.7
------- ------- -------
DIRECT OPERATING COSTS.......................................................... 16.9 15.6 15.1
------- ------- -------
CONTRIBUTION MARGIN............................................................. 58.8 58.0 56.6
------- ------- -------
OPERATING EXPENSES
Selling and marketing....................................................... 21.3 21.5 23.5
General and administrative.................................................. 18.7 17.5 18.8
Research and development.................................................... 3.6 3.2 2.6
Depreciation................................................................ 8.4 9.3 15.3
Amortization................................................................ 22.3 23.6 21.6
Restructuring costs......................................................... 2.5 -- 1.7
Asset impairments........................................................... 31.1 0.2 --
Equity based compensation................................................... 4.8 0.5 3.1
Net legal settlements and related expenses.................................. 0.6 (0.3) --
------- --------- ------
Total operating expenses................................................ 113.3 75.5 86.6
------- ------ -------
OPERATING LOSS.................................................................. (54.5) (17.5) (30.0)
------- -------- -------
OTHER (EXPENSE) INCOME
Interest expense............................................................ (2.9) (2.7) (5.6)
Interest income............................................................. 0.2 0.3 0.2
Gain on sale of marketable securities....................................... 0.7 13.6 33.2
Asset impairment - investments.............................................. (7.5) (3.4) --
Amortization of goodwill - equity investments............................... (0.4) (1.1) --
Other, net.................................................................. (0.4) (0.1) 2.7
------- ---- --------
Total other (expense) income............................................ (10.3) 6.6 30.5
------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES............................................... (64.8) (10.9) 0.5
INCOME TAX (BENEFIT) PROVISION.................................................. (7.6) 2.6 7.7
------- -------- --------
NET LOSS........................................................................ (57.2)% (13.5)% (7.2)%
======= ======= =======
16
The following table presents certain financial information about the
Company's operating segments for the periods presented (amounts in millions),
with amortization expense and asset impairments allocated to the appropriate
operating segment:
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
REVENUES:
Xpedite..................................................................... $ 215.7 $230.1 $ 239.2
Voicecom.................................................................... 92.5 119.9 128.5
Premiere Conferencing....................................................... 115.1 73.4 53.8
Retail Calling Card Services................................................ -- 13.7 37.2
Eliminations................................................................ (0.4) (0.2) (0.3)
------- ------- --------
Totals...................................................................... $422.9 $436.9 $ 458.4
====== ====== =======
OPERATING (LOSS) PROFIT:
Xpedite..................................................................... $(146.1) $ (39.9) $ (30.4)
Voicecom.................................................................... (53.6) (16.5) (17.4)
Premiere Conferencing....................................................... 11.4 (0.4) (3.8)
Retail Calling Card Services................................................ -- (1.1) (43.8)
Corporate................................................................... (42.4) (18.3) (42.4)
Eliminations................................................................ -- (0.2) (0.3)
-------- ------- --------
Totals...................................................................... $(230.7) $ (76.4) $(138.1)
======== ======== ========
ADJUSTED EBITDA:
Xpedite..................................................................... $ 48.5 $55.4 $ 60.4
Voicecom.................................................................... 3.5 13.9 14.7
Premiere Conferencing....................................................... 28.6 13.7 9.0
Retail Calling Card Services................................................ -- 1.6 (5.8)
Corporate................................................................... (16.8) (15.7) (25.6)
Eliminations................................................................ -- (0.2) (0.3)
-------- -------- --------
Totals...................................................................... $ 63.8 $ 68.7 $ 52.4
======== ======= =======
REVENUES
Consolidated revenues decreased 3.2% to $422.9 million in 2001 from
$436.9 million in 2000, and decreased 4.7% in 2000 from $458.4 million in 1999.
Revenues in the Company's operating segments are as follows:
. Xpedite revenues decreased 6.3% to $215.7 million in 2001 and
decreased 3.8% to $230.1 million in 2000. The declines in revenue
in 2001 are attributable to a general decline in the second half
of 2001 in demand and price compression in the traditional store
and forward fax business. These declines have been caused
primarily by weakness in the hospitality and financial services
industries worldwide along with a general weakness in foreign
currencies against the U.S. dollar. In addition, price compression
in the legacy store and forward fax business and a slowing in the
growth of new products such as MessageREACH and VoiceREACH
contributed to the overall decline. Excluding two customer base
acquisitions in the first quarter of 2001, revenues would have
decreased at a higher rate. The declines in revenue in 2001
materialized in the second half of 2001 and management expects
these declines to continue at a lower rate of attrition into the
foreseeable future. The revenue declines in 2000 were primarily
associated with the foreign currency weakness against the U.S.
dollar and severe declines in real-time fax pricing in the
Asia/Pacific region due to deregulation of most Asian
telecommunications markets.
. Voicecom revenues decreased 22.9% to $92.5 million in 2001 and
decreased 6.7% to $119.9 million in 2000. The declines in revenue
in 2001 were due to significant customer losses and loss of access
to significant customer distribution channels in major direct
selling organizations. Various corporate voice mail customers gave
notice of their intention not to renew contracts with Voicecom
during the second half of 2001. These corporate customers, such as
Abbott Laboratories, Pharmacia Upjohn, TAP Pharmaceuticals, Tricon
and Centers for Disease Control, represented in the aggregate
approximately 9.4% of Voicecom's reported 2001 revenue. In
addition, the contractual right to market to certain major direct
selling organizations such as Amway and Primerica Financial
Services were not renewed in the same time period. Amway and
Primerica Financial Services represent in the aggregate
approximately 25.6% of Voicecom's reported 2001 revenue.
17
During the second half of 2001, management was able to retain
under contract approximately 50% of Amway's distribution channel
without the corporate endorsement of Amway and has been able to
retain without contract 25% of the distribution channels of
Primerica Financial Services. These events have lessened the
impact of the potential loss of business for Voicecom as it
relates to these distribution channels. In addition, pricing
pressure in Voicecom's IVR product offering and weakness in
Voicecom's wholesale calling card operations to competitive local
exchange carriers have contributed to these declines as well. The
declines in 2000 were primarily related to Voicecom's exit of the
direct selling channel of voicemail services to small office and
home office customers. The exit of this selling channel occurred
in the fourth quarter of 1999 and was due to the high cost of
customer acquisition, making this channel unprofitable.
. Premiere Conferencing revenues increased 56.8% to $115.1 million
in 2001 and increased 36.4% to $73.4 million in 2000. The
increases in 2001 and 2000 are primarily attributable to growth in
Premiere Conferencing's automated conferencing service,
ReadyConference, which allows unscheduled and unattended
conference calls 24 hours a day, 7 days a week, and an expansion
of these services into key foreign markets. Management expects
overall revenue growth in this operating segment to continue into
the foreseeable future, primarily driven by growth in minutes of
use. The overall industry trend outlook for audio conferencing is
for growth in revenue through minute volume with some decline in
average revenue per minute.
. Retail Calling Card Services revenues decreased 63.2% to $13.7
million in 2000. The decrease in 2000 was primarily due to the
sale of the customer base related to this segment in August 2000.
GROSS MARGINS
Consolidated gross profit margins were 75.7%, 73.6% and 71.7% in 2001,
2000, and 1999, respectively. Gross margins in the Company's operating segments
were as follows:
Xpedite gross profit margins were 74.7%, 70.0%, and 68.3% in 2001,
2000, and 1999, respectively. Gross margins increased in 2001 due to decreases
in per minute telecommunications rates for the Xpedite worldwide network, as
well as increased sales of its new products, messageREACH and voiceREACH, which
carry higher gross margins. Lower telecommunications costs have become the
general industry trend over the past several years. Since Xpedite is not
contractually bound to a fixed term rate, its telecommunications costs per
minute trend with the industry.
Voicecom gross profit margins were 67.7%, 77.2% and 79.8% in 2001, 2000
and 1999, respectively. Gross margins declined in 2001 primarily due to (1)
significant declines in the direct selling organization customer base which
resides on Voicecom's fixed cost local access network, and (2) temporary
incremental telecommunications costs incurred to consolidate the number of local
access network sites. Gross margins declined in 2000 primarily due to increased
network costs associated with the development of Orchestrate, increases in lower
margin business associated with the post-sale management services agreement
related to the retail calling card customer base sale, and revenue declines in
the voice messaging small office and home office voice mail selling channel
which is operated primarily on a fixed cost local access network. These declines
were offset in part by decreases in telecommunications delivery costs.
Premiere Conferencing gross profit margins were 84.0%, 81.3%, and 78.3%
in 2001, 2000, and 1999, respectively. Gross margins increased in 2001 and 2000
primarily due to significant decreases in per minute telecommunications delivery
costs. These significant decreases are the result of the general industry price
declines seen for long distance delivery. Since Premiere Conferencing is not
contractually bound to a fixed term rate, its telecommunications costs per
minute trend with the industry.
Retail Calling Card Services gross profit margins were 61.9% and 56.2%
in 2000 and 1999, respectively. Gross margins increased in 2000 due to the
negotiation of lower per minute telecommunications rates with the providers of
these services. Gross margins increased in 1999 due to (1) the exit from the
prepaid calling card business in the third quarter of 1998, which had inherently
lower gross margins due to the mix of this business being primarily
international, and (2) lower per minute telecommunications rates offered by its
telecommunications providers.
DIRECT OPERATING COSTS
Consolidated direct operating costs as a percent of revenues were
16.9%, 15.6% and 15.1% in 2001, 2000, and 1999 respectively. These increases as
a percentage of revenue are due to the growth of the Premiere Conferencing
operating segment as an overall percentage of the consolidated business in the
last three years. Operating costs at Premiere Conferencing are approximately
29.1% of revenues compared to 20.8% and 8.7% of revenues for Voicecom and
Xpedite, respectively. The higher concentration of direct operating costs are
associated with the attended live operator portion of the
18
conferencing business. In contrast, Premiere Conferencing enjoys higher gross
margins and lower selling, general and administrative support costs compared
with the other operating segments of the Company, which can be seen in its
higher Adjusted EBITDA margins.
SELLING AND MARKETING
Consolidated selling and marketing costs as a percent of revenues were
21.3%, 21.5% and 23.5% in 2001, 2000 and 1999, respectively. Overall costs
decreased $3.7 million in 2001 primarily due to reductions in nonproductive
sales force and commission costs in both the Xpedite and Voicecom operating
segments. The declines in both of these operating segments contributed to the
overall percentage decline for the Company. The reductions in nonproductive
sales force costs were part of the rationalization of the workforce the Company
made during 2001. Selling and marketing costs decreased by approximately $14.0
million in 2000 when compared to 1999, with significant decreases at both the
Voicecom and Retail Calling Card operating segments ($12.9 million and $10.6
million, respectively). Xpedite and Premiere Conferencing experienced increases
of $5.8 million and $4.8 million, respectively, when compared to 1999 levels. At
Voicecom, the decrease in direct sales and marketing costs as a percentage of
revenues in 2000 is attributable in part to a reduction of 122 employees in the
latter half of 1999 that was undertaken as part of the plan to exit the small
office and home office voice-mail sales channel. In addition, further sales
force reductions were made at Voicecom in 2000 related to a nonproductive sales
force. Significant reductions in direct advertising costs associated with an
earlier version of Orchestrate also contributed to the decrease at Voicecom. The
decrease within the Retail Calling Card operating segment is primarily
attributable to the discontinuance of efforts to acquire new customers. The
increase at Xpedite is primarily related to the ramp up of sales and marketing
efforts relating to this operating segment's new service offerings, while the
increase at Premiere Conferencing is principally due to the significant growth
in revenue in this operating segment from 1999 to 2000.
GENERAL AND ADMINISTRATIVE
Consolidated general and administrative costs as a percent of revenues
were 18.7%, 17.5% and 18.8% in 2001, 2000 and 1999, respectively. General and
administrative costs increased to 18.7% of revenues or $2.5 million in 2001.
This increase is primarily due to infrastructure support increases related to
the expansion of the Premiere Conferencing operating segment and increased
administrative and customer support costs at the Xpedite operating segment.
These costs were offset in part by significant administrative support cost
reductions at the Voicecom operating segment and the holding company corporate
staff as part of the second quarter workforce rationalization. Increases in
administrative and technical support costs at the Xpedite operating segment were
addressed during the Company's fourth quarter 2001 workforce rationalization and
those results will not be seen until 2002. General and administrative costs
decreased to 17.5% of revenues or $10.1 million in 2000. The overall decrease in
general and administrative costs is related to reduced corporate overhead
stemming from the Company's third quarter 1999 restructuring initiative to
decentralize certain management functions. Revenue declines in the Xpedite and
Voicecom segments partially offset the improvement in general and administrative
costs as a percent of revenue.
RESEARCH AND DEVELOPMENT
Consolidated research and development costs as a percent of revenues
were 3.6%, 3.2% and 2.6% in 2001, 2000 and 1999, respectively. From 1999 to
2001, the Company's research and development activities focused on developing
new products and services in each of its operating segments. The increases in
2000 were attributable to Xpedite's development of its new service offerings,
messageREACH and voiceREACH, Premiere Conferencing's continued development of
ReadyConference, ReadyCast and VisionCast, and Voicecom's continued development
of Orchestrate.
DEPRECIATION
Consolidated depreciation costs as a percent of revenues were 8.4%,
9.3% and 15.3% in 2001, 2000 and 1999, respectively. Depreciation costs in the
Company's operating segments were as follows:
. Xpedite depreciation costs were 5.9%, 5.1% and 6.0% of segment
revenues in 2001, 2000 and 1999, respectively. The $1.0 million
increase in 2001 is primarily related to increased capital
expenditures in the latter half of 2000 and first half of 2001
related to MessageREACH and VoiceREACH. In addition, reduced
capital expenditure levels in 1998 and 1999 caused the decline in
the depreciation in 2000 as the depreciable base of assets was not
replenished at the same rate the base was being depreciated.
. Voicecom depreciation costs were 15.9%, 14.9% and 13.4% of
segment revenues in 2001, 2000 and 1999, respectively. This
represents a $3.2 million decrease from 2000 to 2001 and a $0.7
million increase from 1999 to 2000. The decline in depreciation in
terms of dollars is attributable to the impairment of property,
plant and equipment during the fourth quarter of 2001 and
significantly reduced levels of capital expenditures in 2001.
19
See "Asset impairments" for a further discussion of the nature of
these impairments. The overall increase as a percentage of revenue
is associated with the severe revenue declines in the operating
segment during 2001. The increase in 2000 was primarily associated
with increased levels of capital expenditures in late 1999 and
early 2000 associated with the development of Orchestrate 2000.
The overall increase as a percentage of revenue is associated with
revenue declines during 2000.
. Premiere Conferencing depreciation costs were 6.2%, 8.2% and 7.8%
of segment revenues in 2001, 2000 and 1999, respectively. This
represents a $1.1 million increase from 2000 to 2001 and a $1.8
million increase from 1999 to 2000. The increase in depreciation
in terms of dollars is attributable to increased capital
expenditures in 2001 to provide additional capacity to accommodate
the growth of the business. The 2001 percentage of revenue
decrease is due to the significant revenue growth in 2001.
. Retail Calling Card depreciation costs were 19.0% and 87.6% of
segment revenues in 2000 and 1999, respectively. The decrease in
expense as a percent of revenues from 1999 to 2000 is attributable
primarily to the shortening of the useful life of
telecommunications equipment from five to seven years in the
fourth quarter of 1998 to 15 months. The useful life of this
equipment was shortened as the equipment was held and used over
the period of its remaining estimated life.
. Corporate depreciation costs were $0.8 million, $2.2 million and
$1.6 million in 2001, 2000 and 1999, respectively. The decrease in
depreciation from 2000 to 2001 was associated with the normal run
out of depreciable assets not replaced. The increase in
depreciation from 1999 to 2000 resulted from shortening the useful
lives of certain purchased administrative software that was either
outsourced or replaced with less expensive alternatives.
AMORTIZATION
Consolidated amortization was $94.1 million, $103.2 million and $98.9
million in 2001, 2000 and 1999, respectively. Goodwill amortization was $67.4
million, $68.1 million and $68.1 million in 2001, 2000 and 1999, respectively.
Other intangibles amortization, which consist primarily of customer lists,
developed technology and assembled workforce was $26.7 million, $35.1 million
and $30.8 million in 2001, 2000 and 1999, respectively. The decline in goodwill
amortization in 2001 is primarily related to the impairment of certain goodwill
during the fourth quarter of 2001. With the adoption of SFAS No. 142,
"Accounting for Goodwill and Other Intangible Assets," the Company will no
longer record amortization expense associated with goodwill after December 31,
2001, but instead will be subject to a periodic impairment assessment by
applying a fair value based test. Other intangibles amortization decreased in
2001 due to customer list impairments associated with both the Voicecom and
Xpedite operating segments and developed technology impairments associated with
the Voicecom operating segment. See "Asset impairments" below for a further
discussion related to these impairments. Management anticipates that
amortization associated with other intangibles at December 31, 2001 will be
approximately $11.0 million in 2002. The increase in amortization expense during
2000 is associated with the shortening of the estimated useful life of Internet
portal rights associated with a co-marketing agreement with WebMD. Management
made this assessment in light of the continuing future economic benefit
associated with these portal rights.
RESTRUCTURING COSTS
Realignment of Workforce and Facilities - Fourth Quarter 2001
Due to continued revenue declines not anticipated by management in both
the Voicecom and Xpedite operating segments in the second half of 2001, plans
for additional workforce cost reductions were established and personnel notified
during the fourth quarter of 2001. The plan commitment is expected to reduce
annual operating expenses by $7.6 million. The plan eliminated, through
involuntary separation, approximately 120 non-sales force employees in both
Voicecom and Xpedite and eliminates 143 network equipment sites in the Voicecom
operating segment. The overall management plan allows for taking these cost
savings and reinvesting them into additional sales force employees in order to
stabilize the decline in revenues in both operating segments. Accordingly, the
Company accrued restructuring costs of approximately $4.1 million associated
with this plan commitment. Cash payments in 2001 associated with this plan were
$1.0 million. The Company expects to incur $2.4 million of additional cash
payments in 2002 to satisfy this plan obligation. Of the $4.1 million of costs
associated with this plan, approximately $0.7 million of non-cash charges were
incurred for severance cost obligations paid through immediately vested stock
options issued below market price on the date of grant. Accordingly, this
portion of the restructuring costs was recorded as additional paid-in-capital.
20
Realignment of Workforce and Facilities - Second Quarter 2001
During the second quarter of 2001, management committed to a plan to
reduce annual operating expenses by approximately $13.7 million through the
elimination of certain operating activities in its Voicecom and Xpedite
operating segments, and at Corporate, and the corresponding reductions in
personnel costs relating to the Company's operations, sales and administration.
The plan eliminated, through involuntary separation, approximately 168 non-sales
force employees and exited duplicative facilities in the Voicecom business
segments. Accordingly, the Company accrued restructuring costs of approximately
$6.7 million associated with this plan commitment. The Company expects to incur
approximately $5.0 million of cash payments related to severance, exit costs and
contractual obligations associated with the $6.7 million plan costs.
Approximately $3.8 million of these cash payments were made by December 31, 2001
and were primarily related to severance and exit cost activities. The remaining
$1.2 million of cash payments are associated with contractual obligations not
expected to expire until December 31, 2003. Approximately $1.7 million of
non-cash charges are related to certain executive management severance costs
from employee stock option modifications and forgiveness of employee notes
receivable. Accordingly, this portion of the restructuring costs was recorded as
additional paid-in-capital.
Exit from Asia Real-Time Fax and Telex Business
During the fourth quarter of 2000, the Company recorded a charge of
$0.6 million for costs associated with Xpedite's decision to exit its legacy
real-time fax and telex business in Asia. This service depended on significant
price disparities between regulated incumbent telecommunications carriers and
Xpedite's cost of delivery over its fixed-cost network. With the deregulation of
most Asian telecommunications markets, Xpedite's cost advantage dissipated, and
the Company decided to exit this service and concentrate on higher value-added
services such as transactional messaging and messageREACH. The $0.6 million
charge included contractual and other obligations totaling $0.4 million and
severance costs of $0.2 million.
Contractual and other obligations are mainly cash outlays for rent on
office space and telephone lines. Management achieved exiting this office space
and telephone lines during the fourth quarter of 2001 which was ahead of
original plan of first quarter of 2002. Accordingly, management reversed the
remaining obligation reserve of $0.2 million in 2001.
The severance charge includes cash severance payments made to 67
employees. The Company expects to realize an annual savings of approximately
$0.3 million from these terminations. During 2001, the Company paid the
remaining severance obligations planned for and does not expect any further
payments.
Decentralization of Company
In the third quarter of 1999, the Company recorded restructuring,
merger costs and other special charges of approximately $8.2 million in
connection with its reorganization from the two EES (Emerging Enterprise
Solutions) and CES (Corporate Enterprise Solutions) operating units into three
operating business units, a retail calling card business, and a holding company.
The $8.2 million charge is comprised of $7.3 million of severance and exit
costs, $0.7 million of lease termination costs and $0.2 million of facility exit
costs.
Severance benefits provided for the termination of 203 employees,
primarily related to corporate administrative functions, direct sales force and
operation of under-performing operating segments in the former EES and CES
groups. Of the 203 severed employees, 114 were from the Voicecom operating
segment, 61 from the Xpedite operating segment and 28 from Corporate
headquarters. The reduction made to the Voicecom and Xpedite operating segments
allowed for the transfer to those segments of approximately 70 employees who had
performed centralized administrative functions at Corporate. As of December 31,
1999, all 203 employees were terminated. Annual savings of approximately $13.1
million were realized from these terminations. The balance at December 31, 1999
for severance and exit costs represents the remaining reserve for future cash
severance and exit payments to former corporate executive management and various
management in the former CES group that were terminated in 1999. These remaining
cash payments were disbursed during the first nine months of 2000. During 2000,
cash severance payments totaled $3.2 million. In the third quarter of 2000, the
Company recognized as income $0.6 million of accrued severance and exit payments
upon completion of the severance program associated with the decentralization of
the Company. This amount represents actual exit costs that were below planned
exit costs, relating to the decentralization plan for the European and
Asia/Pacific regions of the Company's Xpedite operating segment.
Lease termination costs are attributable to the abandonment of a
facility under the Retail Calling Card Services segment. Lease termination costs
are cash outlays. The Company incurred $0.7 million in costs in 1999 in
terminating this lease. Other costs were attributable to site clean up and exit
team travel costs to exit one facility in the Xpedite segment. The Company
incurred $0.1 million of costs that were cash outlays in the fourth quarter of
1999 to close this facility. In the first quarter of 2000, the Company paid $0.1
million in lease termination and exit costs.
21
As the decentralization plan of the Company was completed and no
further payments are expected by management, the remaining balance of the
reserve totaling $0.6 million was reversed in the third quarter of 2000.
Reorganization of Company into EES and CES Business Groups
In the fourth quarter of 1998, the Company recorded a charge of $11.4
million to reorganize the Company into two business segments that focused on
specific groups of customers. The balance of severance and exit costs at
December 31, 2001 and 2000 represents remaining severance reserve for a former
executive manager. Cash severance payments in 2001 were $0.5 million. The
Company expects to pay the remaining reserve balance of $0.1 million over a
four-month period ending April 30, 2002.
ASSET IMPAIRMENTS
The following table summarizes the asset impairments incurred by
operating segment for the years ended December 31, 2001 and 2000 (in thousands):
2001 Xpedite Voicecom Conferencing Holding Co. Total
-----------------------------------------------------------------------
Goodwill........................... $91,571 $12,584 -- -- $104,155
Other intangibles.................. 6,679 3,413 -- -- 10,092
Property and equipment, net........ 777 14,748 984 785 17,294
-----------------------------------------------------------------------
$99,027 $30,745 $984 $785 $131,541
2000
Property and equipment, net........ $ 800 -- -- -- $ 800
------- -- -- -- --------
During the second half of 2001, business conditions declined
significantly in both the Voicecom and Xpedite operating segments. The following
is a comparison of revenue and Adjusted EBITDA performance for the first six
months of 2001 versus the second six months of 2001 (in thousands).
First six months 2001 Second six months 2001 % Change
Voicecom Xpedite Voicecom Xpedite Voicecom Xpedite
---------------------------- -------------------------------- ---------------------------
Revenue.................... $51,257 $112,552 $41,257 $103,113 -19.5% -8.4%
Adjusted EBITDA............ $ 2,018 $ 27,512 $ 1,483 $ 20,956 -26.5% -23.8%
During the third and fourth quarters of 2001, the Company experienced
declines in revenue at its Xpedite and Voicecom operating units. During the
fourth quarter of 2001, the Company assessed the outlook of various service
offering revenues and evaluated the potential impairment of various assets
associated with the operating equipment, goodwill and other intangible assets at
Voicecom and Xpedite pursuant to SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Management
reviewed the identifiable undiscounted future cash flows, including the
estimated residual value to be generated by the assets to be held and used by
the business acquired in Xpedite and Voicecom at their asset grouping level.
Based on the results of these assessments, the Company recorded the $131.5
million impairment in the fourth quarter of 2001.
Xpedite impairment - 2001
In Xpedite, an increasing rate of decline in the traditional store and
forward fax business and weakness in the European and Asia Pacific regions of
the business began to occur in the latter part of the third quarter and the
early part of the fourth quarter. By the latter part of the fourth quarter, the
outlook for revenue growth and the ability to sustain margins in the Xpedite
operating segment had significantly changed from the outlook earlier in the
quarter. The hospitality and financial services industries that comprise a
significant portion of the Xpedite business had begun to display greater
weakness than expected. Accordingly, management was concerned that a fair value
assessment would potentially be lower than the carrying value on the balance
sheet. A third party appraisal was performed using a discounted cash flow income
approach to valuing the business, using a 15% discount rate. The valuation
resulted in an asset impairment related to the Xpedite operating segment of
$99.0 million to reflect the carrying value in excess of fair value at December
31, 2001. Of the $99.0 million, property and equipment impairments of $0.7
million at Xpedite related primarily to the abandonment of its Indonesian
operations due to declining revenues and profits. Indonesia represented less
than 1% of Xpedite's revenues.
22
Voicecom impairment - 2001
In Voicecom, the following occurred: (1) lack of a market materializing
for the new Orchestrate product offering launched in the third quarter of 2000,
(2) voice mail distribution channels related to direct selling organizations
such as Amway and Primerica Financial Services diminished quicker than
anticipated, (3) losses of corporate voice mail customers materialized, and (4)
new business did not develop. Management had taken two workforce reductions, and
aggressively reduced Voicecom's business cost structure. However, the declines
in revenue in the early fourth quarter were outpacing cost reductions.
Management performed a valuation analysis of the business using the discounted
cash flow income approach and compared this to valuations from potential buyers.
From these valuations, an impairment of the net carrying value of the Voicecom
operating segment was required. Accordingly, during the fourth quarter the
Company took an impairment charge of $30.7 million to adjust the balance sheet
carrying value of Voicecom to its fair value at December 31, 2001. Property and
equipment impairments of $14.7 million at Voicecom related primarily to the
abandonment of certain network operating equipment.
Other impairments - 2001
Additionally, management has recorded asset impairments totaling $1.8
million related to the carrying value of capitalized software associated with
certain internal information systems at both Premiere Conferencing and the
holding company that have been taken out of service.
Real-time fax impairment - 2000
With the deregulation of most Asian telecommunications markets,
Xpedite's cost advantage dissipated, and Xpedite decided to exit this service
and concentrate on higher value-added services such as transactional messaging
and messageREACH. The asset impairments of $0.8 million included the write-down
of furniture and fixtures and real-time fax equipment including autodialers,
faxpads and computers. The valuation was based on the fair value of the assets
as of December 31, 2000. All equipment costs were incurred in conjunction with
the closing of the real-time fax operations in Malaysia, Singapore, Hong Kong,
Taiwan and Korea.
EQUITY BASED COMPENSATION
The following summarizes the components of equity based compensation
expense for the years ended December 31, 2001, 2000 and 1999 (in thousands,
except share data):
2001 Shares Earned Unearned
-------------------------------------------
Options exchanged for restricted shares.............................................. 2,404,561 $ 5,807 $2,120
Restricted shares issued to executive management..................................... 1,402,194 2,483 1,740
Note forgiveness related to restricted shares in former affiliates and related
Taxes............................................................................. 11,072
Compensation to management in association with restricted shares in former
affiliates........................................................................ 497
Options and restricted shares issued for services rendered........................... 15,000 570
-------------------------------------------
3,821,755 $20,429 $3,860
-------------------------------------------
2000
Deferred compensation amortization for restricted shares in former affiliates........ $ 2,102
1999
Deferred compensation amortization for restricted shares in former affiliates........ $13,624
Options exchanged for restricted shares
Due to declines in the Company's share price over the course of the
last several years, most of the employee and director option holders had options
with exercise prices in excess of the market price of Company stock. In order to
provide better performance incentives for employees and directors and to align
the employees' and directors' interests with those of the shareholders, in the
fourth quarter of 2001 the Company offered an exchange program in which it
granted one restricted share of common stock in exchange for every 2.5 options
tendered. Approximately 6.0 million employee and director stock options were
exchanged for approximately 2.4 million shares of restricted stock on December
28, 2001, the date of the exchange. The restricted shares maintain the same
vesting schedules as those of the original options exchanged, except that in the
case of tendered options that were vested on the exchange date, the restricted
shares received in exchange therefor
23
vested on the day after the exchange date. To the extent options were vested
at the exchange date, the Company recognized equity based compensation expense
determined by using the closing price of the Company's common stock at December
28, 2001, which was $3.32 a share. To the extent that restricted shares were
received for unvested options exchanged, this cost was deferred on the balance
sheet under the caption "Unearned restricted share compensation." This value
was also determined using the closing price of the Company's common stock at
the date of the exchange. The unearned restricted share compensation will be
recognized as equity based compensation expense as these shares vest. Assuming
all employees at December 31, 2001 will remain employed by the Company through
their vesting period, the equity based compensation expense in future years
resulting from the restricted shares issued in the option exchange will be $1.3
million in 2002, $0.5 million in 2003 and $0.3 million in 2004. A one-year
trading restriction applies to all restricted shares between December 28, 2001
and December 28, 2002, with limited exceptions.
In addition, approximately 890,000 options that were eligible to be
exchanged for restricted shares pursuant to the exchange offer were not
tendered. These options will be subject to variable accounting until such
options are exercised, are forfeited, or expire unexercised. These options have
exercise prices ranging from $5.32 to $29.25. At December 31, 2001, no charge
was recorded because the exercise price of each of the options was greater than
the market value of the Company's common stock. See further discussion in
"Restricted Stock Exchange Offer" section of Management's Discussion and
Analysis below.
Restricted shares issued to executive management
Certain members of the executive management of the Company were awarded
discretionary bonuses in the form of restricted shares in November 2001. The
purpose of these discretionary bonuses was to better align executive
management's performance with the interests of the shareholders. Certain of
these restricted shares vested immediately in 2001 and are restricted from
trading for a one-year period. The remaining restricted shares vest straight
line through 2004 and the anticipated equity based compensation expense
resulting therefrom will be approximately $0.6 million a year from 2002 through
2004.
Loans and note forgiveness associated with restricted shares in former
affiliates and related taxes
During the second quarter of 1999, the Company made restricted share
grants to the CEO and COO and certain other officers of Company owned shares
held in certain investments in affiliates made in connection with its
PtekVentures activities. These Company-owned shares included 168,000 shares of
WebMD Series E Common Stock and 6,461 shares of WebMD Series F Preferred Stock,
and 70,692 shares of USA.NET Series C Preferred Stock. The vesting periods for
these shares ranged from immediately upon grant to three years, contingent on
the executive being employed by the Company. In connection with this action, the
Company recorded a $13.9 million non-cash gain resulting from the write-up to
fair market value of these investments and a $13.1 million non-cash expense
related to the partial vesting of these grants. The gain reflects the difference
between the Company's cost basis and fair market value at date of grant of these
investments. The Company recorded an additional non-cash charge of $1.2 million
in 2000 related to the vesting of these grants.
In 1999 and 2000, the Company loaned $6.3 million with recourse to the
current CEO and COO to pay taxes in connection with these restricted share
grants. These loans were due on December 31, 2006, accrued interest at 6.20% and
were secured by the restricted shares granted. In March 2000, the Company agreed
to forgive one-seventh of the principal plus accrued interest on such loans as
of December 31, 2000, provided that the executives were employees of the Company
on that date. Such amounts were forgiven as of December 31, 2000.
In 2001, the Company agreed to forgive the recourse tax loans to the
CEO and COO, effective as of December 31, 2001, provided that the executives
were employees of the Company on that date. The principal and interest forgiven
was $5.8 million and the employee tax liability assumed by the Company was $5.3
million. The tax liability was paid primarily in the first quarter of 2002.
Compensation to management in association with restricted shares in former
affiliates
In 2001, the Company approved discretionary bonuses in the aggregate
amount of $0.5 million to two executive vice presidents of the Company who were
awarded restricted share grants in affiliates during the second quarter of 1999,
which shares had lost significant market value since the dates of grant.
Options and restricted shares issued for services rendered
In 2000 and 2001 the Company issued stock options and restricted shares
to consultants for various consulting services performed for the Company.
24
NET LEGAL SETTLEMENTS AND RELATED EXPENSES
Net legal settlements and related expenses were $2.3 million, $(1.4)
million and $0.0 million in 2001, 2000 and 1999, respectively. See Note
19--"Commitments and Contingencies" to the Consolidated Financial Statements and
"Legal Proceedings" under Item 3 of Part I of this report. Legal settlement
costs in 2001 were primarily related to $1.6 million of costs incurred that
relate to shareholder litigation matters. Net legal settlements in 2000 related
primarily to the favorable settlement of a contractual dispute with WorldCom.
INTEREST EXPENSE
Interest expense was $12.1 million, $11.7 million and $25.5 million in
2001, 2000 and 1999, respectively. Interest expense increased slightly in 2001
due to an additional $5.9 million of capital lease obligations entered into
during 2001 to fund equipment purchases for the network consolidation efforts of
the Voicecom operating segment and to fund facility improvements to Xpedite's
new headquarters. Additionally, Premiere Conferencing entered into a term
equipment loan for $6.5 million in late 2001. Interest rates on these new debt
obligations range from 6% to 7.7%. Interest expense decreased in 2000 versus
1999 primarily due to PTEK utilizing proceeds from the sale of a portion of its
holdings in WebMD to pay off obligations under a credit facility totaling
approximately $142.8 million. This credit facility was terminated at the time of
the pay off.
INTEREST INCOME
Interest income was $0.8 million, $1.1 million and $0.7 million in
2001, 2000 and 1999, respectively. Interest income remained primarily flat over
the course of the last three years with minor fluctuations due to average
outstanding balances of cash and cash equivalents and interest rate
fluctuations.
ASSET IMPAIRMENT AND OBLIGATIONS - INVESTMENTS
The Company, through its PtekVentures investment arm, made investments
in various companies engaged in emerging technologies related to the Internet.
These investments were classified as either cost or equity investments in
accordance with APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock." The Company has continually evaluated the carrying
value of its ownership interests in non-public investments in the PtekVentures
portfolio for possible impairment that is "other than temporary" based on
achievement of business plan objectives and current market conditions. The
business plan objectives the Company considered include, among others, those
related to financial performance such as achievement of planned financial
results, forecasted operating cash flows and completion of capital raising
activities, and those that are not primarily financial in nature such as the
development of technology or the hiring of key employees. The Company has
previously taken impairment charges on certain of these investments when it has
determined that an "other than temporary" decline in the carrying value of the
investment has occurred. Many Internet based businesses have experienced
difficulty in raising additional capital necessary to fund operating losses and
make continued investments that their management teams believe are necessary to
sustain operations. Valuations of public companies operating in the Internet
sector declined significantly during 2000 and 2001. During 2001, market
conditions declined for the non-public companies in the PtekVentures portfolio,
with certain of these companies filing for bankruptcy and subsequently being
liquidated. The remaining portfolio companies' financial performance and updated
financial forecasts for the near term led management to the conclusion that
there was an "other than temporary" decline in the carrying value of these
companies. Accordingly, the Company decided to exit the venture business and
cease future funding in its portfolio companies. As a result, the Company
recorded an impairment charge of approximately $29.2 million during the second
quarter of 2001 for the remaining carrying value of its non-public company
investment portfolio. During 2000, the Company made similar evaluations of the
portfolio companies and recorded approximately $15.0 million in impairments.
During the fourth quarter of 2001, one of the portfolio companies that
was previously impaired defaulted on its credit facility and lease obligation.
The Company had provided a stand by letter of credit on this credit facility and
is a guarantor of the lease obligation. Accordingly, an obligation expense for
these guarantees in the entire amount of $2.5 million has been recorded. During
the first quarter of 2002, the Company paid its commitment on the standby letter
of credit in the amount of $0.5 million.
Additionally, during the fourth quarter of 2001, the Company sold a
significant portion of its interest in PtekVentures for proceeds and a gain of
$0.2 million, primarily in the form of two notes that accrue interest at 5.05%
annually and are due in full on December 31, 2011. A third party appraisal was
performed to value the portfolio companies owned by PtekVentures. The purchaser
is primarily owned by two former executives of PtekVentures. The Company has
received an income tax refund of approximately $9.2 million from the capital
loss carryback associated with the sale of this
25
interest. This receivable is recorded as "Federal income tax receivable" on the
Consolidated Balance Sheets.
AMORTIZATION OF GOODWILL EQUITY INVESTMENTS
During the first quarter of 2001 and the latter half of 2000, the
Company amortized goodwill created by investments that were accounted for under
the equity method of accounting. The amount by which the Company's investment
exceeds its share of the underlying net assets is considered to be goodwill, and
is amortized over a three-year period. Amortization related to equity
investments totaled $1.6 million and $4.9 million in 2001 and 2000,
respectively, and is included in the Consolidated Statements of Operations as
"Amortization of goodwill-equity investments." The decline in amortization in
2001 is the result of full impairments to these investments during the second
quarter of 2001.
ADJUSTED EBITDA
Consolidated Adjusted EBITDA was $63.8 million or 15.1% of revenues in
2001, $68.7 million or 15.7% of revenues in 2000, and $52.4 million or 11.4% of
revenues in 1999.
. Xpedite Adjusted EBITDA was $48.5 or 22.5% of segment revenues,
$55.4 million or 24.1% of segment revenues, and $60.4 million or
25.3% of segment revenues in 2001, 2000, and 1999,
respectively. The decrease in Adjusted EBITDA in 2001 was
primarily related to a general revenue decline in the second
half of 2001 due to a decline in demand and price related to the
traditional store and forward fax service offerings as discussed
above in the Revenues section. These declines were offset
in part by reduced telecommunications costs per unit and a
rationalization in the workforce as it related to non-sales
force headcount. The continued weakness in revenues in the
second half of the year has reduced Adjusted EBITDA yields
below that of the full year Adjusted EBITDA yield, and management
anticipates that revenues will continue to decline in the first
half of 2002; however, management expects Adjusted EBITDA yields
to stabilize. The decrease in Adjusted EBITDA from 1999 to 2000
was primarily due to the strength of the U.S. dollar relative
to other global currencies, increased pricing pressure
related to Xpedite's store and forward fax services, and
increased investment in sales and marketing efforts associated
with the launch of new service offerings. Additionally, pricing
for Xpedite's real-time fax service offering in the Asia/Pacific
region deteriorated dramatically in 2000 compared to 1999,
contributing to the Adjusted EBITDA decline.
. Voicecom Adjusted EBITDA was $3.5 million or 3.8% of segment
revenues, $13.9 million or 11.6% of segment revenues and $14.7
million or 11.4% of segment revenues in 2001, 2000 and 1999,
respectively. From 2000 to 2001, Adjusted EBITDA declined by
$10.4 million primarily due to a decline in revenues in the
second half of 2001. Due to a significant portion of the
Voicecom network being fixed cost in nature, management took
action twice during 2001 to rationalize the workforce and
also took action to reduce fixed facility and network costs.
However, quarterly Adjusted EBITDA yields declined to nearly break
even by the fourth quarter of 2001 despite management's efforts to
reduce costs as revenue continued to decline. From 1999 to 2000,
Adjusted EBITDA margin remained flat as a percentage of revenue
primarily due to personnel cost reductions in the sales force
during late 1999 and 2000 as part of restructuring activities
taken in the fourth quarter of 1999. Also contributing were
declines in direct advertising costs associated with Orchestrate
and improved telecommunication costs per unit.
. Premiere Conferencing Adjusted EBITDA was $28.6 million or
24.8% of segment revenues, $13.7 million or 18.7% of segment
revenues and $9.0 million or 16.7% of segment revenues in
2001, 2000 and 1999, respectively. The increase in Adjusted
EBITDA in 2001 and 2000 was primarily driven by growth in
automated conferencing services, ReadyConference, which carry
higher margins than fully attended conferencing services,
and continued decreases in telecommunications costs per unit.
Management expects continued growth in revenue and Adjusted
EBITDA; however, Adjusted EBITDA yields are expected to remain
flat due to industry price pressure which will reduce average
revenue per minute, as well as additional cost associated with
international expansion.
. Retail Calling Card Adjusted EBITDA was $1.6 million or 11.7% of
segment revenues and $(5.8) million or (15.6)% of revenues in 2000
and 1999, respectively. The increase in Adjusted EBITDA is
attributable to (1) the exiting of unprofitable prepaid calling
card programs, (2) management's decision to discontinue its
unprofitable direct response advertising in in-flight magazines
for its Premiere Worldlink calling card and (3) management's
decision in 1999 to discontinue unprofitable direct response
advertising of its Premiere Worldlink calling card program with
its co- branding partners. In the third quarter of 1999,
management decided not to actively seek to acquire any new
customers in this segment because it determined that the cost of
acquiring such customers outweighed the revenues that these
customers could generate for the Company.
26
PTEK sold the revenue base associated with this operating segment
effective August 1, 2000.
. Corporate Adjusted EBITDA was $(16.8) million, $(15.7)
million and $(25.6) million or (4.0)%, (3.6)% and (5.6)% of
consolidated revenues in 2001, 2000 and 1999, respectively.
Costs associated with this segment are personnel, professional,
legal and travel costs associated with managing the holding
company, managing PtekVentures' investment portfolio and
exploring strategic initiatives. Costs remained relatively
flat from 2000 to 2001 despite reductions in headcount at
Corporate primarily due to additional professional costs
incurred primarily associated with weighing strategic options
for Voicecom, the restricted stock exchange and international
tax planning efforts. Costs declined $8.9 million from 1999 to
2000 as a result of the headcount reductions associated with the
fourth quarter 1999 decentralization plan executed on by
management. This plan was an initiative to reduce redundant
corporate costs associated with functions that each operating
segment could perform at a lower cost. See discussion in the
"Restructuring costs" section of Management's Discussion and
Analysis.
EFFECTIVE INCOME TAX RATE
In 2001, 2000 and 1999, the Company's effective income tax rate varied
from the statutory rate, primarily as a result of nondeductible goodwill
amortization and asset impairments associated with the Company's acquisitions in
1997 through 1999, which have been accounted for under the purchase method of
accounting. See Note 20--"Income Taxes" to the Notes to Consolidated Financial
Statements for additional information.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, the Company had $48.0 million of cash and cash
equivalents compared to $23.0 million at December 31, 2000. Cash balances
residing outside of the United States at December 31, 2001 was $14.5 million
compared to $16.5 million at December 31, 2000. Net working capital at December
31, 2001 was $13.1 million compared to $15.9 million at December 31, 2000. The
primary reason for this decline is an increase in the current portion of long
term debt related to capital lease obligations of approximately $5.9 million
entered into during 2001 primarily for network equipment financing at Voicecom
and a $6.5 million equipment term loan used primarily for network equipment
financing at Premiere Conferencing.
CASH PROVIDED BY OPERATING ACTIVITIES
Consolidated operating cash flows were $60.9 million, $17.9 million and
$9.9 million in 2001, 2000 and 1999, respectively. Excluding payments for
restructuring cost obligations and legal settlements, operating cash flows would
have been $68.0 million, $10.5 million and $18.9 million in 2001, 2000 and 1999,
respectively.
Increased operating cash flows of $57.5 million, as adjusted for
payments for restructuring costs and payments for or proceeds from net legal
settlements, from 2000 to 2001 are related to a net change in federal income
taxes paid of $16.4 million, $15.8 million associated with greater trade
receivable collection effectiveness and $30.5 million associated with more
effective management of vendor payables. During 2001, management focused on
reducing days sales outstanding by restructuring the collections function of the
Company to make it more effective and resulted in improved cash flows from trade
receivables. Additionally, management focused effort on timing the payment of
vendor payables more closely with the timing of customer receipts to bring both
days sales outstanding and days expenses in payables closer together. During
2001, gains from marketable securities were significantly less and therefore the
associated taxes declined. In addition, the Company received a $5.0 million tax
refund from its 2000 federal income tax filing. Decreased operating cash flows
of $8.4 million, as adjusted for payments for restructuring costs and payments
for or proceeds from net legal settlements, from 1999 to 2000 were primarily
attributable to $1.4 million of increased trade receivables due to timing of
collections, $17.1 million of federal income tax payments associated with gains
on sales of marketable securities, offset in part by improved Adjusted EBITDA
performance related to cost reduction initiatives that took place in late 1999
and early 2000 associated with the decentralization strategy of the Company.
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
Consolidated investing activities (used) provided cash of approximately
$(35.4) million, $(6.5) million and $107.2 million in 2001, 2000 and 1999,
respectively. The increase in cash used in investing activities of $(28.9)
million from 2000 to 2001 is related to decreased proceeds from the sale of
marketable securities of $(57.9) million, reduced capital expenditures of $6.6
million, reduced investments in PtekVentures' portfolio companies of $30.0
million and increased acquisitions of business assets of $(3.2) million. At
December 31, 1999, the Company had $86.6 million of marketable securities,
available for sale primarily in shares of WebMD and S-1 Corporation. At
December 31, 2000, sales of the investments had reduced the amount available for
sale to $6.7 million. At December 31, 2001, the Company had $1.5 million
27
of WebMD shares available for sale. The proceeds from these sales were used
primarily to fund PtekVentures' investments, certain capital needs of the
operating segments and to buy back stock of the Company. Reduced investments in
PtekVentures' portfolio companies was attributable to the overall market value
decline in Internet based businesses in 2001 which triggered management's
decision to exit this business. Reduced capital expenditures are primarily
related to reduced capital spending primarily at the Voicecom operating segment,
offset in part by increased capital spending at Premiere Conferencing. The
reduced capital spending at Voicecom was attributable to substantial declines in
revenue during the second half of the year that contributed to substantial
declines in operating cash flows. The decrease in cash flows from investing
activities of $(113.7) million from 1999 to 2000 was primarily related to $154.4
million of proceeds from the initial sale of WebMD shares the Company held
during the fourth quarter of 1999. These proceeds were used for the repayment
and termination of its revolving loan facility with the Bank of New York on
December 15, 1999.
Cash used in financing activities
Consolidated financing activities used cash of approximately $(0.3)
million, $(2.4) million and $(120.9) million in 2001, 2000 and 1999,
respectively. The Company's financing activities in 2001 included principal
payments under borrowing arrangements of $(3.0) million, proceeds from borrowing
arrangements of $6.5 million, shares of the Company repurchased of $(3.1)
million and issuance of shareholder notes of $(0.8) million. Principal payments
under borrowing arrangement were primarily attributable to capital lease
obligations at Voicecom and Xpedite and an equipment term loan at Premiere
Conferencing. Proceeds from borrowing arrangements of $6.5 million are
associated with an equipment term loan at Premiere Conferencing. Additional
capital lease obligations and term loans obligations entered into during 2001
were approximately $12.4 million and are discussed in the "Commitment and
Contingencies" section of this discussion and analysis. The primary purpose of
these obligations were to fund the network consolidation of Voicecom, buildout
of Xpedite's new corporate headquarters and to provide capital for growth at the
Premiere Conferencing operating segment. The Company has acquired approximately
1.1 million shares of its stock under the stock repurchase program in 2001. The
shareholder notes receivable issued during 2001 were for prior year taxes on
Company stock option exercises by the CEO. The Company's financing activities in
2000 included $3.3 million from the Company's purchase of approximately 1.2
million shares of its stock under a stock repurchase program, issuance of a note
to the CEO for $2.8 million to pay for taxes on Company stock option exercises
and reduction of $3.2 million of debt. The debt payments included $1.2 million
in foreign loans at Xpedite, $1.8 million in notes payable assumed by the
Company in connection with the Voice-Tel and VoiceCom Systems acquisitions and
$0.2 million in debt at Premiere Conferencing. Offsetting the cash used in
financing activities were proceeds from stock options totaling $6.9 million. The
Company's principal financing activity in 1999 was the repayment and termination
of its revolving loan facility on December 15, 1999. This loan facility was paid
off with proceeds from the sale of 3.5 million shares of its investment in
WebMD. The proceeds from this sale were approximately $154.4 million.
28
Commitments and contingencies
At December 31, 2001, the Company had the following contractual
obligations. The Company is primarily obligated under capital leases for
networking equipment, operating leases for network facilities and operating
segment headquarters, convertible subordinated notes due on July 1, 2004,
semiannual interest payments on the convertible subordinated notes, WebMD
co-marketing agreement installment payment, stand by letter of credit associated
with its investment in Webforia, lease guaranty in association with its
investment in Webforia and telecommunications contractual minimum purchase
agreements. The following table displays contractual obligations as of December
31, 2001 (in thousands):
Payments due by period
--------------------------------------------------------------------
Years ended December 31,
--------------------------------------------------------------------
Total
amounts There-
Contractual obligation committed 2002 2003 2004 2005 2006 after
---------------------- --------------------------------------------------------------------------------
Capital lease obligations................ $ 9,192 $ 4,211 $ 3,591 $1,390
Operating leases......................... 72,154 12,966 10,873 9,023 $ 8,247 $ 7,102 $23,943
Convertible subordinated notes........... 172,500 172,500
Annual interest on convertible
subordinated notes................... 24,797 9,919 9,919 4,959
Restructuring Costs...................... 3,728 3,728
United Missouri Bank equipment term
loan................................. 6,553 2,808 2,808 937
Webforia obligations..................... 2,500 2,500
WebMD co-marketing agreement............. 1,000 1,000
Telecommunications supply agreements..... 21,700 1,500 8,000 6,500 - 5,700 -
Notes payable............................ 207 207
--------------------------------------------------------------------------------
$314,331 $38,839 $35,191 $195,309 $ 8,247 $12,802 $23,943
================================================================================
Capital Resources
On September 30, 2001, the Company entered into a term equipment loan
with United Missouri Bank. The loan proceeds of $6.5 million were used for
equipment purchases associated with the Premiere Conferencing operating segment.
The term of the loan is thirty months and the interest rate is the prime rate of
United Missouri Bank. At December 31, 2001, that rate was 6.0%. The loan is
collateralized by certain fixed assets of the Company. The loan agreement
contains certain covenants that are usual and customary. At December 31, 2001,
the Company was in compliance with all covenants. At December 31, 2001, amounts
outstanding on this term loan were $6.1 million.
During 2001, the Company entered into five capital lease obligations in
the aggregate amount of $5.9 million. The interest rates implied in these
capital leases are both fixed and variable in nature and on average yield
approximately 7.7% interest. The leases were to fund the network equipment used
in consolidating and upgrading Voicecom's voice messaging network and for
headquarter expansion at Xpedite. The terms of these capital leases range from
36 to 60 months. During 2000, the Company entered into a capital lease for $2.5
million with a term of 39 months and an implied rate of interest of 10.8%. This
capital lease was used to fund network equipment in Voicecom's voice messaging
network in anticipation of a network upgrade in 2001 and consolidation of this
network over 2001 through 2002. Five of the leases were transferred with the
sale of the Voicecom business unit. See Subsequent Events section of
Management's Discussion and Analysis above.
On September 29, 2000, the Company entered into a credit agreement (the
"Agreement") for a one-year revolving credit facility with ABN AMRO Bank N.V.
(the "Bank" or "Agent"). The Agreement provides for borrowings of up to $20.0
million, and is subject to certain covenants that are usual and customary for
credit agreements of this nature. The commitment to provide revolving credit
loans under the Agreement terminates 364 days from September 29, 2000, subject
to extension. The Company extended the agreement at September 30, 2001 for 364
days. The agreement was amended to provide for borrowings up to $13.5 million
and is subject to certain covenants that are usual and customary for credit
agreements of this nature. Amounts outstanding under the Agreement on the
expiration date may, at the option of the Company, either be paid in full or
converted to a one-year term loan payable in four equal quarterly installments.
Proceeds drawn under the Agreement may be used for capital expenditures, working
capital, acquisitions, investments, refinancing of existing indebtedness, and
other general corporate purposes. The annual interest rate applicable to
borrowings under the
29
Agreement is, at the Company's option, (i) the Agent's Base Rate plus 1.25
percent or (ii) the Euro Rate (LIBOR) plus 3.50 percent. Amounts committed but
not drawn under the Agreement are subject to a commitment fee equal to 0.50
percent per annum. At December 31, 2001, no amounts were outstanding under the
Agreement. The Company terminated the Agreement on March 26, 2002 in connection
with the sale of its Voicecom business unit.
In July 1997, the Company issued convertible subordinated notes
("Convertible Notes") of $172.5 million that mature on July 1, 2004 and bear
interest at 5-3/4%. The Convertible Notes are convertible at the option of the
holder into common stock at a conversion price of $33 per share, through the
date of maturity, subject to adjustment in certain events. Beginning in July
2000, the Convertible Notes were redeemable by the Company at a price equal to
103% of the conversion price, declining to 100% at maturity with accrued
interest. The annual interest commitment associated with these notes is $9.9
million and is paid semiannually on July 1 and January 1 of each year.
Liquidity
As of December 31, 2001, the Company had $48.0 million of cash and cash
equivalents, $1.5 million of marketable securities, available for sale and
availability on its line of credit with ABN AMRO of $13.5 million. The Company
generated positive operating cash flows from each of its operating segments for
the year ended December 31, 2001. Each operating segment reported positive
Adjusted EBITDA for the year ended December 31, 2001. With the exception of the
Voicecom operating segment, each operating unit had sufficient cash flows from
operations to fund capital expenditure requirements and to service existing debt
obligations of the Company. During the fourth quarter of 2001, the Voicecom
operating segment had substantial revenue and Adjusted EBITDA declines. The
Company sold the Voicecom operating segment on March 26, 2002. See "Subsequent
Events" in Management's Discussion and Analysis above for further information
regarding this sale. Management believes growth in operating cash flows of the
Conferencing operating segment into the foreseeable future will be adequate to
offset declines in operating cash flows from the Xpedite operating segment.
Management believes that the Company will generate adequate operating cash flows
for capital expenditure needs and contractual commitments for at least the next
12 months.
RESTRICTED STOCK EXCHANGE OFFER
On November 29, 2001, the Company filed with the Securities and
Exchange Commission ("SEC") a Tender Offer Statement on Schedule TO relating to
an offer by the Company to purchase from its employees and directors (and one
former employee who was serving as a consultant to the Company) certain
outstanding stock options having an exercise price of more than $3 per share in
exchange for restricted shares of the Company's common stock at an exchange
ratio of one share of restricted stock for each 2.5 options surrendered (the
"Offer to Purchase"). A third party consultant was used in determining the
exchange ratio. On December 28, 2001, the Offer to Purchase was completed, and
the Company accepted for purchase options exercisable for approximately 6.0
million shares of common stock, and issued approximately 2.4 million shares of
restricted stock in exchange for the options tendered. The restricted stock
generally is subject to the same vesting schedule as the tendered options, and
is subject to a 12-month blackout period during which time the restricted stock
may not be sold except to pay withholding taxes or in the case of financial
hardship.
In accordance with FASB Interpretation No. 44, "Accounting For Certain
Transactions Involving Stock Compensation--An Interpretation of APB Opinion No.
25," the Company recorded approximately $2.1 million as unearned compensation
for the intrinsic value of the restricted stock on the effective date of the
Offer to Purchase, calculated using the closing price of the Company's common
stock on December 28, 2001. The unearned compensation will be amortized to
"Equity based compensation" expense over the vesting period of the restricted
stock.
In addition, approximately 890,000 options that were eligible to be
exchanged for restricted stock pursuant to the Offer to Purchase were not
tendered. These options will be subject to variable accounting until such
options are exercised, are forfeited, or expire unexercised. These options have
exercise prices ranging from $5.32 to $29.25. At December 31, 2001, no charge
was recorded because the exercise price of each of the options was greater than
the market value of the Company's common stock.
30
RELATED PARTY TRANSACTIONS
The Company has in the past entered into agreements and arrangements
with certain officers, directors and principal shareholders of the Company.
Notes receivable - shareholder
The Company has advanced loans to the CEO of the Company and a limited
partnership in which he has an indirect interest. These loans were made pursuant
to the CEO's employment agreement for the exercise price of certain stock
options and the taxes related thereto. Each of these loans is evidenced by a
recourse promissory note bearing interest at the applicable Federal rate and
secured by the common stock purchased. These loans mature between 2007 and 2010.
These loans are recorded in the equity section of the balance sheet under the
caption "Notes receivable, shareholder". At December 31, 2001, the aggregate
amount of these loans was $4.6 million.
Use of airplane
During 2001, 2000 and 1999, the Company leased the use of an airplane
from a limited liability company that is owned 99% by the Company's CEO and 1%
by the Company. In connection with this lease arrangement, the Company has
incurred costs of $2.2 million, $1.8 million and $1.1 million in 2001, 2000 and
1999, respectively, to pay the expenses of maintaining and operating the
airplane.
Loans associated with restricted shares in former affiliates
During the second quarter of 1999, the Company awarded restricted share
grants to the CEO, COO and certain other officers of Company owned shares held
in certain investments in affiliates. For a full discussion of these loans see
"Loans and note forgiveness associated with restricted shares in former
affiliates and related taxes" under Equity Based Compensation in Management's
Analysis and Discussion above.
Strategic co-marketing arrangement
The Company has a strategic co-marketing arrangement with WebMD, a
former affiliate. The terms of the agreement provide for WebMD to make an annual
minimum commitment of $2.5 million for four years to purchase the Company's
products. The Company in turn is obligated to purchase portal rights from WebMD
for $4 million over four years to assist in marketing its products. Under this
agreement, which expires on February 17, 2003, the Company recognized revenue of
approximately $2.5 million, $2.5 million and $2.1 million in 2001, 2000 and
1999, respectively. WebMD also subleased floor space in the Company's
headquarters for approximately $0.7 million in each of the three years ended
December 31, 2001, 2000 and 1999.
CRITICAL ACCOUNTING POLICIES
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" are based upon the Company's consolidated financial
statements and the notes thereto, which have been prepared in accordance with
generally accepted accounting principles in the United States. The preparation
of these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. On an ongoing basis, management evaluates its estimates and judgments,
including those related to revenue recognition, allowance for uncollectible
accounts, goodwill and other intangible assets, income taxes, investments,
restructuring costs and legal contingencies.
Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. There can be no assurance that actual results will not differ
from those estimates.
The Company has identified the policies below as critical to its
business operations and the understanding of its results of operations. For a
detailed discussion on the application of these and other accounting policies,
see Note 1 to the Consolidated Financial Statements.
31
Revenue recognition. The Company recognizes revenues when persuasive
evidence of an arrangement exists, services have been rendered, the price to the
buyer is fixed or determinable, and collectibility is reasonably assured.
Revenues consist of fixed monthly fees, usage fees generally based on per minute
or transaction rates, and service initiation fees. Deferred revenue consists of
payments made by customers in advance of the time services are rendered. The
Company's revenue recognition policies are consistent with the guidance in Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," as amended by SAB No. 101A and 101B.
Should changes in conditions cause management to determine these
criteria are not met for certain future transactions, revenue recognized for any
reporting period could be adversely affected.
Allowance for uncollectible accounts receivable. Prior to the
recognition of revenue, the Company makes a decision that collectibility is
reasonably assured. Over time, management analyzes accounts receivable balances,
historical bad debts, customer concentrations, customer creditworthiness,
current economic trends, and changes in the Company's customer payment terms and
trends when evaluating the adequacy of the allowance for uncollectible accounts
receivable. Significant management judgment and estimates must be made and used
in connection with establishing the allowance for uncollectible accounts
receivable in any accounting period. The accounts receivable balance was $58.6
million, net of allowance for uncollectible accounts receivable of $8.3 million,
as of December 31, 2001.
If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment to their ability to make payments,
additional allowances may be required.
Goodwill and other intangible assets. Purchase accounting requires
extensive use of accounting estimates and judgments to allocate the purchase
price to the fair market value of the assets and liabilities purchased. The
Company evaluates acquired businesses for potential impairment indicators
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors that management considers important which could
trigger an impairment review include the following:
- Significant decrease in the market value of an asset;
- Significant changes in the manner of use of the acquired
assets or the strategy for the overall business;
- Significant adverse change in legal factors or negative industry
or economic trends;
- Significant underperformance relative to current period and/or
projected future operating profits or cash flows associated with
an asset;
- Significant decline in the Company's stock price for a sustained
period; and
- Our market capitalization relative to net book value.
When the Company determines that the carrying value of long-lived
assets, intangibles and related goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment, the Company
recognizes an impairment loss when the sum of undiscounted expected future cash
flow is less than the carrying value of such assets. The impairment loss, if
applicable, is then calculated based on the fair value or sum of the discounted
cash flows compared to the carrying value. The discounted cash flow method uses
a discount rate determined by management to be commensurate with the risk
inherent in the Company's current business model. See the "Asset impairments"
section of "Management's Discussion and Analysis" above for a discussion of
impairments recorded during 2001. Net intangible assets, long-lived assets and
goodwill amounted to $144.9 million as of December 31, 2001.
In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," became effective and as a result, the
Company will cease to amortize approximately $123.1 million of goodwill. The
Company recorded approximately $67.4 million of goodwill amortization during
2001. In lieu of amortization, the Company is required to perform an initial
impairment review of its goodwill in 2002 and an annual impairment review
thereafter. Other intangible assets with finite lives that do not meet the
criteria of SFAS No. 142 will continue to be amortized in accordance with the
adoption of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." This pronouncement became effective in 2002. This
amortization is based on the estimated useful lives of the underlying business
or underlying assets.
Future events could cause us to conclude that impairment indicators
exist and that goodwill associated with our acquired businesses is impaired. Any
resulting impairment loss could have a material adverse impact on our financial
condition and results of operations.
32
Income taxes. As part of the process of preparing the Company's consolidated
financial statements the Company is required to estimate its taxes in each of
the jurisdictions of operation. This process involves management estimating the
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included within the consolidated balance sheets. The Company must then assess
the likelihood that the deferred tax assets will be recovered from future
taxable income and to the extent we believe that recovery is not likely, the
Company must establish a valuation allowance. To the extent the Company
establishes a valuation allowance or increases this allowance in a period, an
expense is recorded within the tax provision in the consolidated statement of
operations.
Significant management judgment is required in determining the
Company's provision for income taxes, its deferred tax assets and liabilities
and any valuation allowance recorded against our net deferred tax assets. The
net deferred tax asset as of December 31, 2001 was $20.7 million, net of a
valuation allowance of $28.2 million. The Company has recorded the valuation
allowance due to uncertainties related to its ability to utilize some of the
deferred tax assets, primarily consisting of certain net operating losses
carried forward and foreign tax credits, before they expire. The valuation
allowance is based on the Company's estimates of taxable income by jurisdiction
in which it operates and the period over which the deferred tax assets will be
recoverable.
In the event that actual results differ from these estimates or the
Company adjusts these estimates in future periods, the Company may need to
establish an additional valuation allowance that could materially impact the
Company's financial condition and results of operations.
The Company also records a provision for certain international, federal
and state tax contingencies based on the likelihood of obligation, when needed.
In the normal course of business, the Company is subject to challenges from U.S.
and non-U.S. tax authorities regarding the amount of taxes due. These challenges
may result in adjustments of the timing or amount of taxable income or
deductions or the allocation of income among tax jurisdictions. Management
believes the Company has appropriately accrued for tax exposures. It the Company
is required to pay an amount exceeding its provisions, the financial impact will
be reflected in the period in which the matter is resolved. In the event that
actual results differ from these estimates, the Company may need to adjust tax
provisions which could materially impact its financial condition and results of
operations.
Investments. The Company has historically made investments in various
companies that are engaged in emerging technologies related to the Internet.
Either the cost or equity method is used to account for these investments in
accordance with Accounting Principles Board ("APB") Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock." In addition, the Company
has investments in equity securities of companies with readily determinable fair
values accounted for in accordance with FASB SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 mandates that a
determination be made of the appropriate classification for equity securities
with a readily determinable fair value and all debt securities at the time of
purchase and re-evaluation of such designation as of each balance sheet date.
The Company records an investment impairment charge when it believes an
investment has experienced a decline in value that is other than temporary. See
the "Asset impairments and obligations - investments" section of Management's
Discussion and Analysis" above for a discussion of investment impairments
recorded during 2001 and 2000. Total investments, in the form of marketable
securities available for sale, as of December 31, 2001 were $1.5 million.
Future adverse changes in market conditions could result in losses or
an inability to recover the carrying value of the investments that may not be
reflected in an investment's current carrying value, thereby possibly requiring
an impairment charge in the future.
Restructuring costs. The restructuring accruals are based on certain
estimates and judgments related to contractual obligations and related costs.
The restructuring accruals related to contractual lease obligations could be
materially affected by factors such as the Company's ability to secure
sublessees, the creditworthiness of sublessees and the success at negotiating
early termination agreements with lessors.
In the event that actual results differ from these estimates, the
Company may need to establish additional restructuring accruals or reverse
accrual amounts accordingly.
Legal contingencies. The Company is currently involved in certain legal
proceedings as disclosed in Item 3, "Legal Proceedings," of this report.
Management has accrued an estimate of the probable costs for the resolution of
these claims. This estimate has been developed in consultation with outside
counsel handling these matters and is based upon an analysis of potential
results, assuming a combination of litigation and settlement strategies.
33
The Company does not believe these proceedings will have a material
adverse effect upon the Company's business, financial condition or results of
operations, although no assurance can be given as to the ultimate outcome of any
such proceedings.
The above listing is not intended to be a comprehensive list of all of
the Company's estimates and judgments or accounting policies. In may cases, the
accounting treatment of a particular transaction is specifically dictated by
generally accepted accounting principles, with no need for management's judgment
in their application. There are also areas in which management's judgment in
selecting any available alternative would not produce a materially different
result. See the audited consolidated financial statements and notes thereto
which contain accounting policies and other disclosures required by generally
accepted accounting principles.
NEW ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long- Lived Assets." SFAS No. 144 establishes
accounting and reporting standards for the impairment and disposition of long-
lived assets, and is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company will be required to adopt SFAS
No. 144 for the fiscal year beginning January 1, 2002, and is currently
evaluating this standard and the impact it will have on the consolidated
financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." It addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. The liability is accreted to its present value each
period while the cost is depreciated over its useful life. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company will be required to adopt SFAS No. 143 for the fiscal year
beginning January 1, 2002, and is currently evaluating this standard and the
impact it will have on the consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill
and Other Intangible Assets." It requires that goodwill and certain intangible
assets will no longer be subject to amortization, but instead will be subject to
a periodic impairment assessment by applying a fair value based test. The
Company's required adoption date is January 1, 2002. Adoption of SFAS No. 142
will have a material effect on the Company's results of operations due to the
cessation of goodwill amortization on January 1, 2002. The balance of goodwill
is $123.1 million as of December 31, 2001. Management anticipates that
amortization associated with other intangibles at December 31, 2001 for 2002
will be approximately, $11.0 million. The Company will be required to adopt SFAS
No. 142 for the fiscal year beginning January 1, 2002, and is currently
evaluating this standard and the impact it will have on the consolidated
financial statements.
In June 2001, the FASB issued SFAS No. 141, "Accounting for Business
Combinations." It requires that all business combinations initiated after June
30, 2001, be accounted for using the purchase method. This statement will be
effective for any business combinations that the Company may enter into in the
future.
34
FACTORS AFFECTING FUTURE PERFORMANCE
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES WE DESCRIBE BELOW
BEFORE INVESTING IN PTEK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT
THE ONLY RISKS AND UNCERTAINTIES THAT COULD DEVELOP. OTHER RISKS AND
UNCERTAINTIES THAT WE HAVE NOT PREDICTED OR EVALUATED COULD ALSO AFFECT OUR
COMPANY. IF ANY OF THE FOLLOWING RISKS OCCUR, OUR BUSINESS, FINANCIAL CONDITION
OR RESULTS OF OPERATIONS COULD BE MATERIALLY AFFECTED, AND THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE, RESULTING IN THE LOSS OF ALL OR PART OF YOUR
INVESTMENT.
RISKS RELATED TO OUR INDUSTRY
The markets for our products and services are intensely competitive and we may
not be able to compete successfully against existing and future competitors,
which may make it difficult to maintain or increase our market share and
revenue.
The markets for our products and services are intensely competitive and
we expect competition to increase in the future. Many of our current and
potential competitors have longer operating histories, greater name recognition,
more robust product offerings, more comprehensive support organizations, larger
customer bases and substantially greater financial, personnel, marketing,
engineering, technical and other resources than we do. As a result, our
competitors may be able to respond more quickly than we can to new or emerging
technologies and changes in customer demands, and they may also be able to
devote greater resources than we can to the development, promotion and sale of
their products and services. We believe that our current competitors are likely
to expand their product and service offerings and that new competitors are
likely to enter our markets. Existing and new competitors may attempt to
integrate their products and services, resulting in greater competition.
Increased competition could result in price pressure on our products and
services and a decrease in our market share in the various markets in which we
compete, either of which could hinder our ability to grow our revenue.
The development of alternatives to our products and services may cause us to
lose customers and market share and may hinder our ability to maintain or grow
our revenue.
The market for our products and services is characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. We expect new products and services, and enhancements to existing
products and services, to be developed and introduced that will compete with our
products and services. Technological advances may result in the development and
commercial availability of alternatives to our products and services or new
methods of delivering our products and services. Companies may develop and offer
product features, service offerings or pricing options which are more attractive
to customers than those currently offered by us. These new products or services,
or methods of delivering these products or services could, among other things:
. cause our existing products and services to become obsolete;
. be more cost-effective, which could result in significant
pricing pressure on our products and services; or
. allow our existing and potential customers to meet their own
telecommunications needs without using our services.
Technological changes that make our products obsolete, or changes in technology
that allow competitors to offer products and services that replace our existing
products and services could cause us to lose customers, market share and
revenue.
If new products and services that we develop and introduce are not accepted in
the marketplace, we may lose market share and our revenue may decrease.
We must continually introduce new products and services in response to
technological changes, evolving industry standards and customer demands for
enhancements to our existing products and services. We will not be able to
increase our revenue if we are unable to develop new products and services, or
if we experience delays in the introduction of new products and services, or if
our new products and services do not achieve market acceptance. Our ability to
successfully develop and market new products and services and enhancements that
respond to technological changes, evolving industry standards or customer
demands, is dependent on our ability to:
35
. anticipate changes in industry standards;
. anticipate and apply advances in technologies;
. enhance our software, applications, equipment, systems and
networks;
. attract and retain qualified and creative technical personnel;
. develop effective marketing, pricing and distribution
strategies for new products and services; or
. avoid difficulties that could delay or prevent the successful
development, introduction and marketing of new products and
services or enhancements.
We are subject to pricing pressures for our products and services, which could
cause us to lose market share and revenue.
We compete for consumers based on price. A decrease in the rates
charged for communications services by our competitors could cause us to reduce
the rates we charge for our products and services. If we cannot compete based on
price, we may lose market share. If we reduce our rates without increasing our
margins or our market share, our revenue could decrease.
Consolidation in the telecommunications industry could lead to pricing pressure
on our products and services and could be disruptive to our licensing and
strategic relationships.
The telecommunications industry has experienced, and we believe it will
continue to experience, consolidation. Consolidation in the telecommunications
industry, including consolidations involving our customers, competitors,
strategic partners and licensing partners, could lead to pricing pressure on our
products and services and could be disruptive to our licensing and strategic
relationships.
RISKS RELATED TO OUR COMPANY
Our future success depends on market acceptance of our new products and
services, which includes messageREACH and ReadyConference.
Market acceptance of our new products and services often requires that
individuals and enterprises accept new ways of communicating and exchanging
information. A decline in the demand for, or the failure to achieve broad market
acceptance of, our new products and services could hinder our ability to
maintain and increase our revenue. We believe that broad market acceptance of
our new products and services will depend on several factors, including:
. ease of use;
. price;
. reliability;
. access and quality of service;
. system security;
. product functionality; and
. the effectiveness of strategic marketing and distribution
relationships.
If we do not met these challenges, our new products and services may not achieve
broad market acceptance or market acceptance may not occur quickly enough to
justify our investment in these products and services.
36
Concerns regarding security of transactions and transmitting confidential
information over the Internet may have an adverse impact on the market
acceptance of our Web-enabled products and services.
The concern regarding the security of confidential information
transmitted over the Internet may prevent many potential customers from using
Internet related products and services. If our Web-enabled services, such as
messageREACH, do not include sufficient security features, our Web-enabled
products and services may not gain market acceptance, or there may be additional
legal exposure. Despite the measures we have taken, our infrastructure is
potentially vulnerable to physical or electronic break-ins, viruses or similar
problems. If a person circumvents our security measures, he or she could
misappropriate proprietary information or cause interruption in our operations.
Security breaches that result in access to confidential information could damage
our reputation and expose us to a risk of loss or liability. We may be required
to make significant investments in efforts to protect against and remedy these
types of security breaches. Additionally, as electronic commerce becomes more
widespread, our customers will become more concerned about security. If we are
unable to adequately address these concerns, we may be unable to sell our
Web-enabled products and services.
If our quarterly results do not meet the expectations of public market analysts
and investors, our stock price may decrease.
Quarterly revenue is difficult to forecast because the market for our
services is rapidly evolving. Our expense levels are based, in part, on our
expectations as to future revenue. If revenue levels are below expectations, we
may be unable or unwilling to reduce expenses proportionately and operating
results would likely be adversely affected. As a result, we believe that
period-to-period comparisons of our results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Due to all of the risk factors listed herein, it is likely that in some future
quarter our operating results will be below the expectations of public market
analysts and investors. In this event, the market price of our common stock will
likely decline.
Our operating results have varied significantly in the past and may
vary significantly in the future. Specific factors that may cause our future
operating results to vary include:
. the unique nature of strategic relationships into which we may
enter in the future;
. the financial performance of our strategic partners;
. changes in operating expenses;
. the reliability and performance of our products and services;
. the timing of new product and service announcements;
. market acceptance of new and enhanced versions of our products and
services;
. the success or failure of past or potential future acquisitions;
. changes in legislation and regulations that may affect the
competitive environment for our products and services; and
. general economic and seasonal factors.
We do not typically have long-term contractual agreements with our customers and
our customers may not transact business with us in the future.
We expect that the information and telecommunications services markets
will continue to attract new competitors and new technologies, possibly
including alternative technologies that are more sophisticated and cost
effective than our technologies. We do not typically have long-term contractual
agreements with our customers, and our customers may not continue to transact
business with us in the future if, among other things, any of the following
occur:
. our products and services become obsolete;
. competitors develop products and services that are more
sophisticated, efficient or cost-effective; or
. technological advances allow our customers to satisfy their own
telecommunications needs.
37
One of our customers accounts for a significant amount of revenue and any loss
of business from that customer may hurt our financial performance and cause our
stock price to decline.
We have historically relied on sales through a particular Conferencing
customer for a significant portion of our revenue. Sales to that customer
accounted for approximately 8% of consolidated revenue (29% of Conferencing
revenue) in 2001, 4% of consolidated revenue (21% of Conferencing revenue) in
2000, and 3% of consolidated revenue (22% of Conferencing revenue) in 1999.
Conferencing's relationship with that customer may not continue at historical
levels, and there is no long-term price protection for services provided to that
customer. A loss in revenue from that customer or diminution in the relationship
with that customer, or a decrease in average sales price without an offsetting
increase in volume, could hurt our financial performance and cause our stock
price to decline.
If we do not attract and retain highly qualified and creative technical and
support personnel we may not be able to sustain or grow our business.
We believe that to be successful we must hire and retain highly
qualified and creative engineering, product development and customer support
personnel. Competition in the recruitment of highly qualified and creative
personnel in the information and telecommunications services industry is
intense. We have in the past experienced, and we expect to continue to
experience, difficulty in hiring and retaining highly skilled technical
employees with appropriate qualifications. We may not be able to retain our key
technical employees and we may not be able to attract qualified personnel in the
future. If we are not able to locate, hire and retain qualified technical
personnel, we may not be able to sustain or grow our business.
Our business may suffer if we do not retain the services of our chief executive
officer.
We believe that our continued success will depend to a significant
extent upon the efforts and abilities of Boland T. Jones, our Chairman and Chief
Executive Officer. The familiarity of Mr. Jones with the markets in which we
compete and emerging technologies, such as the Internet, makes him especially
critical to our success. We maintain key man life insurance on Mr. Jones in the
amount of $3.0 million.
Downtime in our network infrastructure could result in the loss of significant
customers.
We currently maintain facilities with telecommunications equipment that
routes telephone calls and computer telephony equipment in locations throughout
the world. The delivery of our products and services is dependent, in part, upon
our ability to protect the equipment and data at our facilities with
telecommunications equipment that routes telephone calls against damage that may
be caused by fire, power loss, technical failures, unauthorized intrusion,
natural disasters, sabotage and other similar events. Despite taking a variety
of precautions, we have experienced downtime in our networks from time to time
and we may experience downtime in the future. These types of service
interruptions could result in the loss of significant customers, which could
cause us to lose revenue. We take substantial precautions to protect ourselves
and our customers from events that could interrupt delivery of our services.
These precautions include physical security systems, uninterruptible power
supplies, on-site power generators, upgraded backup hardware, fire protection
systems and other contingency plans. In addition, some of our networks are
designed so that the data on each network server is duplicated on a separate
network server. We also maintain business interruption insurance providing for
aggregate coverage of approximately $115 million per policy year. However, we
may not be able to maintain this insurance in the future, it may not continue to
be available at reasonable prices, and it may not be sufficient to compensate us
for losses that we experience due to our inability to provide services to our
customers.
38
If we fail to predict growth in our network usage and add needed capacity, then
the quality of our service offerings may suffer.
As network usage grows, we will need to add capacity to our hardware
and software, and our facilities with telecommunications equipment that route
telephone calls. This means that we continuously attempt to predict growth in
our network usage and add capacity accordingly. If we do not accurately predict
and efficiently manage growth in our network usage, the quality of our service
offerings may suffer and we may lose customers.
Our inability to efficiently utilize or renogotiate minimum purchase
requirements in our telecommunications supply agreements could decrease our
profitability.
Our ability to maintain and expand our business depends, in part, on
our ability to continue to obtain telecommunications services on favorable terms
from telecommunicatons service providers. Contracts with two of our
telecommunications service providers contain minimum purchase requirements
through 2006. The total amount of the minimum purchase requirements in 2001 was
approximately $7.0 million, of which we incurred metered telecommunications
costs in excess of these minimums. It is possible that other suppliers may
provide similar services at lower prices and we may not be able to renegotiate
our current supply agreements to achieve comparable lower rates. Further, we can
give no assurance that we will be able to utilize the minimum amount of services
that we are required to purchase under these agreements. If we are unable to
obtain telecommunications services on favorable terms, or if we are required to
purchase more services than we are able to utilize in running our business, the
costs of providing our services would likely increase, which could decrease our
profitability and have a material adverse effect on our business, financial
condition and results of operations.
Software failures or errors may result in failure of our platforms and/or
networks, which could result in increased costs and lead to interruptions in our
services and losses of significant customers and revenue.
The software that we have developed and utilized in providing our
products and services may contain undetected errors. Although we generally
engage in extensive testing of our software prior to introducing the software
onto any of our networks and/or product equipment, errors may be found in the
software after the software goes into use. Any of these errors may result in
partial or total failure of our networks, additional and unexpected expenses to
fund further product development or to add programming personnel to complete a
development project, and loss of revenue because of the inability of customers
to use our networks or the cancellation of services by significant customers. We
maintain technology errors and omissions insurance coverage of $50.0 million per
policy aggregate. However, we may not be able to maintain this insurance or it
may not continue to be available at reasonable prices. Even if we maintain this
insurance, it may not be sufficient to compensate us for losses we experience
due to our inability to provide services to our customers.
Interruption in long distance telecommunications services could result in
service interruptions and a loss of significant customers and revenue.
Our ability to maintain and expand our business depends, in part, on
our ability to continue to obtain telecommunication services on favorable terms
from long distance carriers. We do not own a transmission network. As a result,
we depend on WorldCom, AT&T and other long distance carriers for transmission of
our customers' long distance calls. These long distance telecommunications
services generally are procured under supply agreements with multiyear terms,
some of which are subject to various early termination penalties and minimum
purchase requirements. We have not experienced significant losses in the past
due to interruptions of long-distance service, but we might experience these
types of losses in the future.
The partial or total loss of our ability to receive or terminate telephone calls
could result in service interruptions and a loss of significant customers and
revenue.
We depend on local phone companies that provide local transmission
services, known as local exchange carriers, as well as companies that purchase
and resell local transmission services, known as competitive local exchange
carriers, for call origination and termination. The partial or total loss of the
ability to receive or terminate calls could result in service interruptions and
a loss of significant customers and revenue. We have not experienced significant
losses in the past due to interruptions of service at terminating carriers, but
we might experience these types of losses in the future.
39
If we have to relocate our equipment or change our network transmission
provider, we could experience interruptions in our services and increased costs,
which could cause us to lose customers.
We lease capacity on the WorldCom communications network to provide
network connections and data transmission within our private frame relay
network. Our telecommunications agreement with WorldCom expires on December 31,
2004. We have equipment co-located at various WorldCom sites under co-location
agreements that are terminable by either party upon 30 days written notice. Our
ability to maintain network connections is dependent upon our access to
transmission facilities provided by WorldCom or an alternative provider. We may
not be able to continue our relationship with WorldCom beyond the terms of our
current agreements and we may not be able to find an alternative provider on
terms as favorable as those offered by WorldCom or on any other terms. If we
have to relocate our equipment or change our network transmission provider, we
could experience interruptions in our service and/or increased costs, which
could adversely effect our customer relationships and customer retention.
Any significant difficulty obtaining equipment could lead to interruption in
service and loss of customers and revenue, and technological obsolescence of our
equipment could result in substantial capital expenditures.
We do not manufacture equipment used in providing our products and
services, and this equipment is currently available from a limited number of
sources. Although we have not historically experienced any significant
difficulty in obtaining equipment required for our operations and believe that
viable alternative suppliers exist, shortages may arise in the future or
alternative suppliers may not be available. Our inability to obtain equipment in
the future could result in delays or reduced delivery of messages, which could
lead to a loss of customers and revenue. In addition, technological advances may
result in the development of new equipment and changing industry standards,
which could cause our equipment to become obsolete. These events could require
us to invest significant capital in upgrading or replacing our equipment.
Our debt could harm our liquidity and ability to obtain additional financing,
and could make us more vulnerable to economic downturns and competitive
pressures. To service our debt, we will require a significant amount of cash,
and our ability to generate cash depends on many factors beyond our control.
In 1997, we incurred $172.5 million in indebtedness by issuing
convertible notes to the public. We have significant interest payment
obligations as a result of the convertible notes, and the convertible notes will
mature on July 1, 2004, at which time the full amount of the principal will be
due. In addition to the convertible notes, at December 31, 2001 the Company had
$6.3 million outstanding under its various credit facilities.
Our debt could inhibit our ability to obtain additional financing for
working capital, capital expenditures, interest payments, acquisitions or other
purposes and could make us more vulnerable to economic downturns and competitive
pressures. Our debt could also harm our liquidity, because a substantial portion
of available cash from operations may have to be applied to meet debt service
requirements. In the event of a cash shortfall, we could be forced to reduce
other expenditures and forego potential acquisitions and investments to be able
to meet these debt repayment requirements.
The Company's ability to make payments on and to refinance its
indebtedness and other liquidity needs will depend on its ability to generate
cash in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond the Company's control.
Based upon current levels of operations and continued cost saving
measures, the Company believes that cash flow from operations and other sources
of liquidity will be adequate to meet the Company's anticipated requirements for
working capital, capital expenditures, interest payments, acquisitions and other
purposes for at least the next 12 months. There can be no assurance, however,
that the Company's business will continue to generate cash flows from operations
at or above current levels or that anticipated cost savings will be realized.
Management cannot assure that the Company will generate sufficient cash
flow from operations to enable it to repay its indebtedness or to fund its other
liquidity needs. If the Company cannot generate sufficient cash flow from
operations in the future, the Company may need to refinance all or a portion of
its indebtedness on or before maturity. Management will likely seek strategic
alternatives or a refinancing arrangement to address the maturity of the
convertible notes on July 1, 2004. Management cannot assure, however, that the
Company will be able to timely refinance any of its indebtedness, including the
convertible notes, on commercially reasonable terms or at all.
40
Future write-downs of goodwill or other intangible assets could cause our
financial performance to suffer in future periods.
We adopted SFAS No. 142, "Accounting for Goodwill and Other Intangible
Assets," effective January 1, 2002. With the adoption of SFAS No. 142, we will
cease to amortize approximately $123.1 million of goodwill. In lieu of
amortization, we are required to perform an initial impairment review of our
goodwill in 2002 and an annual impairment review thereafter. These reviews could
result in impairment write-downs to goodwill and/or other intangible assets. At
December 31, 2001, the Company had $21.9 million of other intangible assets
reflected on our financial statements for which amortization will continue.
We could be required to make payments in the future in connection with the sale
of our Voicecom business unit.
In connection with the sale of our Voicecom business unit, we agreed to
retain certain liabilities relating to our operation of the unit, including
liabilities for certain taxes, contingent liabilities (including litigation
claims), and unknown liabilities (the "Excluded Liabilities"). As a result, we
could be required to make payments in the future related to the Excluded
Liabilities. In addition, the buyer assumed or subleased substantially all of
the real estate utilized by the Voicecom business unit. The buyer also
committed to buy certain telecommunications and other services and to manage and
utilize certain regulated and other assets held by our Voicecom business unit.
These obligations and liabilities payable to or on Voicecom's behalf (the
"Voicecom Liabilities") represent aggregate commitments over their term, to the
extent quantifiable, of approximately $13.2 million. There will be additional
amounts payable based on usage (such as telecommunications services) that we
cannot currently quantify. An affiliate of the buyer guaranteed the timely
payment of a substantial portion of the Voicecom Liabilities. Of the Voicecom
Liabilities, approximately $6.3 million of the underlying obligations are
guaranteed by us. Accordingly, in the event the buyer or buyer's affiliate fails
to make payments as required, we could be required to make significant payments
in the future.
Our Articles of Incorporation and Bylaws and Georgia corporate law may inhibit a
takeover, which may not be in the interests of shareholders.
There are several provisions in our Articles of Incorporation and
Bylaws and Georgia corporate law that may inhibit a takeover, even when a
takeover may be in the interests of our shareholders. For example, our Board of
Directors is empowered to issue preferred stock without shareholder action. The
existence of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of PTEK by means of a tender offer,
merger, proxy contest or otherwise. Our Articles of Incorporation also divide
the Board of Directors into three classes, as nearly equal in size as possible,
with staggered three-year terms. The classification of the Board of Directors
could make it more difficult for a third party to acquire control of PTEK
because only one-third of the Board is up for election each year. We are also
subject to provisions of the Georgia Business Corporation Code that relate to
business combinations with interested shareholders, which can serve to inhibit a
takeover. In addition to considering the effects of any action on us and our
shareholders, our Articles of
41
Incorporation permit our Board of Directors and the committees and individual
members of the Board to consider the interests of various constituencies,
including employees, customers, suppliers, and creditors, communities in which
we maintain offices or operations, and other factors which they deem pertinent,
in carrying out and discharging their duties and responsibilities and in
determining what is believed to be our best interests.
Our rights plan may also inhibit a takeover, which may not be in the interests
of shareholders.
In June 1998, our Board of Directors declared a dividend of one
preferred stock purchase right for each outstanding share of common stock. Each
right entitles the registered holder to purchase one one-thousandth of a share
of Series C junior participating preferred stock at a price of sixty dollars per
one-thousandth of a Series C preferred share, subject to adjustment. The rights
may have anti-takeover effects because they will cause substantial dilution to a
person or group that attempts to acquire us on terms not approved by our Board
of Directors. However, the rights should not interfere with any merger,
statutory share exchange or other business combination approved by the Board of
Directors since the rights may be terminated by the board of directors at any
time on or prior to the close of business ten business days after announcement
by us that a person has become an acquiring person. The rights are intended to
encourage persons who may seek to acquire control of us to initiate an
acquisition through negotiations with the board of directors. However, the
effect of the rights may be to discourage a third party from making a partial
tender offer or otherwise attempting to obtain a substantial equity position in
the equity securities of, or seeking to obtain control of, us.
RISKS RELATED TO PAST ACQUISITIONS
If we cannot successfully integrate and consolidate the operations of acquired
businesses into our operations, we may not realize sufficient cost savings and
economies-of-scale.
We are continuing to integrate the operations of several businesses
acquired in 1997 and 1998 by attempting to eliminate duplicative and unnecessary
costs. The successful integration and consolidation of the operations of
acquired businesses into our operations is critical to our future performance.
If we cannot successfully integrate and consolidate the operations of acquired
businesses with our operations on schedule or at all, these acquisitions may not
result in sufficient cost savings or economies-of-scale and operational
synergies may not develop. Potential challenges to the successful integration
and consolidation of the operations of acquired businesses include:
. consolidation of service centers and work forces;
. elimination of unnecessary costs; and
. integration and retention of new personnel.
If we cannot successfully integrate technologies, products, services and systems
from acquired businesses with ours, we may not generate sufficient revenue and
operational synergies may not develop.
We are continuing to integrate previously acquired technologies,
products, service offerings and systems. We have experienced and may continue to
experience difficulty integrating incompatible systems of acquired businesses
into our networks. As a result, our integration plans may materially change in
the future. If we cannot successfully integrate technologies, products, services
and systems from acquired businesses with ours, we may not generate sufficient
revenue and operational synergies may not develop. Challenges to the successful
integration of acquired technologies, products, service offerings and systems
include, among other things, the following:
. localization of our products and services;
. integration of technologies, telecommunications equipment and
networks;
. cross-selling of products and services to our customer base and
customer bases of acquired businesses; and
. compliance with regulatory requirements.
42
If we do not properly manage the growth we have experienced through
acquisitions, our administrative, technical and financial resources may be
strained, which could cause the quality of our products and services to suffer.
We have experienced substantial growth in revenue and personnel in
recent years, particularly in 1997 and early 1998, a substantial portion of
which has been accomplished through our acquisitions of Voice-Tel Enterprises,
Inc. and its related entities and franchisees, VoiceCom Systems, Inc., Xpedite
Systems, Inc. and American Teleconferencing Services Ltd. Our growth through
acquisitions has placed significant demands on all aspects of our business,
including our administrative, technical, and financial personnel and systems.
Additional expansion may further strain our administrative, technical,
financial, management and other resources. Our systems, procedures, controls and
existing space may not be adequate to support expansion of our operations. If we
are unable to do this, then the quality of our services may suffer, which will
make it difficult to grow or maintain our market share in the markets in which
we compete.
RISKS RELATED TO POSSIBLE FUTURE ACQUISITIONS
We intend to pursue future acquisitions and we may face risks in acquiring and
integrating other businesses, products and technologies.
We intend to pursue future acquisitions of businesses, products and
technologies that we believe will complement our business. As a result, we
regularly evaluate acquisition opportunities, frequently engage in acquisition
discussions, conduct due diligence activities in connection with possible
acquisitions, and, where appropriate, engage in acquisition negotiations. We may
not be able to successfully identify suitable acquisition candidates, complete
acquisitions, integrate acquired operations into our existing operations or
expand into new markets. In addition, we compete for acquisitions and expansion
opportunities with companies that have substantially greater resources and
competition with these companies for acquisition targets could result in
increased prices for possible targets. Acquisitions also involve numerous
additional risks to the company and investors, including:
. difficulties in the assimilation of the operations, services,
products and personnel of the acquired company;
. the diversion of our management's attention from other business
concerns;
. entry into markets in which we have little or no direct prior
experience;
. potentially dilutive issuances of equity securities;
. the assumption of known and unknown liabilities; and
. adverse financial impact from the write-off of software
development costs and the amortization of expenses related to
goodwill and other intangible assets.
If we fail to assimilate and retain key employees of future businesses we
acquire, it could jeopardize the success of the acquisition.
Assimilation and retention of the key employees of an acquired company
are generally important to the success of an acquisition. If we fail to
assimilate and retain any key employees of any business we acquire, the
acquisition may not result in revenue growth, operational synergies or product
and service enhancements, which could jeopardize the success of the acquisition.
Future acquisitions may involve restructuring and other special charges, which
may cause our financial performance to suffer during the period in which the
charge is taken.
We have taken, and in the future may take, charges in connection with
acquisitions, which may cause our financial performance to suffer during the
period in which the charge is taken. In addition, the costs and expenses
incurred may exceed the estimates upon which these charges are based.
43
RISKS RELATED TO INTELLECTUAL PROPERTY
We may not be able to protect our proprietary technology and intellectual
property rights, which could result in the loss of our rights or increased
costs.
We rely primarily on a combination of intellectual property laws and
contractual provisions to protect our proprietary rights and technology, brand
and marks. These laws and contractual provisions provide only limited protection
of our proprietary rights and technology. If we are not able to protect our
intellectual property and our proprietary rights and technology, we could lose
those rights and incur substantial costs policing and defending those rights.
Our proprietary rights and technology include confidential information and trade
secrets that we attempt to protect through confidentiality and nondisclosure
provisions in our licensing, services, reseller and other agreements. We
typically attempt to protect our confidential information and trade secrets
through these contractual provisions for the term of the applicable agreement
and, to the extent permitted by applicable law, for some negotiated period of
time following termination of the agreement, typically one to two years at a
minimum. Our means of protecting our intellectual property, proprietary rights
and technology may not be adequate and our competitors may independently develop
similar technology. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as the laws of the U.S.
Furthermore, some of our systems, such as those used in our document
distribution business are not proprietary and, as a result, this information may
be acquired or duplicated by existing and potential competitors.
If claims alleging patent, copyright or trademark infringement are brought
against us and successfully prosecuted against us, it could result in
substantial costs.
Many patents, copyrights and trademarks have been issued in the general
areas of information services and telecommunications, computer telephony, the
Internet and unified messaging, which allows a person to access all of their
messaging devices from a computer or telephone. From time to time, in the
ordinary course of our business, we have been and expect to continue to be,
subject to third party claims that our current or future products or services
infringe the patent, copyright or trademark rights or other intellectual
property rights of third parties. Claims alleging patent, copyright or trademark
infringement may be brought against us with respect to current or future
products or services. If these types of actions or claims are brought we may not
ultimately prevail and any claiming parties may have significantly greater
resources than we have to pursue litigation of these types of claims. Any
infringements claims, whether with or without merit, could:
. be time consuming and a diversion to management;
. result in costly litigation;
. cause delays in introducing new products and services or
enhancements,
. result in costly royalty or licensing agreements; or
. cause us to discontinue use of the challenged technology,
tradename or service mark at potentially significant expense
associated with the marketing of a new name or the development or
purchase of replacement technology.
EXAMPLES OF PRIOR AND CURRENT INFRINGEMENT CLAIMS INCLUDE THE FOLLOWING:
In February 1997, we entered into a long-term nonexclusive license
agreement with AudioFAX IP LLC settling a patent infringement suit filed by
AudioFAX in June 1996. Effective April 1, 1998, this initial license agreement
was amended to include Xpedite within the coverage of the license. In September
1997, one of our subsidiaries also entered into a long-term nonexclusive license
agreement with AudioFAX.
Prior to its acquisition by us, Xpedite received a letter from Cable &
Wireless, Inc. informing Xpedite that Cable & Wireless had received a demand
letter from AudioFAX claiming that some Cable & Wireless products and services
infringed AudioFAX's patent rights. Cable & Wireless initially sought
indemnification from Xpedite for this claim. Subsequent to our acquisition of
Xpedite, Cable & Wireless notified us of the AudioFAX claim and sought
indemnification directly from us. In 1999, Xpedite received an additional letter
from Cable & Wireless informing Xpedite of the existence of one of their patents
and the potential applicability of that patent on Xpedite's products and
services. In December 2000, we entered into a settlement agreement with Cable &
Wireless settling all disputes over the indemnification claim and potential
applicability of their patent to our products and services.
44
We have received letters from Ronald A. Katz Technology Licensing, L.P.
("Katz"), Aerotel Limited/Aerotel USA, Inc. and Nortel Networks, Inc., informing
us of the existence of their respective patents or patent portfolios and the
potential applicability of those patents on our products and services. We are
currently considering each of these matters. Due to the inherent uncertainties
of litigation, however, we are unable to predict the outcome of any potential
litigation, and any adverse outcome could have a material effect on our
business, financial condition and results of operations. Even if we were to
prevail in this type of challenge, our business could be adversely affected by
the diversion of management attention and litigation costs.
Certain of our customers have alleged that we are obligated to
indemnify them against patent infringement claims made by Katz against such
customers. We do not believe that we have an obligation to indemnify such
customers; however, due to the inherent uncertainties of litigation, we are
unable to predict the outcome of any potential litigation, and any adverse
outcome could have a material effect on our business, financial condition and
results of operations. Even if we were to prevail in this type of challenge, our
business could be adversely affected by the diversion of management attention
and litigation costs.
In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the
purported owner of certain patents, filed suit against the Company and PCI
alleging that they had violated claims in these patents and requesting damages
and injunctive relief. In the fourth quarter of 1999, the Company and PCI
entered into a settlement agreement with Aspect, which settled and disposed of
Aspect's claims in this litigation. This settlement did not and will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
RISKS RELATED TO PENDING LITIGATION
Our pending litigation could be costly, time consuming and a diversion to
management and, if adversely determined, could result in the loss of rights or
substantial liabilities for damages.
In the ordinary course of our business, we are subject to a variety of
claims and litigation from third parties, including allegations that our
products and services infringe the patents, trademarks and copyrights of these
third parties. We have several litigation matters pending, which we are
defending vigorously. Due to the inherent uncertainties of the litigation
process and the judicial system, we cannot predict the outcome of these
litigation matters. Regardless of the outcome, these litigation matters could be
costly, time consuming and a diversion of management and other resources. If the
outcome of one or more of these matters is adverse to us, it could result in a
loss of material rights or substantial liabilities for damages.
For detailed descriptions of our material pending litigation, see Item
3-- "Legal Proceedings."
Our pending shareholder litigation in the United States District Court for the
Northern District of Georgia could be costly, time consuming and a diversion to
management and, if adversely determined, could result in substantial
liabilities.
We and some of our officers and directors have been named as defendants
in multiple shareholder class action lawsuits filed in the United States
District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals (including a subclass of former Voice-Tel
franchisees and a subclass of former Xpedite shareholders) who purchased or
otherwise acquired our common stock between February 11, 1997 through June 10,
1998. Plaintiffs allege, among other things, violation of Sections 10(b), 14(a)
and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12 and 15 of
the Securities Act of 1933. We filed a motion to dismiss the complaint on April
14, 1999. On December 14, 1999, the court issued an order that dismissed the
claims under Section 10(b) and 20 of the Exchange Act without prejudice, and
dismissed the claims under Section 12(a)(1) of the Securities Act with
prejudice. The effect of this order was to dismiss from this lawsuit all
open-market purchases by the plaintiffs. The plaintiffs filed an amended
complaint on February 29, 2000. We filed a motion to dismiss on April 14, 2000,
which was granted in part and denied in part on December 8, 2000. We filed our
answer on January 8, 2001. On January 22, 2002, the Court ordered the parties to
mediate. The parties did so on February 8, 2002, and the mediation process is
continuing. Due to the inherent uncertainties of the litigation process and the
judicial system, we cannot predict the outcome of this litigation. Regardless of
the outcome, this matter could be costly, time consuming and a diversion to
management and other resources. If the outcome of this matter is adverse to us,
it could result in substantial damages.
A lawsuit was filed on November 4, 1998 against us, as well as
individual defendants Boland T. Jones, Patrick G. Jones, George W. Baker, Sr.,
Eduard J. Mayer and Raymond H. Pirtle, Jr. in the Southern District of New York.
Plaintiffs were shareholders of Xpedite who acquired our common stock as a
result of the merger between Premiere and Xpedite in February 1998. Plaintiffs'
allegations are based on the representations and warranties made by us in the
prospectus and the
45
registration statement related to the merger, the merger agreement and other
documents incorporated by reference, regarding our acquisitions of Voice-Tel and
VoiceCom Systems, our roll-out of Orchestrate, our relationship with customers
Amway Corporation and DigiTEC 2000, and our 800- based calling card service.
Plaintiffs allege causes of action against us for breach of contract, against
all defendants for negligent misrepresentation, violations of Sections 11 and
12(a)(2) of the Securities Act of 1933, and against the individual defendants
for violation of Section 15 of the Securities Act of 1933. Plaintiffs seek
undisclosed damages together with pre- and post- judgment interest, recission or
recissory damages as to violation of Section 12(a)(2) of the Securities Act of
1933, punitive damages, costs and attorneys' fees. The defendants' motion to
transfer venue to Georgia was granted. The defendants' motion to dismiss was
granted in part and denied in part. The defendants filed an answer on March 30,
2000. On January 22, 2002, the Court ordered the parties to mediate. The parties
did so on February 8, 2002, and the mediation process is continuing. Due to the
inherent uncertainties of the litigation process and the judicial system, we
cannot predict the outcome of this litigation. Regardless of the outcome, this
matter could be costly, time consuming and a diversion to management and other
resources. If the outcome of this matter is adverse to us, it could result in
substantial damages.
Our pending shareholder litigation in the Circuit Court of Jackson County,
Missouri could be costly, time consuming and a diversion to management and if
adversely determined, could result in substantial liabilities.
A lawsuit was filed on or about May 19, 2000 against us in the Circuit
Court of Jackson County, Missouri, alleging claims for breach of contract,
fraudulent misrepresentation, negligent misrepresentation, breach of duty of
good faith and fair dealings, unjust enrichment, and violation of Georgia and
Missouri blue sky laws. Plaintiff's claims arise out of our acquisition of
American Teleconferencing Services, Ltd. ("ATS") in April 1998. Plaintiff was a
shareholder of ATS who received shares of PTEK stock in the transaction. We
removed the case to the United States District Court for the Western District of
Missouri, and filed a Motion to Compel Arbitration, or Alternatively to
Transfer Venue, or Alternatively to Dismiss the Complaint. Plaintiff filed a
Motion to Remand the case back to state court. By order dated March 28, 2001,
the court granted plaintiff's Motion to Remand and dismissed as moot our motion
to Compel Arbitration, or Alternatively to Transfer Venue, or Alternatively to
Dismiss the Complaint. By Order dated July 25, 2001, the state court denied our
Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. This case is in discovery and is set
for trial in June 2002. Due to the inherent uncertainties of the litigation
process and the judicial system, we cannot predict the outcome of this
litigation. Regardless of the outcome, this matter could be costly, time
consuming and a diversion to management and other resources. If the outcome of
this matter is adverse to us, it could result in substantial damages.
RISKS RELATED TO GOVERNMENT REGULATION
U.S. or other government regulations and legal uncertainties related to the
Internet and electronic communications may place financial burdens on our
business related to compliance.
Currently, there are few laws or regulations directed specifically at
electronic commerce and the Internet. However, because of the Internet's
popularity and increasing use, new laws and regulations may be adopted. These
laws and regulations may cover issues such as collection and use of data from
Web site visitors and related privacy issues, pricing, content, copyrights, on-
line gambling, distribution and quality of goods and services. The enactment of
any additional laws or regulations may impede the growth of the Internet, which
could impede the growth of our Web-enabled products and services and place
additional financial burdens on our business in order to comply with new laws
and regulations.
Laws and regulations directly applicable to electronic commerce or
Internet communications are becoming more prevalent. For example, the United
States Congress has enacted laws regarding on-line copyright infringement and
the protection of information collected on-line from children. Although these
laws may not have a direct adverse effect on our business, they add to the legal
and regulatory uncertainty regarding the Internet and possible future costs of
regulatory compliance.
Our failure to comply with various government regulations related to long
distance and operator service could impair our ability to deliver our products
and services.
PCI, our operating subsidiary that provides regulated long distance
telecommunications services, is subject to regulation by the FCC and by various
state public service and public utility commissions, and is affected by
regulatory decisions, trends and policies made by these agencies. Various
international authorities may also seek to regulate the long distance services
provided by PCI. If PCI fails to comply with these various government
regulations, we could be prohibited from providing these services and we might
be subject to fines or forfeitures and civil or criminal penalties for
non-compliance.
46
PCI uses reasonable efforts to ensure that its operations comply with
these regulatory requirements. However, PCI may not be currently in compliance
with all FCC and state regulatory requirements. Furthermore, PCI's facilities do
not prevent its customers from making long distance calls in any state,
including states in which it currently is not authorized to provide intrastate
telecommunications services. PCI's provision of long distance telecommunications
services in states where it is not in compliance with public utility commission
requirements could result in prohibitions on providing long distance service and
subject us to fines or forfeitures and civil or criminal penalties for
noncompliance.
We may become subject to new laws and regulations involving services and
transactions in the areas of electronic commerce, which could increase costs of
compliance.
In conducting our business, we are subject to various laws and
regulations relating to commercial transactions generally, such as the Uniform
Commercial Code, and we are also subject to the electronic funds transfer rules
embodied in Regulation E promulgated by the Board of Governors of the Federal
Reserve System. Congress has held hearings regarding, and various agencies are
considering, whether to regulate providers of services and transactions in the
electronic commerce market. It is possible that Congress, the states or various
government agencies could impose new or additional requirements on the
electronic commerce market or entities operating therein. If enacted, these
laws, rules and regulations could be imposed on our business and industry and
could result in substantial compliance costs.
RISKS RELATED TO INTERNATIONAL OPERATIONS AND EXPANSION
Our future success depends on our expansion into international markets and
revenue from international operations may not grow enough to offset the cost of
expansion.
A component of our strategy is our planned expansion into international
markets. Revenue from international operations may not grow enough to offset the
cost of establishing and expanding these international operations. We currently
deliver multimedia messaging and conferencing services worldwide. While we have
significant international experience in the delivery of our multimedia messaging
services, we have only limited experience in marketing and distributing our
conferencing services. Accordingly, we may not be able to successfully market,
sell and deliver our conferencing services in the new international markets.
There are risks inherent in international operations that could hinder our
international growth strategy.
Our ability to achieve future success will depend in part on the
expansion of our international operations. There are difficulties and risks
inherent in doing business on an international level that could prevent us from
selling our products and services in other countries or hinder our expansion
once we have established international operations, including, among other
things, the following:
. burdensome regulatory requirements and unexpected changes in these
requirements;
. export restrictions and controls relating to technology;
. tariffs and other trade barriers;
. difficulties in staffing and managing international operations;
. longer payment cycles;
. problems in collecting accounts receivable;
. political and economic instability;
. fluctuations in currency exchange rates;
. seasonal reductions in business activity during the summer months
in Europe and other parts of the world; and
. potentially adverse tax consequences.
47
We could experience losses from fluctuations in currency exchange rates.
We conduct business outside the U.S. and some of our expenses and
revenue are derived in foreign currencies. In particular, a significant portion
of our multimedia messaging business is conducted outside the U.S. and a
significant portion of our revenue and expenses from that business are derived
in foreign currencies. Accordingly, we could experience material losses due to
fluctuations in foreign currencies. We have not experienced any material losses
from fluctuations in currency exchange rates, but we could in the future. We
typically denominate foreign transactions in foreign currency and have not
regularly engaged in hedging transactions, although we may engage in hedging
transactions from time to time in the future.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
and foreign currency exchange rates. The Company manages its exposure to these
market risks through its regular operating and financing activities. Derivative
instruments are not currently used and, if utilized, are employed as risk
management tools and not for trading purposes.
At December 31, 2001, no derivative financial instruments were
outstanding to hedge interest rate risk. A hypothetical immediate 10% increase
in interest rates would decrease the fair value of the Company's fixed rate
convertible subordinated notes outstanding at December 31, 2001 and 2000, by
$4.8 million and $6.2 million, respectively.
Approximately 26.5% and 27.6% of the Company's sales and 15.5% and
17.6% of its operating costs and expenses were transacted in foreign currencies
in 2001 and 2000, respectively. As a result, fluctuations in exchange rates
impact the amount of the Company's reported sales and operating income. A
hypothetical positive or negative change of 10% in foreign currency exchange
rates would positively or negatively change revenue for 2001 and 2000 by
approximately $11.2 million and $12.4 million and operating expenses for 2001
and 2000 by approximately $10.1 million and $10.9 million, respectively.
Historically, the Company's principal exposure has been related to local
currency sales, operating costs and expenses in Europe and Asia (principally the
United Kingdom, Germany and Japan). The Company has not used derivatives to
manage foreign currency exchange risk and no foreign currency exchange
derivatives were outstanding at December 31, 2001.
48
Item 8. Financial Statements and Supplementary Data
PTEK Holdings, Inc. and Subsidiaries Index to Consolidated Financial Statements
Report of Independent Accountants.............................................. 50
Report of Independent Public Accountants....................................... 51
Consolidated Balance Sheets, December 31, 2001 and 2000........................ 52
Consolidated Statements of Operations, Years Ended December 31, 2001, 2000 and
1999........................................................................... 53
Consolidated Statements of Shareholders' Equity, Years Ended December 31, 2001,
2000 and 1999.................................................................. 54
Consolidated Statements of Cash Flows, Years Ended December 31, 2001, 2000 and
1999........................................................................... 55
Notes to Consolidated Financial Statements..................................... 56
49
Report of Independent Accountants
To the Board of Directors and Shareholders of PTEK Holdings, Inc.:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statement of operations, shareholders' equity, and cash
flows present fairly, in all material respects, the financial position of PTEK
Holdings, Inc. and its subsidiaries at December 31, 2001, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
February 28, 2002, except for Note 23,
which is as of March 28, 2002.
50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PTEK Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of PTEK
Holdings, Inc. (a Georgia corporation) and subsidiaries as of December 31, 2000
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the years ended December 31, 2000 and 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PTEK Holdings, Inc. and
subsidiaries as of December 31, 2000 and the results of their operations and
their cash flows for the years ended December 31 2000 and 1999 in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 27, 2001
51
PTEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(in thousands, except share data)
ASSETS 2001 2000
---- ----
CURRENT ASSETS
Cash and cash equivalents............................................................... $ 48,023 $ 22,991
Marketable securities, available for sale............................................... 1,477 6,725
Accounts receivable (less allowances of $8,278 and $15,076, respectively)............... 58,613 66,927
Notes receivable - sale of revenue base................................................. -- 6,552
Federal income tax receivable........................................................... 9,208 --
Prepaid expenses and other current assets............................................... 7,982 8,904
Deferred income taxes, net.............................................................. 13,743 18,998
--------- ---------
Total current assets............................................................... 139,046 131,097
PROPERTY AND EQUIPMENT, NET.................................................................. 91,349 117,106
OTHER ASSETS.................................................................................
Investments............................................................................. -- 27,066
Goodwill, net of amortization........................................................... 123,066 294,186
Intangibles, net of amortization........................................................ 21,880 50,596
Deferred income taxes, net.............................................................. 6,923 --
Notes receivable-related parties........................................................ -- 5,184
Other assets............................................................................ 4,174 5,698
--------- ---------
$ 386,438 $ 630,933
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................................ $ 56,862 $ 48,953
Deferred revenue........................................................................ 452 540
Accrued taxes........................................................................... 16,031 13,436
Accrued expenses........................................................................ 42,733 42,910
Deferred gain - sale of revenue base.................................................... -- 6,552
Current maturities of long-term debt and capital lease obligations...................... 6,124 1,676
Accrued restructuring costs............................................................. 3,728 1,081
--------- ---------
Total current liabilities.......................................................... 125,930 115,148
--------- ---------
LONG-TERM LIABILITIES
Convertible subordinated notes.......................................................... 172,500 172,500
Long-term debt and capital lease obligations............................................ 8,552 4,586
Accrued expenses........................................................................ 424 1,429
Deferred income taxes, net.............................................................. -- 23,864
--------- ---------
Total long-term liabilities........................................................ 181,476 202,379
-------- ---------
COMMITMENTS AND CONTINGENCIES (Note 19)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 150,000,000 shares authorized, 56,984,575 and
51,316,880 shares issued in 2001 and 2000, respectively, and 53,584,639 and
49,067,244 shares
outstanding in 2001 and 2000, respectively.............................................. 569 513
Unrealized gain on marketable securities, available for sale............................ 722 2,316
Additional paid-in capital.............................................................. 597,885 581,474
Unearned restricted share compensation.................................................. (3,860) --
Treasury stock, at cost (3,399,936 and 2,249,636 shares for 2001 and 2000, respectively) (15,494) (12,398)
Notes receivable, shareholder........................................................... (4,593) (3,834)
Cumulative translation adjustment....................................................... (5,775) (6,363)
Accumulated deficit..................................................................... (490,422) (248,302)
--------- --------
Total shareholders' equity......................................................... 79,032 313,406
---------- ---------
$ 386,438 $ 630,933
========= =========
Accompanying notes are integral to these consolidated financial statements.
52
PTEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2000 and 1999
(in thousands, except share and per share data)
2001 2000 1999
---- ---- ----
Revenues........................................................................ $ 422,930 $ 436,935 $ 458,448
Telecommunications Costs........................................................ 102,808 115,440 129,691
--------- --------- ---------
Gross Profit.................................................................... 320,122 321,495 328,757
--------- --------- ---------
Direct Operating Costs.......................................................... 71,562 68,197 69,436
--------- --------- ---------
Contribution Margin............................................................. 248,560 253,298 259,321
--------- --------- ---------
Operating Expenses
Selling and marketing...................................................... 90,242 93,901 107,872
General and administrative................................................. 79,345 76,831 86,970
Research and development................................................... 15,190 13,831 12,100
Depreciation............................................................... 35,434 40,499 69,944
Amortization............................................................... 94,137 103,174 98,912
Restructuring costs........................................................ 10,637 (61) 7,980
Asset impairments.......................................................... 131,541 800 --
Equity based compensation.................................................. 20,429 2,102 13,624
Net legal settlements and related expenses................................. 2,331 (1,422) --
--------- --------- ---------
Total operating expenses................................................ 479,286 329,655 397,402
--------- --------- ---------
Operating Loss.................................................................. (230,726) (76,357) (138,081)
Other (Expense) Income
Interest expense........................................................... (12,083) (11,721) (25,475)
Interest income............................................................ 843 1,102 747
Gain on sale of marketable securities...................................... 2,971 59,550 152,094
Asset impairment and obligations - investments............................. (31,695) (14,984) --
Amortization of goodwill - equity investments.............................. (1,612) (4,930) --
Other, net................................................................. (1,861) (289) 12,522
--------- --------- ---------
Total other (expense) income............................................ (43,437) 28,728 139,888
--------- --------- ---------
(Loss) Income Before Income Taxes............................................... (274,163) (47,629) 1,807
Income Tax Expense (Benefit).................................................... (32,043) 11,237 35,298
--------- --------- ---------
Net Loss........................................................................ $(242,120) $ (58,866) $ (33,491)
========== ========= =========
Basic and Diluted Net Loss Per Share............................................ $ (4.84) $ (1.22) $ (0.72)
========== ========= =========
Weighted Average Shares Outstanding-Basic and Diluted........................... 49,998 48,106 46,411
========== ========= =========
Accompanying notes are integral to these consolidated financial statements.
53
PTEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
(in thousands)
Unrealized Unearned
Common Additional Note Gain on Restrictive
Stock Paid-In Receivable Treasury Accumulated Marketable Share
Issued Capital Shareholder Stock Deficit Securities Compensation
------ ------- ----------- ----- ------- ---------- ------------
BALANCE, December 31, 1998........ $469 $562,106 $(973) $(9,133) $ (155,945) $ -- $ --
Comprehensive Income (Loss):
Net loss.......................... -- -- -- -- (33,491) -- --
Translation adjustments........... -- -- -- -- -- -- --
Change in unrealized net gain
(loss) on marketable securities,
net of tax...................... -- -- -- -- -- 50,774 --
Comprehensive Income (Loss).......
Issuance of common stock:
Intellivoice acquisition.......... 6 4,437 -- -- -- -- --
Exercise of stock options......... 5 1,059 -- -- -- -- --
Employee stock purchase plan...... 1 480 -- -- -- -- --
Income tax benefit from exercise
of stock options................ -- 1,972 -- -- -- -- --
Issuance of shareholder note
receivable...................... -- -- (74) -- -- -- --
--- ------- ---- -------- ----------- -------- --------
BALANCE, December 31, 1999........ $ 481 $570,054 $(1,047) $(9,133) $ (189,436) $50,774 $ --
===== ======== ======= ======= ========== ======== ========
Comprehensive Income (Loss):
Net loss.......................... -- -- -- -- (58,866) -- --
Translation adjustments........... -- -- -- -- -- -- --
Change in unrealized net gain
(loss) on marketable
securities, net of tax.......... -- -- -- -- -- (48,458) --
Comprehensive Income (Loss).......
Issuance of common stock:
Exercise of stock options......... 24 6,869 -- -- -- -- --
Treasury stock purchase........... -- -- -- (3,265) -- -- --
401K plan match................... 3 1,605 -- -- -- -- --
Employee stock purchase plan...... 5 1,373 -- -- -- -- --
Income tax benefit from exercise
of stock options................ -- 1,573 -- -- -- -- --
Issuance of shareholder note
receivable...................... -- -- (2,787) -- -- --
-- ---------- ------- --------- ----------- ------ --------
BALANCE, December 31, 2000........ $513 $581,474 $(3,834) $(12,398) $ (248,302) $2,316 $ --
==== ======== ======== ========= =========== ====== ======--
Comprehensive Income (Loss):
Net loss.......................... -- -- -- -- (242,120) -- --
Translation adjustments........... -- -- -- -- -- -- --
Change in unrealized net gain
(loss) on marketable securities,
net of tax...................... -- -- -- -- -- (1,594) --
Comprehensive Income (Loss).......
Issuance of common stock:
Exercise of stock options......... 1 10 -- -- -- -- --
Treasury stock purchase........... -- -- (3,096) -- -- --
401K plan match................... 11 1,584 -- -- -- -- --
Employee stock purchase plan...... 5 794 -- -- -- -- --
Restricted stock issued........... 38 11,316 -- -- -- -- (3,860)
Stock options issued for severance -- 1,871 -- -- -- -- --
Stock options and warrants for
service......................... 568 -- -- -- -- --
Stock issued for accrued legal
settlement...................... 1 268 -- -- -- -- --
Issuance of shareholder note
receivable...................... -- -- (759) -- -- -- --
--- ---------- ------ -------- ---------- ----- --------
BALANCE, December 31, 2001........ $569 $597,885 $(4,593) $(15,494) $(490,422) $ 722 $(3,860)
======== ========== =========== ========= ========== ===== ========
Cumulative Total
Translation Shareholders'
Adjustment Equity
---------- ------
BALANCE, December 31, 1998...... $ 1,269 $397,793
Comprehensive Income (Loss):
Net loss........................ -- (33,491)
Translation adjustments......... (742) (742)
Change in unrealized net gain 50,774
------
(loss) on marketable
securities, net of tax........ --
Comprehensive Income (Loss)..... 16,541
------
Issuance of common stock:
Intellivoice acquisition........ -- 4,443
Exercise of stock options....... -- 1,064
Employee stock purchase plan.... -- 481
Income tax benefit from exercise
of stock options.............. -- 1,972
Issuance of shareholder note
receivable.................... -- (74)
---- --------
BALANCE, December 31, 1999...... $527 $422,220
==== ========
Comprehensive Income (Loss):
Net loss........................ -- (58,866)
Translation adjustments......... (6,890) (6,890)
Change in unrealized net gain (48,458)
--------
(loss) on marketable
securities, net of tax........ --
Comprehensive Income (Loss)..... (114,214)
---------
Issuance of common stock:
Exercise of stock options....... -- 6,893
Treasury stock purchase......... -- (3,265)
401K plan match................. -- 1,608
Employee stock purchase plan.... -- 1,378
Income tax benefit from exercise
of stock options.............. -- 1,573
Issuance of shareholder note
receivable.................... -- (2,787)
-------- ---------
BALANCE, December 31, 2000...... $(6,363) $ 313,406
======== =========
Comprehensive Income (Loss):
Net loss........................ -- (242,120)
Translation adjustments......... 588 588
Change in unrealized net gain
(loss) on marketable securities, -- (1,594)
-------
net of tax Comprehensive
Income (Loss)................. (243,126)
---------
Issuance of common stock:
Exercise of stock options....... -- 11
Treasury stock purchase......... -- (3,096)
401K plan match................. -- 1,595
Employee stock purchase plan.... -- 799
Restricted stock issued......... -- 7,494
Stock options issued for severance. -- 1,871
Stock options and warrants for
service......................... -- 568
Stock issued for accrued legal
settlement...................... -- 269
Issuance of shareholder note
receivable................ -- (759)
-------- -----
BALANCE, December 31, 2001...... $(5,775) $ 79,032
======== ========
Accompanying notes are integral to these consolidated financial statements.
54
PTEK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999
(in thousands)
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...................................................................... $(242,120) $(58,866) $(33,491)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation.................................................................. 35,434 40,499 69,944
Amortization.................................................................. 94,137 103,174 98,912
Gain on sale of marketable securities, available for sale..................... (2,971) (59,550) (152,094)
Net legal settlements and related expenses.................................... 2,331 (1,422) --
(Payments) proceeds related to legal settlements and related expenses......... (1,613) 12,000 --
Loss on disposal of property and equipment.................................... -- -- 597
Deferred income taxes......................................................... (25,532) (9,162) 31,520
Restructuring costs........................................................... 10,637 (61) 7,980
Payments for restructuring costs.............................................. (5,542) (4,556) (8,927)
Equity based compensation..................................................... 20,429 2,102 13,624
Asset impairments............................................................. 131,541 800 --
Asset impairment and obligations - investments................................ 31,695 14,984 --
Amortization of goodwill - investments........................................ 1,612 4,930 --
Federal income tax receivable................................................. (9,208) -- --
Changes in assets and liabilities:
Accounts receivable, net................................................... 10,016 (5,827) (7,251)
Prepaid expenses and other................................................. 3,865 3,195 (9,627)
Accounts payable and accrued expenses...................................... 6,194 (24,311) (1,260)
--------- -------- --------
Total adjustments...................................................... 303,025 76,795 43,418
--------- -------- --------
Net cash provided by operating activities.............................. 60,905 17,929 9,927
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.......................................................... (28,485) (35,046) (44,205)
Proceeds from disposal of property and equipment.............................. -- 1,937 --
Sale of marketable securities................................................. 5,196 63,092 175,060
Acquisitions.................................................................. (5,828) (2,623) (20,949)
Investments................................................................... (3,791) (33,806) (10,089)
Other......................................................................... (2,497) (20) 7,399
--------- -------- --------
Net cash (used in) provided by investing activities........................ (35,405) (6,466) 107,216
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under borrowing arrangements............................... (2,960) (3,236) (121,914)
Proceeds from long term borrowing arrangements................................ 6,500 -- --
Purchase of treasury stock, at cost........................................... (3,096) (3,265) --
Exercise of stock options..................................................... 11 6,894 1,064
Issuance of shareholder note receivable....................................... (759) (2,787) (74)
--------- -------- --------
Net cash used in financing activities...................................... (304) (2,394) (120,924)
--------- -------- --------
Effect of exchange rate changes on cash and equivalents............................... (164) (1,444) (79)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS....................................... 25,032 7,625 (3,860)
CASH AND CASH EQUIVALENTS, beginning of period........................................ 22,991 15,366 19,226
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of period.............................................. $ 48,023 $ 22,991 $ 15,366
========= ======== ========
Accompanying notes are integral to these consolidated financial statements.
55
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS BUSINESS
PTEK Holdings, Inc., a Georgia corporation, and its subsidiaries
(collectively the "Company" or "PTEK"), is a global provider of communications
and data services, including conferencing (audio conference calling and Web-
based collaboration), multimedia messaging (high-volume fax, e-mail, wireless
messaging and voice message delivery), IVR (interactive voice response),
network based voice messaging and unified personal communications (advanced
personal communications management systems that integrate voice mail, e-mail and
fax messaging). Through a series of acquisitions from September 1996 through
September 1999, PTEK has assembled a suite of communications and data services,
an international private data network and points-of-presence in regions covering
North America, Asia/Pacific and Europe. The Company operates three decentralized
operating business units -- Xpedite, Voicecom and Premiere Conferencing. The
Voicecom business unit was sold on March 26, 2002. See Note 23--"Subsequent
Events."
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
Preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Financial statement line items that include significant
estimates consist of Goodwill, net; Intangibles, net; Restructuring costs;
income tax balances and the allowance for uncollectible accounts receivable.
Changes in the facts or circumstances underlying these estimates could result in
material changes and actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and highly liquid
investments with a maturity at date of purchase of three months or less.
MARKETABLE SECURITIES, AVAILABLE FOR SALE
The Company follows Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 mandates that a
determination be made of the appropriate classification for equity securities
with a readily determinable fair value and all debt securities at the time of
purchase and a re-evaluation of such designation as of each balance sheet date.
At December 31, 2001 and 2000, investments consisted primarily of common stock.
Management considers all such investments as "available for sale." Common stock
investments are carried at fair value based on quoted market prices. Unrealized
holding gains and losses, net of the related income tax effect are excluded from
earnings and are reported as a separate component of shareholders' equity until
realized. Realized gains and losses are included in earnings and are derived
using the specific identification method for determining the cost of the
securities sold.
INVESTMENTS
The Company has made investments in various companies that are engaged
in emerging technologies related to the Internet. Either the cost or equity
method is used to account for these investments in accordance with Accounting
Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock." Based on the Company's ownership interest, the
consolidation method is not used for any investments.
56
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COST METHOD
The cost method of accounting is used for any investment in which the
Company owns less than 20% and does not exercise significant influence.
Significant influence is generally determined by, but not limited to,
representation on the affiliate's Board of Directors, voting rights associated
with the Company's holdings in common, preferred and other convertible
instruments in the affiliate, and any legal obligations. As there is no quoted
market price for these investments and the Company owns less than 20%, the
investment is carried at cost unless circumstances suggest that an impairment
should be recognized.
EQUITY METHOD
Affiliated companies in which the Company owns 50% or less of the
equity ownership, but over which significant influence is exercised, are
accounted for using the equity method of accounting. The amount by which the
Company's investment exceeds its share of the underlying net assets is
considered to be goodwill, and is amortized over a three-year period.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
under the straight-line method over the estimated useful lives of the assets,
commencing when the assets are placed in service. The estimated useful lives are
five to seven years for furniture and fixtures, two to five years for software
and three to ten years for computer and telecommunications equipment. The cost
of installed equipment includes expenditures for installation. Assets recorded
under capital leases and leasehold improvements are depreciated over the shorter
of their useful lives or the term of the related lease.
RESEARCH AND DEVELOPMENT
The Company incurs research and development costs primarily related to
developing enhancements and new service features and are expensed as incurred.
GOODWILL
Goodwill represents the excess of the cost of businesses acquired over
fair value of net identifiable assets at the date of acquisition and has
historically been amortized using the straight-line method over various lives up
to 7 years. The Company amortized the goodwill of its non-public equity
investments in its PtekVentures' portfolio over a three-year useful life until
the second quarter of 2001, at which time the Company wrote off the remaining
carrying value of such investments. The amortization is included in
"Amortization of goodwill equity investments" and the write off is included in
"Asset impairment and obligation investments" in the accompanying consolidated
statements of operations. See Note 5--"Investments."
VALUATION OF LONG-LIVED ASSETS
Management evaluates the carrying values of long-lived assets when
significant adverse changes in the economic value of these assets requires an
analysis, including property and equipment, goodwill and other intangible
assets. A long-lived asset is considered impaired when undiscounted cash flows
or fair value, whichever is more readily determinable, to be realized from such
asset is less than its carrying value. In that event, a loss is determined based
on the amount the carrying value exceeds the discounted cash flows or fair value
of such asset. Management believes that long-lived assets in the accompanying
consolidated balance sheets are appropriately valued at December 31, 2001 and
2000. The Company also continually evaluates the carrying value of its equity
and cost investments for possible impairment. See Note 5-- "Investments" and
Note 11--"Asset Impairments."
EQUITY BASED COMPENSATION PLANS
As permitted under the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
is recorded for stock based awards (other than restricted share awards) issued
at market value at the date such awards are granted. The Company makes pro forma
disclosures of net loss and net loss per share as if the market value method was
57
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
followed. See Note 16--"-Equity Based Compensation Plans."
REVENUE RECOGNITION
The Company recognizes revenues when persuasive evidence of an
arrangement exists, services have been rendered, the price to the buyer is fixed
or determinable, and collectibility is reasonably assured. Revenues consist of
fixed monthly fees, usage fees generally based on per minute or transaction
rates, and service initiation fees. Deferred revenue consists of payments made
by customers in advance of the time services are rendered. The Company's revenue
recognition policies are consistent with the guidance in Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," as
amended by SAB 101A and 101B.
INCOME TAXES
The provision for income taxes and corresponding balance sheet accounts
are determined in accordance with Statement of Financial Accountings Standards
No. 109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred
tax liabilities and assets are determined based on temporary differences between
the basis of certain assets and liabilities for income tax and financial
reporting purposes. In addition to net operating loss carryforwards which are
reasonably assured of being utilized. These differences are primarily
attributable to differences in the recognition of depreciation and amortization
of property, equipment and intangible assets. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates applicable to
future years in which the deferred tax assets or liabilities are expected to be
settled or realized. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
Basic net loss per share is computed by dividing net loss available to
common shareholders by the weighted-average number of common shares outstanding
during the period. The weighted average number of common shares outstanding does
not include unvested restricted shares related to the option exchange for
restricted stock during 2001. These shares, although classified as issued and
outstanding at December 31, 2001, are considered contingently returnable until
the restriction lapses and will not be included in the basic net income (loss)
per share calculation until the shares are vested. Diluted net income (loss) per
share gives effect to all potentially dilutive securities. The Company's
convertible subordinated notes, unearned restricted shares and stock options are
potentially dilutive securities during 2001 with the convertible subordinated
notes and stock options being potentially dilutive securities during 2000 and
1999, respectively. All potentially dilutive securities have been excluded from
the computation of dilutive net income (loss) per share for all periods
presented because the effect would have been antidilutive. Such potentially
dilutive securites as of December 31, 2001 consist of the following:
Convertible subordinated notes.............. 5,227,273
Unvested restricted shares.................. 1,214,591
Stock options outstanding................... 10,264,433
----------
16,706,297
==========
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of subsidiaries domiciled outside the United
States are translated at rates of exchange existing at the balance sheet date.
Revenues and expenses are translated at average rates of exchange prevailing
during the year. The resulting translation adjustments are recorded in the
"Cumulative translation adjustment" component of shareholders' equity.
TREASURY STOCK
Treasury stock transactions are recorded at cost.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents the change in equity of a
business during a period, except for investments by owners and distributions to
owners. Cumulative translation adjustments and unrealized gains on
available-for-sale marketable securities represent the Company's components of
other comprehensive (loss) at December 31, 2001 and 2000.
58
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2001, 2000 and 1999, total comprehensive income
(loss) was approximately $(243.1) million, $(114.2) million and $16.5 million,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long- Lived Assets." SFAS No. 144 establishes
accounting and reporting standards for the impairment and disposition of long-
lived assets, and is effective for financial statements issued for fiscal years
beginning after December 15, 2001. The Company will be required to adopt SFAS
No. 144 for the fiscal year beginning January 1, 2002, and is currently
evaluating this standard and the impact it will have on the consolidated
financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." It addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. The liability is accreted to its present value each
period while the cost is depreciated over its useful life. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company will be required to adopt SFAS No. 143 for the fiscal year
beginning January 1, 2002, and is currently evaluating this standard and the
impact it will have on the consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, "Accounting for Goodwill
and Other Intangible Assets." It requires that goodwill and certain intangible
assets will no longer be subject to amortization, but instead will be subject to
a periodic impairment assessment by applying a fair value based test. The
Company's required adoption date is January 1, 2002. Adoption of SFAS No. 142
will have a material effect on the Company's results of operations due to the
cessation of goodwill amortization on January 1, 2002. The balance of goodwill
is $123.1 million as of December 31, 2001. Management anticipates that
amortization associated with other intangibles at December 31, 2001 will be
approximately $11.0 million in 2002. In lieu of amortization, the Company is
required to perform an initial impairment review of the Company's goodwill in
2002 and an annual impairment review thereafter. The Company is required to
adopt SFAS No. 142 for the fiscal year beginning January 2002 and is currently
evaluating this standard and the impact it will have on the Consolidated
Financial Statements.
In June 2001, the FASB issued SFAS No. 141, "Accounting for Business
Combinations." It requires that all business combinations initiated after June
30, 2001, be accounted for using the purchase method. This statement will be
effective for any business combinations that the Company may enter into in the
future.
RECLASSIFICATIONS
Certain prior year amounts in the Company's consolidated financial
statements have been reclassified to conform to the 2001 presentation.
On January 1, 2001, management responsibility for international
conferencing and voice messaging services was transferred from Xpedite to
Premiere Conferencing and Voicecom, respectively. Prior to that date, these
international revenues were reported in the Xpedite operating segment. Beginning
January 1, 2001, these international revenues have been reported in the Premiere
Conferencing and Voicecom operating segments. In order to report comparable
operating segment financial results, certain financial information for years
prior to 2001 has been reclassified in Management's Discussion and Analysis to
reflect the pro forma effect of this management change.
59
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RESTRUCTURING COSTS
Consolidated restructuring costs for the years ended December 31, 2001,
2000 and 1999 are as follows (in thousands):
Accrued Reversal
Costs at 1999 of
December 31, Charge To Costs Accrued
Consolidated 1998 Operations Incurred Costs
- ------------ ---- ---------- -------- -----
Accrued restructuring costs:
Severance and exit costs.............. $4,836 $7,320 $(6,540) $ --
Contractual obligations............... 417 708 (1,006) (119)
Other................................. 1,392 200 (1,381) (129)
----- --- -------- ------
Total Restructuring costs............... $6,645 $8,228 $(8,927) $(248)
------ ------ -------- ------
Reversal of charge...................... $(248)
------
Restructuring costs -
statement of operations............... $7,980
======
Accrued Reversal Accrued
Costs at 2000 of Costs at 2001
December Charge To Costs Accrued December Charge To
Consolidated 31, 1999 Operations Incurred Costs 31, 2000 Operations
- ------------ -------- ---------- -------- ----- -------- ----------
Accrued restructuring costs:
Severance and exit costs.......... $ 5,616 $ 197 $(4,474) $(641) $ 698 $ 8,843
Contractual obligations........... -- 290 -- -- 290 1,756
Other............................. 82 93 (82) -- 93 222
------- ----- -------- ------ ------- -------
Total Restructuring costs........... $ 5,698 580 $(4,556) $(641) $ 1,081 $10,821
------- ----- -------- ------ ------- -------
Reversal of charge.................. $(641) $(184)
------ -------
Restructuring costs - statement
of operations.................... $ (61) $10,637
====== =======
Reversal Accrued
of Costs at
Costs Non Cash Accrued December
Consolidated Incurred Costs Costs 31, 2001
- ------------ -------- ----- ----- --------
Accrued restructuring costs:
Severance and exit costs.......... $(4,814) $(2,059) $ -- $2,668
Contractual obligations........... (663) (386) (109) 888
Other............................. (65) (3) (75) 172
---- --- ---- ---
Total Restructuring costs........... $(5,542) $(2,448) $(184) $3,728
======== ======== ====== ======
60
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REALIGNMENT OF WORKFORCE AND FACILITIES - FOURTH QUARTER 2001
Accrued costs for restructuring charges taken in the fourth quarter of
2001 are as follows (in thousands):
Accrued Accrued
Realignment of workforce - Costs at 2001 Costs at
- -------------------------- December Charge To Costs Non Cash December
Fourth Quarter 2001 31, 2000 Operations Incurred Costs 31, 2001
- ------------------- -------- ---------- -------- ----- --------
Accrued restructuring costs:
Severance and exit costs.......... $-- $3,866 $(977) $(714) $2,175
Contractual obligations........... -- 241 -- -- 241
Other............................. -- -- -- -- --
--- ------ ------ ------ ------
Total restructuring costs........... $-- $4,107 $(977) $(714) $2,416
=== ====== ====== ====== ======
Due to continued revenue declines not anticipated by management in both
the Voicecom and Xpedite operating segments in the second half of 2001, plans
for additional workforce cost reductions were established and personnel were
notified during the fourth quarter of 2001. The plan commitment reduces annual
operating expenses by $7.6 million. The plan eliminated, through involuntary
separation, approximately 120 non-sales force employees in both Voicecom and
Xpedite and eliminated 143 network equipment sites in the Voicecom operating
segment. The overall management plan allows for taking these cost savings and
reinvesting them into additional sales force employees in order to stabilize the
decline in revenues in both operation segments. Accordingly, the Company accrued
restructuring costs of approximately $4.1 million associated with this plan
commitment. Cash payments in 2001 associated with this plan were $1.0 million.
The Company expects to incur $2.4 million of additional cash payments in 2002 to
satisfy this plan obligation. Of the $4.1 million of costs associated with this
plan, approximately $0.7 million of non-cash charges were incurred for severance
cost obligations paid through immediately vested stock options issued below
market price on the date of grant. Accordingly, this portion of the
restructuring costs was recorded as additional paid-in-capital.
REALIGNMENT OF WORKFORCE AND FACILITIES - SECOND QUARTER 2001
Accrued costs for restructuring taken in the second quarter of 2001 are
as follows (in thousands):
Accrued Accrued
Realignment of workforce - Costs at 2001 Costs at
- -------------------------- December Charge To Costs Non Cash December
Second Quarter 2001 31, 2000 Operations Incurred Costs 31, 2001
- ------------------- -------- ---------- -------- ----- --------
Accrued restructuring costs:
Severance and exit costs.......... $-- $ 4,977 $(3,227) $(1,345) $ 405
Contractual obligations........... -- 1,515 (482) (386) 647
Other............................. -- 222 (50) -- 172
--- ------- -------- -------- ------
Total restructuring costs........... $-- $ 6,714 $(3,759) $(1,731) $1,224
=== ======= ======== ======== ======
During the second quarter of 2001, management committed to a plan to
reduce annual operating expenses by approximately $13.7 million through the
elimination of certain operating activities in its Voicecom and Xpedite
operating segments, and at Corporate, and the corresponding reductions in
personnel costs relating to the Company's operations, sales and administration.
The plan eliminated, through involuntary separation, approximately 168 non-sales
force employees and exited duplicative facilities in the Voicecom business
segment. Accordingly, the Company accrued restructuring costs of approximately
$6.7 million associated with this plan commitment. The Company expects to incur
approximately $5.0 million of cash payments related to severance, exit costs and
contractual obligations associated with the $6.7 million plan costs.
Approximately $3.8 million of these cash payments were made by December 31, 2001
and were primarily related to severance and exit cost activities. The remaining
$1.2 million of cash payments are associated with severance costs, exit costs
and contractual obligations not expected to expire until December 31, 2003.
Approximately $1.7 million of non-cash charges are related to certain executive
management severance costs from employee stock option modifications and
forgiveness of employee notes receivables. Accordingly, this portion of the
restructuring costs was recorded as additional paid-in-capital.
61
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXIT FROM ASIA REAL-TIME FAX AND TELEX BUSINESS
Accrued costs for restructuring taken in the fourth quarter of 2000 are
as follows (in thousands):
Accrued Accrued
Costs at 2000 Costs at 2001
Exit from the Asia Real-Time December Charge To Costs December Charge To Costs
Fax and Telex Business 31, 1999 Operations Incurred 31, 2000 Operations Incurred
- ---------------------- -------- ---------- -------- -------- ---------- --------
Accrued restructuring costs:
Severance and exit costs..... $-- $197 $(138) $ 59 $-- $ (59)
Contractual obligations...... -- 290 -- 290 -- (181)
Other........................ -- 93 -- 93 -- (15)
--- ---- ------ ----- --- ------
Total restructuring costs...... $-- $580 $(138) $ 442 $-- $(255)
=== ==== ====== ===== === ======
Accrued
Exit from the Asia Real-Time Reversal of Costs at
- ---------------------------- Non Cash Accrued December
Fax and Telex Business Costs Costs 31, 2001
- ---------------------- ----- ----- --------
Accrued restructuring costs:
Severance and exit costs..... $ -- $ -- $--
Contractual obligations...... -- (109) --
Other........................ (3) (75) --
----- ------ ---
Total restructuring costs...... $ (3) $(184) $--
===== ====== ===
During the fourth quarter of 2000, the Company recorded a charge of
$0.6 million for costs associated with Xpedite's decision to exit its legacy
real-time fax and telex business in Asia. This service depended on significant
price disparities between regulated incumbent telecommunications carriers and
Xpedite's cost of delivery over its fixed-cost network. With the deregulation of
most Asian telecommunications markets, Xpedite's cost advantage dissipated, and
the Company decided to exit this service and concentrate on higher value-added
services such as transactional messaging and messageREACH. The $0.6 million
charge included contractual and other obligations totaling $0.4 million and
severance costs of $0.2 million.
Contractual and other obligations are mainly cash outlays for rent on
office space and telephone lines. Management achieved exiting this office space
and telephone lines during the fourth quarter of 2001 which was ahead of the
original plan for the first quarter of 2002. Accordingly, management reversed
the remaining obligation reserve of $0.2 million in 2001.
The severance charge includes cash severance payments made to 67
employees. The Company expects to realize an annual savings of approximately
$0.3 million from these terminations. During 2001, the Company paid the
remaining severance obligations planned for and does not expect any further
payments.
Decentralization of Company
Accrued costs for restructuring taken in the third quarter of 1999 are
as follows (in thousands):
Accrued Reversal
Costs at 1999 of
December Charge To Costs Accrued
Decentralization of Company 31, 1998 Operations Incurred Costs
- --------------------------- -------- ---------- -------- -----
Accrued restructuring costs:
Severance and exit costs............. $ -- $7,320 $(3,434) $--
Contractual obligations.............. -- 708 (708) --
Other................................ -- 200 (118) --
---- ------ -------- ---
Total restructuring costs............... $ -- $8,228 $(4,260) $--
==== ====== ======== ===
62
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued Reversal Accrued
Costs at 2000 of Costs at
December Charge To Costs Accrued December
Decentralization of Company 31, 1999 Operations Incurred Costs 31, 2000
- --------------------------- -------- ---------- -------- ----- --------
Accrued restructuring costs:
Severance and exit costs............. $3,886 $ -- $(3,245) $(641) $ --
Contractual obligations.............. -- -- -- -- --
Other................................ 82 -- (82) -- --
------ ---- -------- ------ ----
Total restructuring costs............... $3,968 $ -- $(3,327) $(641) $ --
====== ==== ======== ====== ====
In the third quarter of 1999, the Company recorded restructuring,
merger costs and other special charges of approximately $8.2 million in
connection with its reorganization from the two EES (Emerging Enterprise
Solutions) and CES (Corporate Enterprise Solutions) operating units into three
operating business units, a retail calling card business, and a holding company.
The $8.2 million charge was comprised of $7.3 million of severance and exit
costs, $0.7 million of lease termination costs and $0.2 million of facility exit
costs.
Severance benefits provided for the termination of 203 employees,
primarily related to corporate administrative functions, direct sales force and
operation of under-performing operating segments in the former EES and CES
groups. Of the 203 severed employees, 114 were from the Voicecom operating
segment, 61 from the Xpedite operating segment and 28 from Corporate
headquarters. The reduction made to the Voicecom and Xpedite operating segments
allowed for the transfer to those segments of approximately 70 employees who had
performed centralized administrative functions at Corporate. As of December 31,
1999, all 203 employees were terminated. Annual savings of approximately $13.1
million were realized from these terminations. The balance at December 31, 1999
for severance and exit costs represents the remaining reserve for future cash
severance and exit payments to former corporate executive management and various
management in the former CES group that were terminated in 1999. These remaining
cash payments were disbursed during the first nine months of 2000. During 2000,
cash severance payments totaled $3.2 million. In the third quarter of 2000, the
Company recognized as income $0.6 million of accrued severance and exit payments
upon completion of the severance program associated with the decentralization of
the Company. This amount represents actual exit costs that were below planned
exit costs, relating to the decentralization plan for the European and
Asia/Pacific regions of the Company's Xpedite operating segment.
Lease termination costs are attributable to the abandonment of a
facility under the Retail Calling Card Services segment. Lease termination costs
are cash outlays. The Company incurred $0.7 million in costs in 1999 in
terminating this lease. Other costs were attributable to site clean up and exit
team travel costs to exit one facility in the Xpedite segment. The Company
incurred $0.1 million of costs that were cash outlays in the fourth quarter of
1999 to close this facility. In the first quarter of 2000, the Company paid $0.1
million in lease termination and exit costs.
As the decentralization plan of the Company was completed and no
further payments are expected by management, the remaining balance of the
reserve totaling $0.6 million was reversed in the third quarter of 2000.
Reorganization of Company into EES and CES Business Groups
Accrued costs for restructuring taken in the fourth quarter of 1998 are
as follows (in thousands):
Accrued
Costs at 1999 Reversal Of
Reorganization of Company into EES and December Charge To Costs Accrued
CES Business Groups 31, 1998 Operations Incurred Costs
- ------------------- -------- ---------- -------- -----
Accrued restructuring costs:
Severance and exit costs............. $4,836 $-- $(3,106) $ --
Contractual obligations.............. 417 -- (298) (119)
Other................................ 1,392 -- (1,263) (129)
------ --- -------- ------
Total restructuring costs............... $6,645 $-- $(4,667) $(248)
====== === ======== ======
63
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued Reversal Accrued
Costs at 2000 Of Costs at 2001
Reorganization of Company into December Charge To Costs Accrued December Charge To Costs
EES and CES Business Groups 31, 1999 Operations Incurred Costs 31, 2000 Operations Incurred
- --------------------------- -------- ---------- -------- ----- -------- ---------- --------
Accrued restructuring costs:
Severance and exit costs.... $1,730 $-- $(1,091) $-- $639 $-- $(551)
Contractual obligations..... -- -- -- -- -- -- --
Other....................... -- -- -- -- -- -- --
------ --- -------- --- ---- --- ------
Total restructuring costs...... $1,730 $-- $(1,091) $-- $639 $-- $(551)
====== === ======== === ==== === ======
Reversal Accrued
of Cost at
Reorganization of Company into EES Accrued December
and CES Business Groups Costs 31, 2000
- ----------------------- ----- --------
Accrued restructuring costs:
Severance and exit costs........ $-- $88
Contractual obligations......... -- --
Other........................... -- --
--- ---
Total restructuring costs........... $-- $88
=== ===
In the fourth quarter of 1998, the Company recorded a charge of $11.4
million to reorganize the Company into two business segments that focused on
specific groups of customers. The balance of severance and exit costs at
December 31, 2001 and 2000 represents remaining severance reserve for a former
executive manager. Cash severance payments in 2001were $0.5 million. The Company
expects to pay the remaining reserve balance of $0.1 million over a four-month
period ending April 30, 2002.
4. MARKETABLE SECURITIES, AVAILABLE FOR SALE
Marketable securities, available for sale at December 31, 2001 and
2000, are principally common stock investments carried at fair value based on
quoted market prices. Common stock investments carried at fair value include
minority equity interests in WebMD, S1 and WebEx.
The cost, gross unrealized gains, fair value, proceeds from sale and
realized gains and losses are as follows for the years ended December 31, 2001
and 2000 (in thousands):
Gross
Gross Proceeds Realized
Unrealized Fair From Gains/
2001 Cost Gains Value Sale (Losses)
- ---- ---- ----- ----- ---- --------
WebMD Corporation............................. $300 $1,174 $1,474 $1,777 $1,496
S1 Corporation................................ -- -- -- 1,191 751
WebEx, Inc.................................... -- -- -- 2,228 724
Other equity securities....................... 3 -- 3 -- --
---- ------ ------ ------ ------
$303 $1,174 $1,477 $5,196 $2,971
==== ====== ====== ====== ======
Gross
Gross Proceeds Realized
Unrealized Fair From Gains/
2000 Cost Gains Value Sale (Losses)
- ---- ---- ----- ----- ---- --------
WebMD Corporation............................. $ 461 $2,754 $3,215 $37,679 $37,011
S1 Corporation................................ 437 28 465 25,093 23,290
WebEx, Inc.................................... 1,500 1,005 2,505 -- --
Other equity securities....................... 540 -- 540 320 (751)
------ ------ ------ ------- -------
$2,938 $3,787 $6,725 $63,092 $59,550
====== ====== ====== ======= =======
64
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2001, the Company sold 200,000 shares of its investment in
WebMD, 88,596 shares of its investment in S1 Corporation and 120,000 shares of
its investment in WebEx, Inc. for aggregate proceeds less commissions of
approximately $5.2 million. At December 31, 2001, the Company held 208,857
shares of WebMD.
During 2000, the Company sold 940,000 shares of its investment in WebMD
and 365,000 shares of its investment in S1 Corporation, for aggregate proceeds
less commissions of approximately $62.8 million. At December 31, 2000, the
Company held 408,857 shares of WebMD, 88,597 shares of S1 and 120,000 shares of
WebEx.
5. INVESTMENTS
The following summarizes the principal components of investments at
December 31, 2001 and 2000 (in thousands):
Equity Cost Total
-------------------------------------
Balance, December 31, 1999..... -- $14,620 $14,620
-------------------------------------
Investments................ $27,800 4,560 32,360
Amortization............... (4,930) -- (4,930)
Impairment................. (8,189) (6,795) (14,984)
-------------------------------------
Balance, December 31, 2000..... 14,681 12,385 27,066
-------------------------------------
Investments................ 3,186 1,505 4,691
Amortization............... (1,612) -- (1,612)
Impairment................. (16,255) (12,941) (29,196)
Sale....................... -- (949) (949)
-------------------------------------
Balance, December 31, 2001..... -- -- --
-------------------------------------
The Company, through its PtekVentures investment arm, made investments
in various companies engaged in emerging technologies related to the Internet.
These investments were classified as either cost or equity investments in
accordance with APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock." During the first quarter of 2001 and the latter
half of 2000, the Company amortized goodwill created by investments that were
accounted for under the equity method of accounting. The amount by which the
Company's investment exceeds its share of the underlying net assets is
considered to be goodwill, and is amortized over a three-year period.
Amortization related to equity investments totaled $1.6 million and $4.9 million
in 2001 and 2000, respectively, and is included in the Consolidated Statements
of Operations as "Amortization of goodwill equity investments." The decline in
amortization in 2001 is the result of full impairments to these investments
during the second quarter of 2001.
The Company has continually evaluated the carrying value of its
ownership interests in non-public investments in the PtekVentures portfolio for
possible impairment that is "other than temporary" based on achievement of
business plan objectives and current market conditions. The business plan
objectives the Company considered include, among others, those related to
financial performance such as achievement of planned financial results,
forecasted operating cash flows and completion of capital raising activities and
those that are not primarily financial in nature such as the development of
technology or the hiring of key employees. The Company has previously taken
impairment charges on certain of these investments when it has determined that
an "other than temporary" decline in the carrying value of the investment has
occurred. Many Internet based businesses have experienced difficulty in raising
additional capital necessary to fund operating losses and make continued
investments that their management teams believe are necessary to sustain
operations. Valuations of public companies operating in the Internet sector
declined significantly during 2000 and 2001. During 2001, market conditions
declined for the non-public companies in the PtekVentures portfolio, with
certain of these companies filing for bankruptcy and subsequently being
liquidated. The remaining portfolio companies' financial performance and updated
financial forecasts for the near term led management to the conclusion that
there was an "other than temporary" decline in the carrying value of these
companies. Accordingly, the Company decided to exit the venture business and
cease future funding in its portfolio companies. As a result, the Company
recorded an impairment charge of approximately $29.2 million during the second
quarter of 2001 for the remaining carrying value of its non-public company
investment portfolio. During 2000, the Company made similar evaluations of the
portfolio companies and recorded approximately $15.0 million in impairments.
During the fourth quarter of 2001, one of the portfolio companies that
was previously impaired defaulted on its credit facility and lease obligation.
The Company had provided a stand by letter of credit on this credit facility and
is a
65
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
guarantor of the lease obligation. Accordingly, an obligation expense for these
guarantees in the entire amount of $2.5 million has been recorded in "Asset
impairments and obligation-investments" in the accompanying statement of
operations. During the first quarter of 2002, the Company paid its commitment on
the standby letter of credit in the amount of $0.5 million.
Additionally, during the fourth quarter of 2001, the Company sold a
significant portion of its interest in PtekVentures for proceeds and a gain of
$0.2 million, primarily in the form of two notes that accrue interest at 5.05%
annually and are due in full on December 31, 2011. A third party appraisal was
performed to value the portfolio companies owned by PtekVentures. The purchaser
is primarily owned by former executives of PtekVentures. The Company has
received an income tax refund of approximately $9.2 million from the capital
loss carry-back associated with the sale of this interest. This receivable is
recorded as a "Federal income tax receivable" in the Consolidated Balance
Sheets.
6. SALE OF RETAIL CALLING CARD REVENUE BASE
Effective August 1, 2000, the Company sold its Retail Calling Card
operating segment's revenue base to Telecare, Inc. ("Telecare"). The sale was
valued at approximately $6.5 million and was financed by the Company in the form
of two promissory notes with recourse to Telecare. The Company had extended the
due date of the notes during the second half of 2001 until Telecare could obtain
third party financing.
Effective August 1, 2000, the Company entered into a management
services agreement with Telecare. This agreement was undertaken to ensure an
effective transition of the revenue base by both the Company and Telecare. Under
the terms of this agreement, the Company continued to provide telecommunications
transport services, operational support and administrative support for the
revenue base. The telecommunications transport services are provided on a
wholesale basis similar to other customers in the Voicecom operating segment.
Accordingly, the Company recognized these services as revenue in the Voicecom
operating segment. The Company maintained the management services agreement with
Telecare throughout 2001 while Telecare sought financing to pay its obligations
to the Company.
During the first quarter of 2002, Telecare sought protection under
Chapter 11 of the United States Bankruptcy Code. The notes receivable from
Telecare and the security associated therewith were included in the sale of the
Voicecom business unit. See Note 23--"Subsequent Events." As of December 31,
2001, the Company had written off the uncollectible note receivable of $6.5
million and eliminated the deferred gain of $6.5 million associated with the
original sale.
7. STRATEGIC ALLIANCE CONTRACT
In November 1996, the Company entered into a strategic alliance
agreement with WorldCom, the second largest long-distance carrier in the United
States. Under the agreement, WorldCom was required, among other things, to
provide the Company with the right of first opportunity to provide enhanced
computer telephone products for a period of at least 25 years. In connection
with this agreement, the Company issued to WorldCom 2,050,000 shares of common
stock valued at approximately $25.2 million (based on the average closing price
of the Company's shares for the five days through the effective date of the
transaction, adjusted in consideration of the restrictions placed upon the
shares), and paid WorldCom approximately $4.7 million in cash.
In the fourth quarter of 1998, the Company recorded a non-cash charge
of $13.9 million to write-down the value of its strategic alliance intangible
asset with WorldCom. This charge was required based upon management's evaluation
of revenue levels expected from this alliance. The Company reevaluated the
carrying value and remaining life of the WorldCom strategic alliance in light of
the expiration of certain minimum revenue requirements under the strategic
alliance agreement and the level of revenues expected to be achieved from the
alliance following the merger of WorldCom and MCI in the third quarter of 1998.
Accordingly, The Company recorded a write-down in the carrying value of this
investment based on estimated future cash flows discounted at a rate of 12%. In
addition, the Company accelerated amortization of this asset effective in the
fourth quarter of 1998 by shortening its estimated useful life to 3 years as
compared with a remaining life of 23 years prior to the write-down.
In the second quarter of 2000, the Company expensed the remaining
balance of the strategic alliance intangible asset as a result of the Company's
favorable settlement of a contractual dispute with WorldCom. As part of the
settlement, the Company received $12.0 million in cash for terminating the
strategic alliance contract with WorldCom. Accordingly, the
66
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company expensed the net book value of this contract of approximately $6.9
million against the settlement proceeds of $12.0 million. In addition, the
Company expensed approximately $1.3 million in legal costs associated with this
settlement.
8. ACQUISITIONS
CUSTOMER BASE ACQUISITIONS - XPEDITE - 2001
During the first quarter of 2001, the Company acquired the store and
forward fax customer base of Western Union in North America and the store and
forward fax customer base of GN Comtext. The aggregate cash purchase price for
these customer base assets was $5.8 million.
CUSTOMER BASE ACQUISITIONS - XPEDITE- 2000
During 2000, the Company acquired various store and forward fax
customer bases in both the United States and Switzerland. The aggregate cash
purchase price for these customer base assets was $2.6 million.
INTELLIVOICE COMMUNICATIONS INC. ACQUISITION
In August 1999, the Company acquired all remaining ownership interests
it did not already own in Intellivoice Communications, Inc. ("Intellivoice"), a
company engaged in developing Internet-enabled communications products. The
Company issued approximately 573,000 shares of its common stock and paid cash
consideration of approximately $870,000 in connection with this acquisition.
This transaction has been accounted for as a purchase. Excess purchase price
over fair value of net assets acquired of approximately $10.1 million has been
recorded as developed technology and is being amortized on a straight-line basis
until it was fully impaired in 2001 (See Note 11--"Asset impairments"). The
developed technology relates to work associated with Web-based communications
services.
XPEDITE FRANCE ACQUISITION
During the second quarter of 1999, the Company purchased all remaining
ownership interests it did not already own in an affiliated electronic document
distribution company located in France for approximately $19.0 million in cash
and liabilities assumed. The Company held an approximate 18% ownership interest
in the affiliate prior to this transaction which has been accounted for as a
purchase. Excess purchase price over fair value of net assets acquired of
approximately $18 million has been recorded as goodwill and is being amortized
on a straight-line basis over seven years.
The following unaudited pro forma consolidated results of operations
for the year ended December 31, 1999 assumes that the acquisitions in 1999 are
accounted for as purchases and occurred as of January 1, 1999 (in thousands,
except per share data). Supplemental pro forma information is not presented for
2001 and 2000 since these acquisitions are not material to the Company's
Consolidated Results of Operations.
1999
----
Revenues...................................... $ 466,209
Net loss...................................... $ (37,443)
Basic net loss per share...................... $ (0.80)
Diluted net loss per shares................... $ (0.80)
67
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. PROPERTY AND EQUIPMENT
Property and equipment at December 31 is as follows (in thousands):
2001 2000
---- ----
Computer and telecommunications equipment........ $185,611 $212,631
Furniture and fixtures........................... 20,390 14,371
Office equipment................................. 12,184 6,770
Leasehold improvements........................... 26,728 22,434
Construction in progress......................... 74 7,254
Building......................................... 190 202
-------- --------
245,177 263,662
Less accumulated depreciation.................... 153,828 146,556
-------- --------
Property and equipment, net...................... $ 91,349 $117,106
======== ========
Assets under capital leases included in property and equipment at
December 31 are as follows (in thousands):
2001 2000
---- ----
Construction in progress......................... $ -- $4,017
Telecommunications and computer equipment........ 10,381 3,526
Furniture and fixtures........................... 1,384 --
------- ------
Subtotal.................................... 11,765 7,543
Less accumulated depreciation.................... 2,548 2,377
------- ------
Property and equipment, net...................... $ 9,217 $5,166
======= ======
See Note 11--"Asset Impairments" for a discussion of the impairment of
telecommunications and computer equipment. The Company made additions to assets
under capital lease obligations of approximately $5.9 million primarily
associated to continued network equipment acquisitions associated with
Voicecom's network upgrade and consolidation and Xpedite's worldwide
headquarters build-out.
At December 31, 2000, construction in progress was approximately $7.3
million. This balance represents voice mail telephony and telecommunications
switching equipment purchased by the Voicecom business segment which had not
been placed into service as of December 31, 2000. This equipment was purchased
in connection with a plan to consolidate into three sites approximately 140
sites of the legacy Voice-Tel voice messaging network acquired by the Company in
1997. It will also significantly upgrade and enhance the existing network. The
equipment costs to execute this consolidation plan will be funded primarily by
capital leases. At December 31, 2000, approximately $4.0 million of the $7.3
million of equipment in construction in progress was under capital lease.
10. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following amounts for
December 31, 2001 and 2000 (in thousands):
2001 2000
---- ----
Goodwill.......................... $377,961 $481,712
Less accumulated amortization..... 254,895 187,526
---------------------------
$123,066 $294,186
===========================
Customer lists.................... $ 67,942 $ 68,171
Developed technology.............. 44,161 46,663
Assembled workforce............... 7,500 7,500
---------------------------
119,603 122,334
Less accumulated amortization..... 97,723 71,738
---------------------------
$ 21,880 $ 50,596
===========================
68
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets by reportable segment at December 31, 2001 and 2000
(in thousands):
Conferencing Xpedite Voicecom Total
-------------------------------------------------------
Goodwill carrying value at December 31, 2000............. $ 33,180 $ 246,544 $ 14,462 $ 294,186
Additions................................................ 404 404
Impairment............................................... (91,571) (12,584) (104,155)
Amortization............................................. (7,657) (57,430) (2,282) (67,369)
-------------------------------------------------------
Goodwill carrying value at December 31, 2001............. $ 25,523 $ 97,543 $ -- $ 123,066
-------------------------------------------------------
Intangibles carrying value at December 31, 2000.......... $ 4,025 $ 39,855 $ 6,716 $ 50,596
Additions................................................ -- 8,144 -- 8,144
Impairment............................................... -- (6,679) (3,413) (10,092)
Amortization............................................. (1,464) (22,001) (3,303) (26,768)
-------------------------------------------------------
Intangibles carrying value at December 31, 2001.......... $ 2,561 $ 19,319 $ -- $ 21,880
=======================================================
See Note 11--"Asset Impairments" for further discussion.
11. ASSET IMPAIRMENTS
The following table summarizes the asset impairments incurred by
operating segment for the years ended December 31, 2001 and 2000 (in thousands):
2001 Xpedite Voicecom Conferencing Holding Co. Total
-------------------------------------------------------------------------
Goodwill............................. $91,571 $12,584 $104,155
Other intangibles.................... 6,679 3,413 10,092
Property and equipment, net.......... 777 14,748 984 785 17,294
-------------------------------------------------------------------------
$99,027 $30,745 $ 984 $785 $131,541
2000
Property and equipment, net........... $ 800 -- -- -- $ 800
During the third and fourth quarters of 2001, the Company experienced
declines in revenue at its Xpedite and Voicecom operating units. During the
fourth quarter of 2001, the Company assessed the outlook of various service
offering revenues and evaluated the potential impairment of various assets
associated with the operating equipment, goodwill and other intangible assets at
Voicecom and Xpedite pursuant to SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Management
reviewed the identifiable undiscounted future cash flows, including the
estimated residual value to be generated by the assets to be held and used by
the business acquired in Xpedite and Voicecom at their asset grouping level.
Based on the results of these assessments, the Company recorded the $131.5
million impairment in the fourth quarter of 2001.
XPEDITE IMPAIRMENT - 2001
In Xpedite, an increasing rate of decline in the traditional store and
forward fax business and weakness in the European and Asia Pacific regions of
the business began to occur in the latter part of the third quarter and the
early part of the fourth quarter. By the latter part of the fourth quarter, the
outlook for revenue growth and the ability to sustain margins in the Xpedite
operating segment had significantly changed from the outlook earlier in the
quarter. The hospitality and financial services industries that comprise a
significant portion of the Xpedite business had begun to display greater
weakness than expected. Accordingly, management was concerned that a fair value
assessment would potentially be lower than the carrying value on the balance
sheet. A third party appraisal was performed using a discounted cash flow income
approach to valuing the business using a 15% discount rate. The valuation
resulted in an asset impairment related to the Xpedite operating segment of
$99.0 million to reflect the carrying value in excess of fair value at December
31, 2001. Of the $99.0 million, property and equipment impairments of $0.7
million at Xpedite related primarily to the abandonment of its Indonesian
operations due to declining revenues and profits. Indonesia represented less
than 1% of Xpedite's revenues.
69
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VOICECOM IMPAIRMENT - 2001
In Voicecom, the following occurred: (1) lack of a market
materializing for the new Orchestrate product offering launched in the third
quarter of 2000, (2) voice mail distribution channels related to direct selling
organizations such as Amway and Primerica Financial Services diminished quicker
than anticipated, (3) losses of corporate voice mail customers materialized, and
(4) new business did not develop. Management had taken two workforce reductions,
and aggressively reduced Voicecom's business cost structure. However, the
declines in revenue in the early fourth quarter were outpacing cost reductions.
Management performed a valuation analysis of the business using the discounted
cash flow income approach and compared this to valuations from potential buyers.
From these valuations, an impairment of the net carrying value of the Voicecom
operating segment was required. Accordingly, during the fourth quarter the
Company took an impairment charge of $30.7 million to adjust the balance sheet
carrying value of Voicecom to its fair value at December 31, 2001. Property and
equipment impairments of $14.7 million at Voicecom related primarily to the
abandonment of certain network operating equipment.
OTHER IMPAIRMENTS - 2001
Additionally, management has recorded asset impairments totaling $1.8
million related to the carrying value of capitalized software associated with
certain internal information systems at both Premiere Conferencing and the
holding company that have been taken out of service.
REAL-TIME FAX IMPAIRMENT - 2000
With the deregulation of most Asian telecommunications markets,
Xpedite's cost advantage dissipated, and Xpedite decided to exit this service
and concentrate on higher value-added services such as transactional messaging
and messageREACH. The asset impairments of $0.8 million included the write-down
of furniture and fixtures and real-time fax equipment including autodialers,
faxpads and computers. The valuation was based on the fair value of the assets
as of December 31, 2000. All equipment costs were incurred in conjunction with
the closing of the real-time fax operations in Malaysia, Singapore, Hong Kong,
Taiwan and Korea.
12. INDEBTEDNESS
Long term debt and capital lease obligations at December 31 is as
follows (in thousands):
2001 2000
---- ----
Notes payable to banks..................... $ 207 $ 959
Equipment term loan........................ 6,100 --
Capital lease obligations.................. 8,369 5,303
------- -----
Subtotal................................... 14,676 6,262
Less current portion....................... 6,124 1,676
------- -----
$ 8,552 $4,586
On September 30, 2001, the Company entered into a term equipment loan
with United Missouri Bank. The loan proceeds of $6.5 million were used for
equipment purchases associated with the Conferencing operating segment. The term
of the loan is thirty months and the interest rate is the prime rate of United
Missouri Bank. At December 31, 2001, that rate was 6.0%. The loan is
collateralized by certain fixed assets of the Company. The loan agreement
contains certain covenants that are usual and customary. At December 31, 2001,
the Company was in compliance with all covenants. At December 31, 2001, amounts
outstanding on this term loan were $6.1 million.
During 2001, the Company entered into five capital lease obligations in
the aggregate amount of $5.9 million. The interest rates implied in these
capital leases are both fixed and variable in nature and on average yield
approximately 7.7% interest. The leases were to fund the network equipment used
in consolidating and upgrading Voicecom's voice messaging network and for
headquarter expansion at Xpedite. The terms of these capital leases range from
36 to 60 months. During 2000, the Company entered into a capital lease for $2.5
million with a term of 39 months and an implied rate of interest of 10.8%. This
capital lease was used to fund network equipment in Voicecom's voice messaging
network in anticipation of a network upgrade in 2001 and consolidation of this
network over 2001 through 2002. Five of these leases were transferred with the
sale of the Voicecom business unit. See Note 23--"Subsequent Events."
70
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 29, 2000, the Company entered into a credit agreement (the
"Agreement") for a one-year revolving credit facility with ABN AMRO Bank N.V.
(the "Bank" or "Agent"). The Agreement provided for borrowings of up to $20.0
million, and was subject to certain covenants that are usual and customary for
credit agreements of this nature. The commitment to provide revolving credit
loans under the Agreement terminates 364 days from September 29, 2000, subject
to extension. The Company extended the agreement at September 30, 2001 for 364
days. The agreement was amended to provide for borrowings up to $13.5 million
and is subject to certain covenants that are usual and customary for credit
agreements of this nature. Amounts outstanding under the Agreement on the
expiration date may, at the option of the Company, either be paid in full or
converted to a one-year term loan payable in four equal quarterly installments.
Proceeds drawn under the Agreement may be used for capital expenditures, working
capital, acquisitions, investments, refinancing of existing indebtedness, and
other general corporate purposes. The annual interest rate applicable to
borrowings under the Agreement is, at the Company's option, (i) the Agent's Base
Rate plus 1.25 percent or (ii) the Euro Rate (LIBOR) plus 3.50 percent. Amounts
committed but not drawn under the Agreement are subject to a commitment fee
equal to 0.50 percent per annum. At December 31, 2001, no amounts were
outstanding under the Agreement.
In July 1997, the Company issued convertible subordinated notes
("Convertible Notes") of $172.5 million that mature on July 1, 2004 and bear
interest at 5-3/4%. The Convertible Notes are convertible at the option of the
holder into common stock at a conversion price of $33 per share, through the
date of maturity, subject to adjustment in certain events. Beginning in July
2000, the Convertible Notes were redeemable by the Company at a price equal to
103% of the conversion price, declining to 100% at maturity with accrued
interest. The annual interest commitment associated with these notes is $9.9
million and is paid semi-annually on July 1 and January 1 of each year.
As of December 31, 2001, future minimum capital lease payments and
principal maturities under indebtedness, excluding notes payable to banks, are
as follows (in thousands):
Convertible
Capital Term Subordinated
Year Leases Loan Notes Total
------ ---- ------ -----
2002............................................... $4,211 $2,808 $ -- $ 7,019
2003............................................... 3,591 2,808 -- 6,399
2004............................................... 1,390 937 172,500 174,827
2005............................................... -- -- --
2006............................................... -- -- -- --
Thereafter......................................... -- -- -- --
------ ------ -------- --------
Net minimum payments............................... $9,192 $6,553 $172,500 $188,245
======== ========
Less amount representing interest.................. 823 453
--- ---
Present value of net minimum payments.............. 8,369 6,100
Less current portion............................... 3,615 2,509
----- -----
Obligations under capital lease and equipment term
loan, net of current portion....................... $4,754 $3,591
======= ======
13. ACCRUED EXPENSES
Accrued expenses at December 31 are as follows: (in thousands):
2001 2000
---------------------
Accrued wages, wage related taxes and benefits.......... $18,522 $10,415
Interest payable........................................ 4,992 4,992
Accrued commissions..................................... 4,279 1,943
Accrued regulatory surcharges........................... 2,720 2,993
Accrued obligations - investments....................... 2,500 --
Other................................................... 9,720 22,567
---------------------
$42,733 $42,910
---------------------
71
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS
The estimated fair value of certain financial instruments at December
31, 2001 and 2000 is as follows (in thousands):
2001 2000
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Cash and cash equivalents....................................... $ 48,023 $ 48,023 $ 22,991 $22,991
Marketable securities, available for sale....................... 1,477 1,477 6,725 6,725
Convertible subordinated notes (see Note 12).................... 172,500 100,912 172,500 74,399
Notes payable, long-term debt and capital leases (see Notes 12
and 19)......................................................... 14,676 14,676 6,262 6,262
The carrying amount of cash and cash equivalents, marketable
securities, accounts receivable and payable, and accrued expenses approximates
fair value due to their short maturities. The fair value of the Convertible
Notes is estimated based on market quotes. The carrying value of notes payable,
long-term debt and capital lease obligations does not vary materially from fair
value at December 31, 2001 and 2000.
15. EQUITY BASED COMPENSATION CHARGES AND SHAREHOLDERS' EQUITY
EQUITY BASED COMPENSATION CHARGES
The following summarizes the components of equity-based compensation
expense for the years ended December 31, 2001, 2000 and 1999 (in thousands,
except share data):
2001 Shares Earned Unearned
-------------------------------------
Option exchange for restricted shares....................................... 2,404,561 $5,807 $2,120
Restricted shares issued to executive management............................ 1,402,194 2,483 1,740
Note forgiveness related to restricted shares in former affiliates and
related 11,072
taxes (see note 18)......................................................
Compensation to management in association with restricted shares
in former affiliates..................................................... 497
Options and restricted shares issued for services rendered.................. 15,000 570
-------------------------------------
3,821,755 $20,429 $3,860
========= ======= ======
2000
Deferred compensation amortization for restricted shares in former affiliates
(see Note 18)............................................................ $ 2,102
1999
Deferred compensation amortization for restricted shares in former affiliates
(see Note 18)............................................................ $ 13,624
Option exchange for restricted shares
Due to declines in the Company's share price over the course of the
last several years, most of the employee and director option holders had options
with exercise prices in excess of the market price of Company stock. In order to
provide better performance incentives for employees and directors and to align
the employees' and directors' interests with those of the shareholders, in the
fourth quarter of 2001 the Company offered an exchange program in which it
granted one restricted share of common stock in exchange for every 2.5 options
tendered. Approximately 6.0 million employee and director stock options were
exchanged for approximately 2.4 million shares of restricted stock on December
28, 2001, the date of the exchange. The restricted shares maintain the same
vesting schedules as those of the original options exchanged, except that in the
case of tendered options that were vested on the exchange date, the restricted
shares received in exchange therefor vested on the day after the exchange date.
To the extent options were vested at the exchange date, the Company recognized
72
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equity based compensation expense determined by using the closing price of the
Company's common stock at December 28, 2001, which was $3.32 a share. To the
extent that restricted shares were received for unvested options exchanged, this
cost was deferred on the balance sheet under the caption "Unearned restricted
share compensation." This value was also determined using the closing price of
the Company's common stock at the date of the exchange. The unearned restricted
share compensation will be recognized as equity based compensation expense as
these shares vest. Assuming all employees at December 31, 2001 will remain
employed by the Company through their vesting period, the equity based
compensation expense in future years resulting from the restricted shares issued
in the option exchange will be $1.3 million in 2002, $0.5 million in 2003 and
$0.3 million in 2004. A one-year trading restriction applies to all restricted
shares between December 28, 2001 and December 28, 2002, with limited exceptions.
See further discussion in "Restricted Stock Exchange Offer" section of Note
16--"Equity Based Compensation Plans."
In addition, approximately 890,000 options that were eligible to be
exchanged for restricted shares pursuant to the exchange offer were not
tendered. These options will be subject to variable accounting until such
options are exercised, are forfeited, or expire unexercised. These options have
exercise prices ranging from $5.32 to $29.25. At December 31, 2001, no charge
was recorded because the exercise price of each of the options was greater than
the market value of the Company's common stock.
RESTRICTED SHARES ISSUED TO EXECUTIVE MANAGEMENT
Certain members of the executive management of the Company were awarded
discretionary bonuses in the form of restricted shares in November 2001. The
purpose of these discretionary bonuses was to better align executive
management's performance with the interests of the shareholders. Certain of
these restricted shares vested immediately in 2001 and are restricted from
trading for a one-year period. The remaining restricted shares vest straight
line through 2004 and the anticipated equity based compensation expense
resulting therefrom will be approximately $0.6 million a year from 2002 through
2004.
LOANS AND NOTE FORGIVENESS ASSOCIATED WITH RESTRICTED SHARES IN FORMER
AFFILIATES AND RELATED TAXES
During the second quarter of 1999, the Company awarded restricted share
grants to the CEO, COO and certain other officers of Company owned shares held
in certain investments in affiliates made in connection with its PtekVentures
activities. These Company owned shares included 168,000 shares of WebMD Series E
Common Stock and 6,461 shares of WebMD Series F Preferred Stock, and 70,692
shares of USA.NET Series C Preferred Stock. The vesting periods for these shares
ranged from immediately upon grant to three years, contingent on the executive
being employed by the Company. In connection with this action, the Company
recorded a $13.9 million non-cash gain resulting from the write-up to fair
market value of these investments and a $13.1 million non-cash expense related
to the partial vesting of these grants. The gain reflects the difference between
the Company's cost basis and fair market value at date of grant of these
investments. The Company recorded an additional non-cash charge of $1.2 million
in 2000 related to the vesting of these grants.
In 1999 and 2000, the Company loaned $6.3 million with recourse to the
current CEO and COO to pay taxes in connection with these restricted share
grants. These loans were due on December 31, 2006, accrued interest at 6.20% and
were secured by the restricted shares granted. In March 2000, the Company agreed
to forgive one-seventh of the principal plus accrued interest on such loans as
of December 31, 2000, provided that the executives were employees of the Company
on that date. Such amounts were forgiven as of December 31, 2000.
In 2001, the Company agreed to forgive the recourse tax loans to the
CEO and COO, effective as of December 31, 2001, provided that the executives
were employees of the Company on that date. The principal and interest forgiven
was $5.8 million and the employee tax liability assumed by the Company was $5.3
million. The tax liability was paid primarily in the first quarter of 2002.
COMPENSATION TO MANAGEMENT IN ASSOCIATION WITH RESTRICTED SHARES IN FORMER
AFFILIATES
In 2001, the Company approved discretionary bonuses in the aggregate
amount of $0.5 million to two executive vice presidents of the Company who were
awarded restricted share grants in affiliates during the second quarter of 1999,
which shares had lost significant market value since the dates of grant.
73
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPTIONS AND RESTRICTED SHARES ISSUED FOR SERVICES RENDERED
In 2000 and 2001 the Company issued stock options and restricted shares
to consultants for various consulting services performed for the Company.
SHAREHOLDERS' EQUITY COMPONENTS
STOCK OPTION EXERCISES
During 2001, 2000 and 1999, stock options were exercised under the
Company's stock option plans. None of the options exercised qualified as
incentive stock options, as defined in Section 422 of the Internal Revenue Code
(the "Code"). Approximately $1.6 million and $1.9 million were recorded as
increases in additional paid-in capital reflecting tax benefits to be realized
by the Company as a result of the exercise of such options during the years
ended December 31, 2000 and 1999, respectively.
STOCK REPURCHASE PROGRAM
In the second quarter of 2000, the Company's Board of Directors
authorized a stock repurchase program under which PTEK may purchase up to 10% of
the then outstanding shares of its common stock, or approximately 4.8 million
shares. During 2001, the Company repurchased approximately 1.1 million shares of
its common stock under this program for approximately $3.1 million. During 2000,
the Company repurchased approximately 1.2 million shares of its common stock
under this program for approximately $3.3 million. In addition to the shares
repurchased during 2000, the Company repurchased approximately 1.1 million
shares for approximately $9.1 million during its 1998 stock repurchase program.
All of these shares are included in "Treasury stock, at cost" in the
accompanying consolidated balance sheets.
401(K) PLAN
The Company issued approximately 1,108,109 and 257,000 shares of its
common stock during 2001 and 2000 respectively at a value of $1.6 million in
each year as part of its match under the Company's 401(k) plan.
ASSOCIATE STOCK PURCHASE PLAN
The Company offers an Amended and Restated Associate Stock Purchase
Plan to provide eligible employees an opportunity to purchase shares of its
common stock through payroll deductions. See Note 16--"Equity Based Compensation
Plans" for plan details. Approximately 480,965, 479,000 and 103,000 shares of
common stock valued at approximately $0.8 million, $1.4 million and $0.5 million
were issued under this plan in 2001, 2000 and 1999, respectively.
OPTIONS EXCHANGED FOR RESTRICTED SHARES
See description of activity included in "Equity Based Compensation
Charges" section below.
OPTIONS ISSUED FOR SEVERANCE BENEFITS
During 2001, the Company issued stock options for severance benefits to
certain Voicecom executives terminated as part of the rationalization of
workforce in both the second and fourth quarters of 2001. These stock options
were immediately vested and had exercise prices below market value on the date
of measurement. Accordingly the Company has recorded restructuring costs and an
increase to paid in capital of $1.9 million associated with these severance
benefits.
OPTIONS AND RESTRICTED SHARES ISSUED FOR SERVICES RENDERED
See description of activity included in "Equity Based Compensation
Charges" section below.
SHARES ISSUED FOR LEGAL SETTLEMENT
During 2001, the Company issued 100,000 shares as part of a legal
settlement with a former executive of the Company. This legal settlement was
accrued for in prior years. The aggregate value of the shares issued on the date
of the settlement was approximately $0.3 million and appears as an increase in
common stock and additional paid in capital.
74
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shareholder notes receivable
The shareholder notes receivable relates to transactions in 2001, 2000
and 1999 where the Company advanced loans to the CEO of the Company and to a
limited partnership in which the CEO has an indirect interest in association
with exercises of options to purchase the Company's common stock. Loan advances
totaled $0.8 million, $2.8 million and $0.1 million during 2001, 2000 and 1999,
respectively. See Note 18--"Related Party Transactions."
16. EQUITY BASED COMPENSATION PLANS
The Company has four equity based compensation plans, the 1994 Stock
Option Plan, the 1995 Stock Plan (the "1995 Plan"), the 1998 Stock Plan (the
"1998 Plan") and the 2000 Directors Stock Plan (the "Directors Plan"), which
provide for the issuance of restricted stock, stock options, warrants or stock
appreciation rights to employees, directors, non-employee consultants and
advisors of the Company. These plans are administered by committees consisting
of members of the board of directors of the Company.
Options for all 960,000 shares of common stock available under the 1994
Stock Option Plan have been granted. All such options are non-qualified, provide
for an exercise price equal to fair market value at date of grant, vest ratably
over three years and expire eight years from date of grant.
The 1995 Plan provides for the issuance of stock options, stock
appreciation rights ("SARs") and restricted stock to employees. A total of
9,650,000 shares of common stock has been reserved in connection with the 1995
Plan. Options issued under the 1995 Plan may be either incentive stock options,
which permit income tax deferral upon exercise of options, or nonqualified
options not entitled to such deferral.
Sharp declines in the market price of the Company's common stock
resulted in many outstanding employee stock options being exercisable at prices
that exceeded the current market price of the Company's common stock, thereby
substantially impairing the effectiveness of such options as performance
incentives. Consistent with the Company's philosophy of using equity incentives
to motivate and retain management and employees, the Board of Directors
determined it to be in the best interests of the Company and its shareholders to
restore the performance incentives intended to be provided by employee stock
options by repricing such options. Consequently, on July 22, 1998 the Board of
Directors of the Company determined to reprice or regrant all employee stock
options which had exercise prices in excess of the closing price on such date
(other than those of Chief Executive Officer Boland T. Jones) to $10.25, which
was the closing price of the Company's common stock on such date. While the
vesting schedules remained unchanged, the repriced and regranted options were
generally subject to a twelve-month black-out period, during which the options
could not be exercised. If an optionee's employment was terminated during the
black-out period, he or she would forfeit any repriced or regranted options that
first vested during the twelve-month period preceding his or her termination of
employment. On December 14, 1998, the Board of Directors determined to reprice
or regrant at an exercise price of $5.50, all employee stock options which had
an exercise price in excess of $5.50, which was above the closing price of the
Company's common stock on such date. Again, the vesting schedules remained the
same and the repriced or regranted options were generally subject to a twelve-
month black-out period during which the options could not be exercised. If the
optionee's employment was terminated during the black-out period, he or she
would forfeit any repriced or regranted options that first vested during the
twelve month period preceding his or her termination of employment. By imposing
the black-out and forfeiture provisions on the repriced and regranted options,
the Board of Directors intended to provide added incentive for the optionees to
continue service.
On July 22, 1998, the Board of Directors approved the 1998 Plan, which
essentially mirrors the terms of the 1995 Plan except that it is not intended to
be used for executive officers or directors. In addition, the 1998 Plan, because
the shareholders did not approve it, does not provide for the grant of incentive
stock options. Under the 1998 Plan, 8,000,000 shares of common stock are
reserved for the grant of nonqualified stock options and other incentive awards
to employees and consultants of the Company.
The Company has adopted the Amended and Restated Associate Stock
Purchase Plan ("ASPP") to encourage associates of Ptek to acquire a proprietary
interest, or to increase their existing interest in the Company. The company has
reserved 1,750,000 shares of common stock for purchase by associates under the
plan. All employees who have worked a minimum of 20 hours per week for at least
five months of each calendar year and who have completed two months of
consecutive service are eligible to participate and purchase stock through
payroll deductions. The purchase price of the stock
75
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
is equal to 85% of the fair market value of the common stock on either the
purchase date or the offering date of each six month subscription period,
whichever is lower. Purchases under the ASPP are limited to 20% of an
associate's compensation for any pay period and a maximum fair market value of
$25,000 for a calendar year. Approximately 481,000, 479,000 and 103,000 shares
of common stock valued at approximately $0.8 million, $1.4 million and $0.5
million were issued under the ASPP in 2001, 2000, and 1999 respectively.
On April 26, 2000 the Board of Directors approved the Directors Plan
which was subsequently approved by the shareholders on June 7, 2000. The class
of persons to participate in this plan consist solely of persons who, at the
date of grant of Options, are Directors of the Company and are not employed by
the Company or any of its subsidiaries or affiliates. Under the Directors Plan,
the maximum number of shares that may be issued 1.0 million, of which no more
than 10% shall be granted in the form of restricted stock, subject to
antidilution adjustments as defined by the Plan.
RESTRICTED STOCK EXCHANGE OFFER
On November 29, 2001, the Company filed with the Securities and
Exchange Commission ("SEC") a Tender Offer Statement on Schedule TO relating to
an offer by the Company to purchase from its employees and directors (and one
former employee who was serving as a consultant to the Company) certain
outstanding stock options having an exercise price of more than $3 per share in
exchange for restricted shares of the Company's common stock at an exchange
ratio of one share of restricted stock for each 2.5 options surrendered (the
"Offer to Purchase"). A third party consultant was used in determining the
exchange ratio. On December 28, 2001, the Offer to Purchase was completed, and
the Company accepted for purchase options exercisable for approximately 6.0
million shares of common stock, and issued approximately 2.4 million shares of
restricted stock in exchange for the options tendered. The restricted stock
generally is subject to the same vesting schedule as the tendered options, and
is subject to a 12-month blackout period during which time the restricted stock
may not be sold except to pay withholding taxes or in the case of financial
hardship.
In accordance with FASB Interpretation No. 44, "Accounting For Certain
Transactions Involving Stock Compensation--An Interpretation of APB Opinion No.
25," the Company recorded approximately $2.1 million as unearned compensation
for the intrinsic value of the restricted stock on the effective date of the
Offer to Purchase, calculated using the closing price of the Company's common
stock on December 28, 2001. The unearned compensation will be amortized to
"Equity based compensation" expense over the vesting period of the restricted
stock.
In addition, approximately 890,000 options that were eligible to be
exchanged for restricted stock pursuant to the Offer to Purchase were not
tendered. These options will be subject to variable accounting until such
options are exercised, are forfeited, or expire unexercised. These options have
exercise prices ranging from $5.32 to $29.25. At December 31, 2001, no charge
was recorded because the exercise price of each of the options was greater than
the market value of the Company's common stock.
As permitted under the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company has elected to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation expense
has been recognized for awards (other than restricted share awards) issued under
the Company's stock based compensation plans where the exercise price of such
awards is equal to the market price of the underlying common stock at date of
grant. Had compensation cost been determined under the market value method using
Black-Scholes valuation principles, net loss and net loss per share would have
been reduced to the following pro forma amounts:
2001 2000
---- ----
(in thousands, except per share data)
Net loss:
As reported......................................... $(242,120) $(58,866)
Pro forma........................................... $(269,542) $(76,988)
Basic and Diluted Net loss per share:
As reported...................................... $ (4.84) $ (1.22)
Pro forma........................................ $ (5.21) $ (1.60)
76
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant assumptions used in the Black-Scholes option pricing model
computations are as follows:
2001 2000
---- ----
Risk-free interest rate............................. 4.18% 5.13% - 5.61%
Dividend yield...................................... 0% 0%
Volatility factor................................... 90% 99%
Weighted average expected life...................... 3.79 years 3.75 years
The pro forma amounts reflect options granted since January 1, 1996.
Pro forma compensation cost may not be representative of that expected in future
years. A summary of the status of the Company's stock plans is as follows:
Weighted
Average
Fixed Options Shares Exercise Price
- ------------- ------ --------------
Options outstanding at December 31, 1998............ 13,949,856 $5.79
Granted.......................................... 2,886,414 6.94
Exercised........................................ (519,904) 2.08
Forfeited........................................ (1,945,690) 5.99
----------- ----
Options outstanding at December 31, 1999............ 14,370,676 $6.13
========== =====
Granted.......................................... 3,906,375 5.90
Exercised........................................ (2,374,778) 2.55
Forfeited........................................ (1,410,991) 6.04
----------- ----
Options outstanding at December 31, 2000............ 14,491,282 $6.67
========== =====
Granted.......................................... 3,589,584 2.65
Exercised........................................ (158,551) 0.07
Exchanged for restricted shares.................. (6,008,327) 6.23
Forfeited........................................ (1,649,555) 6.34
----------- ----
Options outstanding at December 31, 2001............ 10,264,433 $5.49
========== =====
The following table summarizes information about stock options
outstanding at December 31, 2001:
Weighted Average
Weighted Exercise Price of Price of
Range of Options Average Exercise Options Options Options
Exercise Prices Outstanding Remaining Life Outstanding Exercisable Exercisable
--------------- ----------- -------------- ----------- ----------- -----------
$0 - $4.99 4,465,666 6.63 $ 2.44 1,601,308 $ 1.41
$5.00 - $9.99 4,808,602 4.19 6.03 4,583,678 6.02
$10.00 - $14.99 489,238 3.16 10.37 488,404 10.37
$15.00 - $30.00 500,927 2.25 22.68 500,864 22.68
---------- ---- ------ --------- ------
10,264,433 5.11 $ 5.49 7,174,254 $ 6.45
========== ==== ====== ========= ======
For options granted during the year whose exercise price is less than
the market price of the stock on the date of the grant, the weighted average
exercise price is $0.21 per share and the weighted average fair market value is
$2.74.
17. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution retirement plan covering
substantially all full-time employees. This plan allows employees to defer a
portion of their compensation and associated income taxes pursuant to Section
401(k) of the Internal Revenue Code. The Company may make discretionary
contributions for the benefit of employees under this plan. The Company made
contributions of $1.6 million in 2001, 2000 and 1999, respectively.
77
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. RELATED-PARTY TRANSACTIONS
The Company has in the past entered into agreements and arrangements
with certain officers, directors and principal shareholders of the Company.
LOANS AND NOTE FORGIVENESS ASSOCIATED WITH RESTRICTED SHARES IN FORMER
AFFILIATES
During the second quarter of 1999, the Company awarded restricted share
grants to the CEO, COO and certain other officers of Company owned shares held
in certain investments in affiliates made in connection with PtekVentures
activities. These Company-owned shares included 168,000 shares of WebMD Series E
Common Stock and 6,461 shares of WebMD Series F Preferred Stock, and 70,692
shares of USA.NET Series C Preferred Stock. The vesting periods for these shares
ranged from immediately upon grant to three years, contingent on the executive
being employed by the Company. In connection with this action, the Company
recorded a $13.9 million non-cash gain resulting from the write-up to fair
market value of these investments and a $13.1 million non-cash expense related
to the partial vesting of these grants. The gain reflects the difference between
the Company's cost basis and fair market value at date of grant of these
investments. The Company recorded an additional non-cash charge of $1.2 million
in 2000 related to the vesting of these grants.
In 1999 and 2000, the Company loaned $6.3 million with recourse to the
current CEO and COO to pay taxes in connection with these restricted share
grants. These loans were due on December 31, 2006, accrued interest at 6.20% and
were secured by the restricted shares granted. In March 2000, the Company agreed
to forgive one-seventh of the principal plus accrued interest on such loans as
of December 31, 2000, provided that the executives were employees of the Company
on that date. Such amounts were forgiven as of December 31, 2000.
In 2001, the Company agreed to forgive the recourse tax loans to the
CEO and COO, effective as of December 31, 2001, provided that the executives
were employees of the Company on that date. The principal and interest forgiven
was $5.8 million and the employee tax liability assumed by the Company was $5.3
million. The tax liability was paid primarily in the first quarter of 2002.
NOTES RECEIVABLE - SHAREHOLDER
The Company has advanced loans to the CEO of the Company and a limited
partnership in which he has an indirect interest. These loans were made pursuant
to the CEO's employment agreement for the exercise price of certain stock
options and the taxes related thereto. Each of these loans is evidenced by a
recourse promissory note bearing interest at the applicable Federal rate and
secured by the common stock purchased. These loans mature between 2007 and 2010.
These loans are recorded in the equity section of the balance sheet under the
caption "Notes receivable, shareholder." At December 31, 2001, the aggregate
amount of these loans was $4.6 million.
USE OF AIRPLANE
During 2001, 2000 and 1999, the Company leased the use of an airplane
from a limited liability company that is owned 99% by the Company's CEO and 1%
by the Company. In connection with this lease arrangement, the Company has
incurred costs of $2.2 million, $1.8 million and $1.1 million in 2001, 2000 and
1999, respectively, to pay the expenses of maintaining and operating the
airplane.
STRATEGIC CO-MARKETING ARRANGEMENT
The Company has a strategic co-marketing arrangement with WebMD, a
former affiliate. The terms of the agreement provide for WebMD to make an annual
minimum commitment of $2.5 million for four years to purchase the Company's
products. The Company in turn is obligated to purchase portal rights from WebMD
for $4 million over four years to assist in marketing its products. Under this
agreement, which expires on February 17, 2003, the Company recognized revenue of
approximately $2.5 million, $2.5 million and $2.1 million in 2001, 2000 and
1999, respectively. WebMD also subleased floor space in the Company's
headquarters for approximately $0.7 million in each of the three years ended
December 31, 2001, 2000 and 1999.
78
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
The Company leases computer and telecommunications equipment, office
space and other equipment under noncancelable lease agreements. The leases
generally provide that the Company pay the taxes, insurance and maintenance
expenses related to the leased assets. Future minimum lease payments for
noncancelable operating leases as of December 31, 2001 are as follows (in
thousands):
2002............................................... $12,966
2003............................................... 10,873
2004............................................... 9,023
2005............................................... 8,247
2006............................................... 7,102
Thereafter......................................... 23,943
------
Net minimum lease payments......................... $72,154
=======
Rent expense under operating leases was approximately $13.7 million,
$16.8 million and $16.8 million for the years ended December 31, 2001, 2000 and
1999, respectively. Facilities rent is reduced by sublease income of
approximately $0.7 million, $0.6 million and $0.7 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
SUPPLY AGREEMENTS
The Company obtains telecommunications services pursuant to supply
agreements with telecommunications service providers. These contracts generally
provide fixed transmission prices for terms of three to five years, but are
subject to early termination in certain events. No assurance can be given that
the Company will be able to obtain telecommunications services in the future at
favorable prices or at all, and the unavailability of telecommunications
services, or a material increase in the price at which the Company is able to
obtain telecommunications services, would have a material adverse effect on the
Company's business, financial condition and results of operations. Certain of
these agreements provide for minimum purchase requirements. The Company is
currently a party to telecommunications service contracts with two service
providers that require the Company to purchase a minimum amount of services
through 2006. The total amount of the minimum purchase requirements in 2001 was
approximately $7.0 million, of which the Company has incurred metered
telecommunications costs in excess of these minimums.
LITIGATION AND CLAIMS
The Company has several litigation matters pending, as described below,
which it is defending vigorously. Due to the inherent uncertainties of the
litigation process and the judicial system, the Company is unable to predict the
outcome of such litigation matters. If the outcome of one or more of such
matters is adverse to the Company, it could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company and certain of its officers and directors have been named
as defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals (including a subclass of former Voice-Tel
Enterprises, Inc. ("Voice-Tel") franchisees and a subclass of former Xpedite
Systems, Inc. ("Xpedite") shareholders) who purchased or otherwise acquired the
Company's common stock from as early as February 11, 1997 through June 10, 1998.
Plaintiffs allege the Company admitted it had experienced difficulty in
achieving its anticipated revenue and earnings from voice messaging services due
to difficulties in consolidating and integrating its sales function. Plaintiffs
allege, among other things, violation of Sections 10(b), 14(a) and 20(a) of the
Securities Exchange Act of 1934 and Sections 11, 12 and 15 of the Securities Act
of 1933. The Company filed a motion to dismiss this complaint on April 14, 1999.
On December 14, 1999, the court issued an order that dismissed the claims under
Sections 10(b) and 20 of the Exchange Act without prejudice, and dismissed the
claims under Section 12(a)(1) of the Securities Act with prejudice. The effect
of this order was to dismiss from this lawsuit all open-market purchases by the
plaintiffs. The plaintiffs filed an amended complaint on February 29, 2000. The
defendants filed a motion to dismiss on April 14, 2000, which was granted in
part and denied in part on December 8, 2000. The defendants filed an answer on
January 8, 2001. On January 22, 2002, the court ordered the parties to mediate.
The parties did so on February 8, 2002, and the mediation process is continuing.
79
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A lawsuit was filed on November 4, 1998 against the Company and certain
of its officers and directors in the Southern District of New York. Plaintiffs
are shareholders of Xpedite who acquired common stock of the Company as a result
of the merger between the Company and Xpedite in February 1998. Plaintiffs'
allegations are based on the representations and warranties made by the Company
in the prospectus and the registration statement related to the merger, the
merger agreement and other documents incorporated by reference, regarding the
Company's acquisitions of Voice-Tel and VoiceCom Systems, the Company's roll-out
of Orchestrate, the Company's relationship with customers Amway Corporation and
DigiTEC, 2000, and the Company's 800-based calling card service. Plaintiffs
allege causes of action against the Company for breach of contract, against all
defendants for negligent misrepresentation, violations of Sections 11 and
12(a)(2) of the Securities Act of 1933 and against the individual defendants for
violation of Section 15 of the Securities Act. Plaintiffs seek undisclosed
damages together with pre- and post-judgment interest, recission or recissory
damages as to violation of Section 12(a)(2) of the Securities Act, punitive
damages, costs and attorneys' fees. The defendants' motion to transfer venue to
Georgia has been granted. The defendants' motion to dismiss has been granted in
part and denied in part. The defendants filed an answer on March 30, 2000. On
January 22, 2002, the court ordered the parties to mediate. The parties did so
on February 8, 2002, and the mediation process is continuing.
On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a
complaint in the Superior Court of Union County, New Jersey against 15 named
defendants including Xpedite and certain of its alleged current and former
officers, directors, agents and representatives. The plaintiffs allege that the
15 named defendants and certain unidentified "John Doe defendants" engaged in
wrongful activities in connection with the management of the plaintiffs'
investments with Equitable Life Assurance Society of the United States and/or
Equico Securities, Inc. (collectively "Equitable"). The complaint asserts
wrongdoing in connection with the plaintiffs' investment in securities of
Xpedite and in unrelated investments involving insurance-related products. The
defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited to
plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of the
named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they were
promised. Plaintiffs allege that Xpedite knew or should have known of alleged
wrongdoing on the part of other defendants. Plaintiffs seek an accounting of the
corporate stock in Xpedite, compensatory damages of approximately $4.85 million,
plus $200,000 in "lost investments," interest and/or dividends that have accrued
and have not been paid, punitive damages in an unspecified amount, and for
certain equitable relief, including a request for Xpedite to issue 139,430
shares of common stock in the plaintiffs' names, attorneys' fees and costs and
such other and further relief as the court deems just and equitable. This case
has been dismissed without prejudice and compelled to NASD arbitration, which
has commenced. In August 2000, the plaintiffs filed a statement of claim with
the NASD against 12 named respondents, including Xpedite (the "Nobis
Respondents"). The claimants allege that the 12 named respondents engaged in
wrongful activities in connection with the management of the claimants'
investments with Equitable. The statement of claim asserts wrongdoing in
connection with the claimants' investment in securities of Xpedite and in
unrelated investments involving insurance-related products. The allegations in
the statement of claim against Xpedite are limited to claimants' investment in
Xpedite. Claimants seek, among other things, an accounting of the corporate
stock in Xpedite, compensatory damages of not less than $415,000, a fair
conversion rate on stock options, losses on the investments, plus interest and
all dividends, punitive damages, attorneys' fees and costs. Hearings before the
NASD panel were held on November 27-29, 2001, January 22-24, 2002 and February
4-7, 2002.
On September 3, 1999, Elizabeth Tendler filed a complaint in the
Superior Court of New Jersey Law Division, Union County, against 17 named
defendants including the company and Xpedite, and various alleged current and
former officers, directors, agents and representatives of Xpedite. The Plaintiff
alleges that the defendants engaged in wrongful activities in connection with
the management of the Plaintiff's investments, including investments in Xpedite.
The allegations against Xpedite and the Company are limited to plaintiff's
investment in Xpedite. Plaintiff's claims against Xpedite and the Company
include breach of contract, breach of fiduciary duty, unjust enrichment,
conversion, fraud, interference with economic advantage, liability for ultra
vires acts, violation of the New Jersey Consumer Fraud Act and violation of New
Jersey RICO. Plaintiff seeks an accounting of the corporate stock of Xpedite,
compensatory damages of approximately $1.3 million, accrued interest and/or
dividends, a constructive trust on the proceeds of the sale of any Xpedite or
PTEK stock, shares of Xpedite and/or PTEK to satisfy defendants' obligations to
plaintiff, attorneys' fees and costs,
80
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hearings before the NASD panel were held on November 27-29, 2001, January
22-24, 2002 and February 4-7, 2002.
On or about May 19, 2000, the Company was served with a Complaint filed
by Robert Cowan in the Circuit Court of Jackson County, Missouri, alleging
claims for breach of contract, fraudulent misrepresentation, negligent
misrepresentation, breach of duty of good faith and fair dealings, unjust
enrichment, and violation of Georgia and Missouri blue sky laws. Plaintiff's
claims arise out of the Company's acquisition of American Teleconferencing
Services, Ltd. ("ATS") in April 1998. Plaintiff was a shareholder of ATS who
received shares of PTEK stock in the transaction. The Company removed the case
to the United States District Court for the Western District of Missouri, and
filed a Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. Plaintiff has filed a Motion to Remand
the case back to state court. By order dated March 28, 2001, the court granted
plaintiff's Motion to Remand and dismissed as moot the Company's Motion to
Compel Arbitration, or Alternatively to Transfer Venue, or Alternatively to
Dismiss the Compliant. By Order dated July 25, 2001, the state court denied the
Company's Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. This case is in discovery and is set for
trial in June 2002.
On November 3, 2000, a complaint was filed by BGL Development, Inc.
d/b/a The Bristol Group in the United States District Court for the Southern
District of New York. Plaintiff alleges that it had a contract with Xpedite
whereby Xpedite would pay certain commissions for new customers that plaintiff
brought to Xpedite. Plaintiff claims back commissions are due and that they have
not been paid in breach of the contract. Plaintiff claims damages of not less
than $185,000. On November 20, 2000, the Company filed its answer and
affirmative defenses. On October 2, 2001, Xpedite filed a request with the court
for leave to file its Motion for Summary Judgment. Following a hearing on
January 17, 2002, the Court denied Xpedite's motion. The trial was held on
January 29-31, 2002 which resulted in a verdict for the Plaintiff in the amount
of $103,000. Xpedite is presently evaluating its options with respect to an
appeal.
On May 14, 2001, Voice-Tel filed two complaints against Quixtar, Inc.
and Alticor Inc., f/k/a Amway Corporation, and Amway Corporation, in the State
Court of Fulton County, Georgia, which were subsequently removed to the U.S.
District Court for the Northern District of Georgia. Voice-Tel alleged, among
other things, fraud in the inducement of a contract to market voice messaging
services and sought a declaratory judgment that contractual provisions which
alleged trade secrets and restrictions on competition were null and void. In
response to these lawsuits, Alticor and Quixtar asserted certain counterclaims
for breach of contract and to enjoin competitive behavior by PTEK and its
affiliates. On November 6, 2001, JOBA, Inc. ('JOBA"), a Voice-Tel franchisee,
filed an Application to Intervene in the Quixtar and Alticor lawsuits. In the
Application to Intervene, JOBA sought to file a Complaint that would include,
among other things, claims against not only Quixtar and Alticor but also against
Voice-Tel for an alleged breach of a franchise agreement and other alleged
agreements, and against PTEK for alleged tortuous interference of contract. On
December 3, 2001, Voice-Tel filed its Brief in Opposition to the Application to
Intervene. On December 4, 2001, Voice-Tel filed a Motion for Partial Summary
Judgment in the Quixtar and Alticor lawsuits. On December 10, 2001, Voice-Tel
filed a separate Complaint against JOBA and Digital Communication Services, Inc.
("Digital") in the U.S. District Court for the Northern District of Georgia. The
Complaint sought injunctive relief and a declaratory judgment with respect to
Voice-Tel's right to terminate the franchise agreements with JOBA and Digital.
JOBA and Digital subsequently dismissed their efforts to intervene in the
Quixtar and Alticor lawsuits, and on January 7, 2002 answered Voice-Tel's
Complaint and asserted counterclaims for breach of franchise agreement and
tortious interference of contract against Voice-Tel, Premiere Communications,
Inc. ("PCI") and PTEK. In addition, on January 7, 2002, JOBA and Digital sought
to stay the proceedings and compel arbitration as to Digital. On January 18,
2002, Voice-Tel, PCI and PTEK filed responses and answers to the counterclaims
and filed additional breach of contract and tort claims against JOBA and
Digital. Voice-Tel, PCI and PTEK also filed objections to the Motion to Stay
Proceedings as to Digital. On February 8, 2002, the Court denied the
JOBA/Digital Motion to Stay Proceedings. In March 2002, Voice-Tel and JOBA and
Digital sought leave of court to file amended complaints and answers. On March
14, 2002, the parties to the Quixtar and Alticor lawsuits entered into a
settlement agreement resolving in full all claims asserted by each party against
the other. The litigation with JOBA and Digital is ongoing and is in discovery.
The Company filed a complaint against Qwest Communications Corporation
("Qwest") in the State Court of Fulton County, Georgia on June 1, 2001. The case
was subsequently removed to the U.S. District Court for the Northern District of
Georgia. This complaint alleges a breach of contract by Qwest to purchase voice
conferencing services. In response to PTEK's breach of contract claim, Qwest
asserted a counterclaim for alleged breach of a contract to purchase certain
software licenses. The Company filed a Motion for Partial Summary Judgment on
October 19, 2001. The parties are now engaged in negotiations directed at
resolution of all claims and counterclaims.
81
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 30, 2002, a complaint was filed by 15 Lake Bellevue, LLC in
the Superior Court of King County, Washington. Plaintiff seeks to enforce a
Lease Guaranty Agreement entered into by the Company on behalf of Webforia, Inc.
with respect to a lease for commercial real estate located in Bellevue, King
County, Washington. The Company's potential liability under the Guaranty is
limited to the lesser of the lease obligations or $2,000,000, together with
attorneys' fees, interest and collection expenses. The Company intends to answer
and defend the lawsuit.
The Company is also involved in various other legal proceedings which
the Company does not believe will have a material adverse effect upon the
Company's business, financial condition or results of operations, although no
assurance can be given as to the ultimate outcome of any such proceedings.
20. INCOME TAXES
Income tax (benefit) provision for 2001, 2000 and 1999 is as follows
(in thousands):
2001 2000 1999
---- ---- ----
Current:
Federal.......................................... $ (9,125) $ 5,335 $ 11,599
State............................................ 241 1,328 2,411
International.................................... 2,373 2,788 2,304
--------- ------- --------
(6,511) 9,451 16,314
--------- ------- --------
Deferred:
Federal.......................................... (16,055) 1,745 15,247
State............................................ (3,415) (163) 4,897
International.................................... (6,062) 204 (1,160)
--------- ------- --------
(25,532) 1,786 18,984
--------- ------- --------
$(32,043) $11,237 $ 35,298
========= ======= ========
The difference between the statutory federal income tax rate and the
Company's effective income tax rate applied to income before income taxes for
2001, 2000 and 1999 is as follows (in thousands):
2001 2000 1999
---- ---- ----
Income taxes at federal statutory rate.................... $(95,957) $(16,466) $ 632
State taxes, net of federal benefit....................... (3,258) (1,500) 1,688
Foreign taxes............................................. (3,689) 1,015 307
Change in valuation allowance............................. 21,743 783 1,234
Other items, primarily goodwill amortization.............. 49,118 27,405 31,437
--------- --------- -------
Income taxes at the Company's effective rate.............. $(32,043) $ 11,237 $35,298
========= ========= =======
82
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Differences between financial accounting and tax bases of assets and
liabilities giving rise to deferred tax assets and liabilities are as follows at
December 31 (in thousands):
2001 2000
---- ----
Deferred tax assets:
Net operating loss carryforwards................................... $39,087 $19,302
Intangible assets.................................................. 9,096 3,728
Restructuring costs................................................ 1,471 723
Accrued expenses................................................... 12,911 10,500
Investments........................................................ 49 --
Property and equipment............................................. 6,484 5,757
----- -----
69,098 40,010
Deferred tax liabilities:
Intangible assets.................................................. (3,410) (18,905)
Unrealized gain on marketable equity securities.................... (457) (1,501)
Other liabilities.................................................. (16,332) (17,980)
-------- --------
(20,199) (38,386)
Valuation allowance................................................ (28,233) (6,490)
-------- -------
Deferred income taxes, net......................................... $20,666 $(4,866)
======= ========
At December 31, 2001, the Company had federal income tax net operating
loss carryforwards of approximately $44.9 million expiring in 2005 through 2021.
The utilization of some of the net operating losses are subject to Internal
Revenue Code Section 382 limitations due to prior ownership changes.
Additionally, at December 31, 2001 the Company had federal capital loss
carryforwards of approximately $8.6 million. Tax benefits of approximately $1.6
million and $2.0 million in 2000 and 1999, respectively, are associated with
nonqualified stock option exercises, the benefit of which was credited directly
to additional paid-in capital.
The Company has been able to carryback capital losses generated in the
current year against prior years capital gains for approximately $9.2 million in
federal income tax refunds. This refund due has been recorded as "federal income
tax receivable" on the balance sheet at December 31, 2001.
The net increase in the valuation allowance of $21.7 million was due to
foreign and federal net operating losses that may be unrealized due to legal
reorganizations and federal net operating loss limitations.
21. STATEMENT OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information (in thousands):
2001 2000 1999
---- ---- ----
Cash paid (received) during the year for:
Interest............................................................ $11,283 $11,324 $29,164
Income taxes, net................................................... $(4,505) $17,100 $4,527
Cash paid for acquisitions accounted for as purchases are as
follows:
Fair value of assets acquired....................................... $5,828 $ 2,623 $37,633
Less liabilities assumed............................................ -- -- 13,099
Less common stock issued to sellers................................. -- -- 4,443
Cash paid for transaction costs and liabilities assumed............. -- -- 858
------- ------- -------
Net cash paid....................................................... $ 5,828 $ 2,623 $20,949
======= ======= =======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 2001 the Company acquired $5.9 million of equipment though
capital leases. During 2001 the Company exchanged options for restricted stock.
Additionally, during 2001, the Company made a discretionary contribution of
$1.6 million for the benefit of employees in Company stock.
83
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. SEGMENT REPORTING
PTEK Holdings, Inc., a Georgia corporation, and its subsidiaries (collectively
the "Company" or "PTEK") is a global provider of communications and data
services, including conferencing (audio conference calling and Web-based
collaboration), multimedia messaging (high-volume fax, e-mail, wireless
messaging and voice message delivery), IVR (interactive voice response), network
based voice messaging and unified personal communications (advanced personal
communications management systems that integrate voice mail, e-mail and fax
messaging). The Company's reportable segments align the Company into three
operating segments based on product offering. These segments are Premiere
Conferencing, Xpedite and Voicecom. Premiere Conferencing offers a full range of
enhanced, automated and Web conferencing services for all forms of group
communications activities, primarily to Fortune 1000 customers. Xpedite offers a
comprehensive suite of value-added multimedia messaging services through its
worldwide proprietary messaging platforms. Xpedite's customers are primarily
global Fortune 1000 companies. Voicecom offers a suite of integrated
communications solutions including network based voice messaging, IVR services
and unified personal communications services. Voicecom targets key vertical
markets such as direct selling organizations, financial services, telecom
providers, real estate and healthcare. Retail Calling Card Services is a
business segment that the Company exited through the sale of its revenue base
effective August 1, 2000. It primarily consisted of the Premiere WorldLink
calling card product, which was marketed primarily through direct response
advertising and co-branding relationships to individual retail users. On
March 26, 2002 the Company sold substantially all the assets of the Voicecom
operating segment. See Note 23--"Subsequent Events." Adjusted EBITDA is
management's primary measure of segment profit and loss.
On January 1, 2001, management responsibility for international
conferencing and voice messaging services was transferred from Xpedite to
Premiere Conferencing and Voicecom, respectively. Prior to that date, these
international revenues were reported in the Xpedite operating segment. Beginning
on January 1, 2001, these international revenues have been reported in the
Premiere Conferencing and Voicecom operating segments. In order to report
comparable operating segment financial results, certain financial information
for years prior to 2001 has been reclassified to reflect the pro forma effect of
this management change.
84
PTEK HOLDINGS,INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning the operations in these reportable segments is
as follows (in millions):
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
REVENUES:
Xpedite........................................................ $215.7 $230.1 $ 239.2
Voicecom....................................................... 92.5 119.9 128.5
Premiere Conferencing.......................................... 115.1 73.4 53.8
Retail Calling Card Services................................... - 13.7 37.2
Eliminations/(1)/............................................... (0.4) (0.2) (0.3)
------ ------ -------
Totals......................................................... $422.9 $436.9 $ 458.4
====== ====== =======
OPERATING PROFIT (LOSS):
Xpedite........................................................ $(146.1) $(39.9) $ (30.4)
Voicecom....................................................... (53.6) (16.5) (17.4)
Premiere Conferencing.......................................... 11.4 (0.4) (3.8)
Retail Calling Card Services................................... - (1.1) (43.8)
Corporate...................................................... (42.4) (18.3) (42.4)
Eliminations/(1)/.............................................. -- (0.2) (0.3)
----- -----
Totals......................................................... $(230.7) $(76.4) $(138.1)
======== ======= ========
ADJUSTED EBITDA/(2)/:
Xpedite....................................................... $48.5 $55.4 $ 60.4
Voicecom...................................................... 3.5 13.9 14.7
Premiere Conferencing......................................... 28.6 13.7 9.0
Retail Calling Card Services.................................. - 1.6 (5.8)
Corporate..................................................... (16.8) (15.7) (25.6)
Eliminations/(1)/............................................. -- (0.2) (0.3)
----- ----- -----
Totals........................................................ $63.8 $68.7 $52.4
===== ===== =====
As of December 31,
------------------
2001 2000 1999
---- ---- ----
IDENTIFIABLE ASSETS:
Xpedite........................................................ $ 214.5 $391.6 $455.8
Voicecom....................................................... 40.2 90.2 95.6
Premiere Conferencing.......................................... 69.0 75.0 76.2
Retail Calling Card Services................................... -- -- 10.9
Corporate...................................................... 62.7 74.1 132.0
---- ---- -----
Total.......................................................... $386.4 $630.9 $770.5
------ ------ ------
/(1)/ Eliminations are primarily comprised of revenue eliminations from
business transacted between Xpedite and Premiere Conferencing.
/(2)/ Adjusted EBITDA is not a standard accounting term as defined by GAAP.
85
PTEK HOLDING,INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of operating loss and Adjusted EBITDA to income (loss)
before income taxes is as follows (in millions):
2001 2000 1999
---- ---- ----
Adjusted EBITDA................................................... $ 63.8 $ 68.7 $ 52.4
Less depreciation and amortization................................ (129.6) (143.7) (168.9)
Less restructuring costs.......................................... (10.6) 0.1 (8.0)
Less asset impairments............................................ (131.6) (0.8) --
Less equity based compensation.................................... (20.4) (2.1) (13.6)
Less legal settlements, net....................................... (2.3) 1.4 --
----- ----- -----
Operating loss.................................................... $(230.7) $(76.4) $(138.1)
Less interest expense............................................. (12.1) (11.7) (25.5)
Plus interest income.............................................. 0.8 1.1 0.8
Plus gain on sale of marketable securities........................ 3.0 59.6 152.1
Less asset impairment and obligations - investments............... (31.7) (15.0) --
Less amortization of goodwill - equity investments................ (1.6) (4.9) --
Plus other income (expense), net.................................. (1.9) (0.3) 12.5
-------- ------- ----
Income (loss) before income taxes................................. $(274.2) $(47.6) $ 1.8
======== ======= =====
Information concerning revenues from groups of similar products and services
are as follows (in millions):
2001 2000 1999
---- ---- ----
E-mail, fax and messaging......................................... $215.7 $230.1 $239.2
Voice and unified messaging....................................... 70.7 101.5 111.0
Conferencing...................................................... 115.1 73.4 53.8
Interactive voice response........................................ 12.2 12.2 10.9
Wholesale calling card services................................... 9.6 6.2 6.6
Retail calling card services...................................... -- 13.7 37.2
Eliminations...................................................... (0.4) (0.2) (0.3)
------ ------ ------
Total.......................................................... $422.9 $436.9 $458.4
====== ====== ======
Information concerning depreciation expense for each reportable segment is as follows (in millions):
2001 2000 1999
---- ---- ----
Xpedite........................................................... $12.8 $11.8 $14.3
Voicecom.......................................................... 14.7 17.9 17.2
Premiere Conferencing............................................. 7.1 6.0 4.2
Retail Calling Card Services...................................... -- 2.6 32.6
Corporate......................................................... 0.8 2.2 1.6
----- ----- -----
Total.......................................................... $35.4 $40.5 $69.9
===== ===== =====
Information concerning capital expenditures for each reportable segment is
as follows (in millions):
2001 2000 1999
---- ---- ----
Xpedite.......................................................... $15.8 $15.4 $12.4
Voicecom......................................................... 2.9 12.2 16.6
Premiere Conferencing............................................ 9.8 7.1 9.7
Retail Calling Card Services..................................... -- -- --
Corporate........................................................ -- 0.3 5.5
----- ----- -----
Total......................................................... $28.5 $35.0 $44.2
===== ===== =====
86
PTEK HOLDING,INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents financial information based on the Company's
geographic segments for the years ended December 31, 2001, 2000 and 1999 (in
millions):
Operating Identifiable
Net Revenues Income (Loss) Assets
------------ ------------- ------
2001
North America.................................................... $314.9 $(224.0) $321.9
Asia Pacific..................................................... 51.8 (0.4) 27.1
Europe........................................................... 56.2 (6.3) 37.4
---- ----- ----
Total........................................................ $422.9 $(230.7) $386.4
====== ======== ======
2000
North America.................................................... $319.2 $(88.5) $565.0
Asia Pacific..................................................... 66.9 0.4 30.8
Europe........................................................... 50.8 11.7 35.1
----- ------ -----
Total........................................................ $436.9 $ (76.4) $630.9
====== ======== ======
1999
North America.................................................... $333.5 $(149.7) $673.6
Asia Pacific..................................................... 71.1 9.3 55.9
Europe........................................................... 53.8 2.3 41.0
----- ------- -----
Total........................................................ $458.4 $(138.1) $770.5
====== ======== ======
23 SUBSEQUENT EVENTS
On March 26, 2002 the Company sold substantially all the assets of the
Voicecom operating segment, exclusive of its Australian operations, to Gores
Technology Goup for a total purchase price of approximately $22.4 million,
comprised of cash and the assumption of certain liabilities. In accordance with
SFAS No. 144, the transaction will be accounted for as a discontinued operation
in the first quarter of 2002. The Voicecom discontinued operations will include
the loss from operations through the closing date and the loss on disposal, the
amount of which loss will depend on certain adjustments in the purchase
agreement. The table below provides unaudited pro forma summary financial
information of the Company adjusted for the exclusion of the Voicecom operating
segment, except the Australian operations (in thousands):
-------------------------
As of December 31, 2001
-------------------------
Current assets $ 140,889
Property, plant and equipment, net $ 64,730
Total assets $ 361,617
Current liabilities $ 109,121
Long term debt and lease obligations $ 177,301
Total liabilities $ 286,422
-------------------------
For the year ended
December 31, 2001
-------------------------
Revenue $ 331,787
Adjusted EBITDA $ 60,655
Operating income $ (176,818)
The Company terminated its credit agreement with ABN AMRO Bank in all material
respects in connection with the sale.
87
PTEK HOLDING,INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table presents certain unaudited quarterly consolidated
statement of operations data for each of the eight quarters in the period ended
December 31, 2001. Certain prior quarter results have been reclassified to
conform with current period presentation. The information has been derived from
the Company's unaudited financial statements, which have been prepared on
substantially the same basis as the audited consolidated financial statements
contained in this Form 10-K. The results of operations for any quarter are not
necessarily indicative of the results to be expected for any future period.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------------------------------------------------------------
Year ended December 31, 2001
Revenue........................................... $ 108,377 $ 109,268 $ 103,912 $ 101,373 $ 422,930
Gross profit...................................... 80,953 82,642 78,438 78,089 320,122
Operating loss.................................... (17,594) (24,962) (17,870) (170,300) (230,726)
Net loss.......................................... (23,552) (42,932) (17,626) (158,010) (242,120)
Net loss per share - basic and diluted............ $ (0.48) $ (0.86) $ (0.35) $ (3.12) $ (4.84)
Year ended December 31, 2000
Revenue........................................... $ 115,713 $ 111,458 $ 105,360 $ 104,404 $ 436,935
Gross profit...................................... 84,250 83,182 77,644 76,419 321,495
Operating loss ................................... (17,434) (15,832) (19,060) (24,031) (76,357)
Net income (loss)................................. 8,295 (12,932) (16,240) (37,989) (58,866)
Net income (loss) per share - basic and diluted... $ 0.17 $ (0.27) $ (0.34) $ (0.78) $ (1.22)
The results of operations in the 2001 second and fourth quarters
include charges associated with asset impairments, equity based compensation,
restructuring costs, net legal settlements and related expenses and asset
impairments and obligations - investments. For a further discussion of these
charges and gains see Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On October 2, 2001, PTEK dismissed Arthur Andersen, LLP as its
independent accountants and engaged PricewaterhouseCoopers, LLP as its new
independent accountants. In connection with the change of accountants, there
were no disagreements or reportable events as described in Item 304 of
Regulation S-K. The change in certifying accountants was reported in PTEK's
Current Report on Form 8-K, dated October 2, 2001 and filed with the SEC on
October 9, 2001.
88
PART III
Certain information required by Part III is omitted from this report
in that the Registrant will file a Definitive Proxy Statement pursuant to
Regulation 14A ("Proxy Statement") not later than 120 days after the end of the
fiscal year covered by this report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the Company's Proxy Statement.
89
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements listed in the index set forth in Item 8 of
this report are filed as part of this report.
2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules required to be included in this report
are either shown in the financial statements and notes thereto,
included in Item 8 of this report or have been omitted because they are
not applicable.
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement and Plan of Merger, together with exhibits, dated as of April 2, 1997 by and among Premiere
Technologies, Inc., PTEK Merger Corporation and Voice-Tel Enterprises, Inc. and the Stockholders of Voice-Tel
Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated April 2, 1997 and filed April 4, 1997).
2.2 Agreement and Plan of Merger, together with exhibits, dated as of April 2, 1997 by and among Premiere
Technologies, Inc., PTEK Merger Corporation II, VTN, Inc. and the Stockholders of VTN, Inc. (incorporated by
reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated April 2, 1997 and filed April
4, 1997).
2.3 Purchase and Sale Agreement dated April 2, 1997 by and between Premiere Technologies, Inc. and Merchandising
Productions, Inc. (incorporated by reference to Exhibit 2.3 to the Registrant's Current Report on Form 8-K
dated April 2, 1997 and filed April 4, 1997).
2.4 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Continuum, Inc. and
Owners of Continuum, Inc. (incorporated by reference to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.5 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., DMG, Inc. and Owners
of DMG, Inc. and Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., VTG,
Inc. and Owners of VTG, Inc. (incorporated by reference to Exhibit 2.5 to the Registrant's Current Report on
Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.6 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Penta Group, Inc. and
Owners of Penta Group, Inc. and Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Scepter Communications, Inc. and Owners of Scepter Communications, Inc. (incorporated by
reference to Exhibit 2.6 to the Registrant's Current Report on Form 8-K dated April 30, 1997 and filed May
14, 1997).
2.7 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Premiere Business
Services, Inc. and Owners of Premiere Business Services, Inc. (incorporated by reference to Exhibit 2.7 to
the Registrant's Current Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.8 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Dunes Communications,
Inc., Sands Communications, Inc., Sands Comm, Inc., SandsComm, Inc., and Owner of Dunes Communications, Inc.,
Sands Communications, Inc., Sands Comm, Inc., and SandsComm, Inc. (incorporated by reference to Exhibit 2.8
to the Registrant's Current Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
90
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.9 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Shamlin, Inc. and
Owner of Shamlin, Inc. (incorporated by reference to Exhibit 2.9 to the Registrant's Current Report on Form
8-K dated April 30, 1997 and filed May 14, 1997).
2.10 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., VT of Ohio, Inc. and
Owners of VT of Ohio, Inc.; Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies,
Inc., Carter Voice, Inc. and Owners of Carter Voice, Inc.; Transfer Agreement dated as of April 2, 1997 by
and among Premiere Technologies, Inc., Widdoes Enterprises, Inc. and Owners of Widdoes Enterprises, Inc.; and
Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Dowd Enterprises, Inc.
and Owners of Dowd Enterprises, Inc. (incorporated by reference to Exhibit 2.10 to the Registrant's Current
Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.11 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., SDVT, Inc. and Owners
of SDVT, Inc. (incorporated by reference to Exhibit 2.11 to the Registrant's Current Report on Form 8-K dated
April 30, 1997 and filed May 14, 1997).
2.12 Amended and Restated Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc.,
Car Zee, Inc. and Owners of Car Zee, Inc. (incorporated by reference to Exhibit 2.12 to the Registrant's
Current Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.13 Transfer Agreement dated as of March 31, 1997 by and among Premiere Technologies, Inc. and Owners of the VTEC
Franchisee: 1086236 Ontario, Inc. (incorporated by reference to Exhibit 2.13 to the Registrant's Current
Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.14 Transfer Agreement dated as of March 31, 1997 by and among Premiere Technologies, Inc. and Owners of the
Eastern Franchisees: 1139133 Ontario Inc., 1116827 Ontario Inc., 1006089 Ontario Inc., and 1063940 Ontario
Inc. (incorporated by reference to Exhibit 2.14 to the Registrant's Current Report on Form 8-K dated April
30, 1997 and filed May 14, 1997).
2.15 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Communications
Concepts, Inc. and Owners of Communications Concepts, Inc. (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.16 Transfer Agreement dated as of May 20, 1997 by and among Premiere Technologies, Inc., DARP, Inc. and Owners
of DARP, Inc. (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated
May 16, 1997 and filed June 2, 1997).
2.17 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Hi-Pak Systems, Inc.
and Owners of Hi-Pak Systems, Inc. (incorporated by reference to Exhibit 2.3 to the Registrant's Current
Report on Form 8-K dated May 16, 1997 and filed June 2. 1997).
2.18 Transfer Agreement dated as of May 29, 1997 by and among Premiere Technologies, Inc., MMP Communications,
Inc. and Owners of MW Communications, Inc. (incorporated by reference to Exhibit 2.4 to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.19 Transfer Agreement dated as of May 16, 1997 by and among Premiere Technologies, Inc., Lar-Lin Enterprises,
Inc., Lar-Lin Investments, Inc. and Voice-Mail Solutions, Inc. and Owners of Lar-Lin Enterprises, Inc.,
Lar-Lin Investments, Inc. and Voice-Mail Solutions, Inc. (incorporated by reference to Exhibit 2.5 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.20 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Voice-Net
Communications Systems, Inc. and Owners of Voice-Net Communications Systems, Inc. and Transfer Agreement
dated as of April 2, 1997 by and among Premiere Technologies, Inc., VT of Long Island Inc. and Owners of VT
of Long Island Inc. (incorporated by reference to Exhibit 2.6 to the Registrant's Current Report on Form 8-K
dated May 16, 1997 and filed June 2, 1997).
91
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.21 Transfer Agreement dated as of May 22, 1997 by and among Premiere Technologies, Inc., Voice Systems of
Greater Dayton, Inc. and Owner of Voice Systems of Greater Dayton, Inc. and Transfer Agreement dated as of
May 22, 1997 by and among Premiere Technologies, Inc., Premiere Acquisition Corporation, L'Harbot, Inc. and
the Owners of L'Harbot, Inc. (incorporated by reference to Exhibit 2.7 to the Registrant's Current Report on
Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.22 Transfer Agreement dated as of May 30, 1997 by and among Premiere Technologies, Inc., Audioinfo Inc. and
Owners of Audioinfo Inc. (incorporated by reference to Exhibit 2.8 to the Registrant's Current Report on Form
8-K dated May 16, 1997 and filed June. 2, 1997).
2.23 Transfer Agreement dated as of April 2, 1997 by and among
Premiere Technologies, Inc., D&K Communications Corporation and
Owners of D&K Communications Corporation (incorporated by
reference to Exhibit 2.10 to the Registrant's Current Report on
Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.24 Transfer Agreement dated as of May 19, 1997 by and among Premiere Technologies, Inc., Voice-Tel of South
Texas, Inc. and Owners of VoiceTel of South Texas, Inc. (incorporated by reference to Exhibit 2.11 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.25 Transfer Agreement dated as of May 31, 1997 by and among Premiere Technologies, Inc., Indiana Communicator,
Inc. and Owner of Indiana Communicator, Inc. (incorporated by reference to Exhibit 2.12 to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.26 Transfer Agreement dated as of April 2, 1997 by and among
Premiere Technologies, Inc., Voice Messaging Development
Corporation of Michigan and the Owners of Voice Messaging
Development Corporation of Michigan (incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form 8-K/A
dated May 16, 1997 and filed June 24, 1997).
2.27 Transfer Agreement dated as of June 13, 1997 by and among Premiere Technologies, Inc., Voice Partners of
Greater Mahoning Valley, Ltd. and the Owners of Voice Partners of Greater Mahoning Valley, Ltd. (incorporated
by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K/A dated May 16, 1997 and filed
June 24, 1997).
2.28 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., In-Touch Technologies,
Inc. and the Owners of InTouch Technologies, Inc. (incorporated by reference to Exhibit 2.3 to the
Registrant's Current Report on Form 8-K/A dated May 16, 1997 and filed June 24, 1997).
2.29 Transfer Agreement dated as of March 31, 1997 by and among Premiere Technologies, Inc. and Owners of the
Western Franchisees: 3325882 Manitoba Inc., 601965 Alberta Ltd., 3266622 Manitoba Inc., 3337821 Manitoba Inc.
and 3266631 Manitoba Inc. (incorporated by reference to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K/A dated May 16, 1997 and filed June 24, 1997).
2.30 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by
and among Premiere Technologies, Inc., Wave One Franchisees and
Owners of Wave One Franchisees (incorporated by reference to
Exhibit A to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K dated April 2, 1997 and filed April 4, 1997).
2.31 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by
and among Premiere Technologies, Inc., Wave Two Franchisees and
owners of Wave Two Franchisees (incorporated by reference to
Exhibit 2.14 to the Registrant's Current Report on dated May 16,
1997 and filed June 2, 1997).
2.32 Stock Purchase Agreement, together with exhibits, dated as of September 12, 1997, by and among Premiere
Technologies, Inc., VoiceCom Holdings, Inc. and the Shareholders of VoiceCom Holdings, Inc. (incorporated by
reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September
30, 1997).
92
Exhibit
Number Description
- ------ -----------
2.33 Agreement and Plan of Merger, dated as of November 13, 1997, together with exhibits, by and among Premiere
Technologies, Inc., Nets Acquisition Corp. and Xpedite Systems, Inc. (incorporated by reference to Exhibit
99.2 to the Registrant's Current Report on Form 8-K dated November 13, 1997 and filed December 5, 1997, as
amended by Form 8-K/A filed December 23, 1997).
2.34 Agreement and Plan of Merger, dated April 22, 1998, by and among the Company, American Teleconferencing
Services, Ltd. ("ATS"), PTEK Missouri Acquisition Corp. and the shareholders of ATS (incorporated by
reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated April 23, 1998, and filed with
the Commission on April 28, 1998.)
3.1 Articles of Incorporation of Premiere Technologies, Inc., as amended, (incorporated by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1998).
3.2 Articles of Amendment of Articles of Incorporation of Premiere Technologies, Inc. (changing the name of the
Registrant to PTEK Holdings, Inc.) (incorporated by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1999, as filed on March 30, 2000).
3.3 Amended and Restated Bylaws of Premiere Technologies, Inc., as amended (incorporated by reference to Exhibit
3.1 to the Registrant's Amended Quarterly Report on Form 10-Q/A for the Quarter Ended June 30, 2001, as filed
on August 14, 2001).
3.3(a) Amendment No. 6 to Amended and Restated Bylaws of PTEK Holdings, Inc.
4.1 See Exhibits 3.1-3.3 (including 3.3(a)) for provisions of the Articles of Incorporation and Bylaws defining
the rights of the holders of common stock of the Registrant.
4.2 Specimen Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).
4.3 Indenture, dated as of June 15, 1997, between Premiere Technologies, Inc. and IBJ Schroder Bank & Trust
Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated July 25, 1997 and filed August 5, 1997).
4.4 Form of Global Convertible Subordinated Note due 2004 (incorporated by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated July 25, 1997 and filed August 5, 1997).
4.5 Registration Rights Agreement, dated as of June 15, 1997, by and among the Registrant, Robertson, Stephens
& Company LLC, Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated July 25,
1997 and filed August 5, 1997).
4.6 Shareholder Protection Rights Agreement, dated June 23, 1998, between the Company and SunTrust Bank, Atlanta,
as Rights Agent (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated
June 23, 1998, and filed with the Commission on June 26, 1998).
10.1 Shareholder Agreement dated as of January 18, 1994 among the Registrant, NationsBanc Capital Corporation,
Boland T. Jones, D. Gregory Smith, Leonard A. DeNittis and Andrea L. Jones (incorporated by reference to
Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 (No. 33-80547)).
10.2 Amended and Restated Executive Employment Agreement and Incentive Option Agreement dated November 6, 1995
between the Registrant and David Gregory Smith (incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).**
10.3 Amended and Restated Executive Employment Agreement dated November 6, 1995 between Premiere Communications,
Inc. and David Gregory Smith (incorporated by reference to Exhibit 10.16 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
93
Exhibit
Number Description
- ------ -----------
10.4 Mutual Release dated December 5, 1997 by and among the Registrant, Premiere Communications, Inc. and David
Gregory Smith (incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.5 Amended and Restated Executive Employment and Incentive Option Agreement dated November 6, 1995 between the
Registrant and Boland T. Jones (incorporated by reference to Exhibit 10.17 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
10.6 Amended and Restated Executive Employment Agreement dated November 6, 1995 between Premiere Communications,
Inc. and Boland T. Jones (incorporated by reference to Exhibit 10.18 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
10.7 Executive Employment and Incentive Option Agreement dated November 1, 1995 between the Registrant and Patrick
G. Jones (incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form S-1
(No. 33-80547)).**
10.8 Executive Employment Agreement dated November 1, 1995 between Premiere Communications, Inc. and Patrick G.
Jones (incorporated by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-1 (No.
33-80547)).**
10.9 Executive Employment and Incentive Option Agreement, effective as of July 24, 1997, by and between the
Company and Jeffrey A. Allred (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1998).**
10.10 Executive Employment and Incentive Option Agreement effective as of July 6, 1998, by and between the Company
and William Porter Payne (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998).**
10.11 Memorandum of Understanding dated as of July 6, 1998, by and between the Company and William Porter Payne
(incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998).**
10.12 Restricted Stock Award Agreement between the Registrant and Boland T. Jones dated May 5, 1999 (incorporated
by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.13 Restricted Stock Award Agreement between the Registrant and Jeffrey A. Allred dated May 5, 1999 (incorporated
by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.14 Restricted Stock Award Agreement between the Registrant and Patrick G. Jones dated May 5, 1999 (incorporated
by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.15 Recourse Promissory Note dated December 20, 1999 payable to the Registrant by Boland T. Jones (incorporated
by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.16 Recourse Promissory Note dated December 20, 1999 payable to the Registrant by Jeffrey A. Allred (incorporated
by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.17 Premiere Communications, Inc. 401(k) Profit Sharing Plan (incorporated by reference to Exhibit 10.30 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).**
94
Exhibit
Number Description
- ------ -----------
10.18 Form of Director Indemnification Agreement between the Registrant and Non-employee Directors (incorporated by
reference to Exhibit 10.31 to the Registrant's Registration Statement on Form S-1 (No. 33- 80547)).**
10.19 Park Place Office Lease dated May 31, 1993 between Premiere Communications, Inc. and Mara-Met Venture, as
amended by First Amendment dated December 15, 1995 (incorporated by reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).
10.20 Second and Third Amendment to 55 Park Place Office Lease dated November 5, 1996 between Premiere
Communications, Inc. and Mara-Met Venture (incorporated by reference to Exhibit 10.49 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.21 Office Lease Agreement dated May 12, 1996 between Premiere Communications, Inc. and Beverly Hills Center LLC,
as amended by the First Amendment dated August 1, 1996 (incorporated by reference to Exhibit 10.50 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
10.22 Second Amendment of Lease dated July 1, 1997, between Premiere Communications, Inc. and Beverly Hills Center
LLC (incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.23 Agreement of Lease between Corporate Property Investors and Premiere Communications, Inc., dated as of March
3, 1997, as amended by Modification of Lease dated August 4, 1997, as amended, by Second Modification of
Lease, dated October 30, 1997 (incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.24 Sublease Agreement dated as of December 16, 1997, by and between Premiere Communications, Inc. and Endeavor
Technologies, Inc. (incorporated by reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.25 Form of Officer Indemnification Agreement between the Registrant and each of the executive officers
(incorporated by reference to Exhibit 10.36 to the Registrant's Registration Statement on Form S-1 (No. 33-
80547)).**
10.26 Telecommunications Services Agreement dated December 1, 1995 between Premiere Communications, Inc. and
WorldCom Network Services, Inc. d/b/a WilTel (incorporated by reference to Exhibit 10.40 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).
10.27 Amended and Restated Program Enrollment Terms dated September 30, 1997 by and between Premiere
Communications, Inc. and WorldCom Network Services, Inc., d/b/a WilTel, as amended by Amendment No. I dated
November 1, 1997 (incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997).*
10.28 Service Agreement dated September 30, 1997, by and between VoiceCom Systems, Inc. and AT&T Corp.
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1997).*
10.29 Strategic Alliance Agreement dated November 13, 1996 by and between the Registrant and WorldCom, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated November 13,
1996).*
10.30 Investment Agreement dated November 13, 1996 by and between the Registrant and WorldCom, Inc. (incorporated
by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated November 13, 1996).
10.31 Service and Reseller Agreement dated September 28, 1990 by and between Amway Corporation and Voice-Tel
Enterprises, Inc. (incorporated by reference to Exhibit 2.33 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 1997).*
95
Exhibit
Number Description
- ------ -----------
10.32 Amendment to Service and Reseller Agreement dated as of May 13, 1999 by and between Amway Corporation and
Voice-Tel Enterprises, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1999).*
10.33 Form of Stock Purchase Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-8 (No. 333-11281)).**
10.34 Form of Warrant Transaction Statement (incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (No. 333-11281)).
10.35 Form of Director Stock Purchase Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-8 (No. 333-17593)).**
10.36 Purchase Agreement, dated June 25, 1997, by and among Premiere Technologies, Inc., Robertson, Stephens &
Company LLC, Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated July 25, 1997
and filed August 5, 1997).
10.37 1991 Non-Qualified and Incentive Stock Option Plan of Voice-Tel Enterprises, Inc. (assumed by the Registrant)
(incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 (No.
333-29787)).
10.38 1991 Non-Qualified and Incentive Stock Option Plan of VTN, Inc. (assumed by the Registrant) (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 (No. 333-29787)).
10.39 Form of Stock Option Agreement by and between the Registrant and certain current or former employees of
Voice-Tel Enterprises, Inc. (incorporated by reference to Exhibit 4.4 to the Registrant's Registration
Statement on Form S-8 (No. 333-29787)).
10.40 Premiere Technologies, Inc. Second Amended and Restated 1995 Stock Plan (incorporated by reference to Exhibit
A to the Registrant's Definitive Proxy Statement distributed in connection with the Registrant's June 11,
1997 annual meeting of shareholders, filed April 30, 1997).**
10.41 First Amendment to Premiere Technologies, Inc. Second Amended and Restated 1995 Stock Plan (incorporated by
reference to Exhibit 10.43 to Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).**
10.42 VoiceCom Holdings, Inc. 1995 Stock Option Plan (assumed by the Registrant) (incorporated by reference to
Exhibit 10.44 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997).
10.43 VoiceCom Holdings, Inc. Amended and Restated 1985 Stock Option Plan (assumed by the Registrant) (incorporated
by reference to Exhibit 10.45 to Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.44 Premiere Technologies, Inc., Amended and Restated 1998 Stock Plan (incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999.).
10.45 Amendment No. 1 to the Premiere Technologies, Inc. Amended and Restated 1998 Stock Plan (incorporated by
reference to Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).
10.46 Xpedite Systems, Inc. 1992 Incentive Stock Option Plan (assumed by the Registrant) (incorporated by,
reference to Xpedite's Registration Statement on Form S-1 (No. 33-73258)).
10.47 Xpedite Systems, Inc. 1993 Incentive Stock Option Plan (assumed by the Registrant) (incorporated by reference
to Xpedite's Registration Statement on Form S-I (No. 33-73258)).
96
Exhibit
Number Description
- ------ -----------
10.48 Xpedite Systems, Inc. 1996 Incentive Stock Option Plan (assumed by the Registrant) (incorporated by reference
to Xpedite's Annual Report on Form 10-K for the year ended December 31, 1995).
10.49 Xpedite Systems, Inc. Non-Employee Directors' Warrant Plan (assumed by the Registrant) (incorporated by
reference to Exhibit 10.31 to Xpedite's Annual Report on Form 10-K for the year ended December 31, 1996).
10.50 Xpedite Systems, Inc. Officer's Contingent Stock Option Plan (assumed by the Registrant) (incorporated by
reference to Exhibit 10.30 to Xpedite's Annual Report on Form 10-K for the year ended December 31, 1996).
10.51 Associate Stock Purchase Plan (incorporated by reference to Appendix A to the Registrant's Definitive Proxy
Statement distributed in connection with the Registrant's June 22, 1999 annual meeting, filed on May 19,
1999).
10.52 Intellivoice Communications, Inc. 1995 Incentive Stock Plan (assumed by the Registrant) (incorporated by
reference to Exhibit 10.52 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).
10.53 Employment Agreement dated as of January 1, 2000 by and between American Teleconferencing Services, Ltd. And
Tehordore P. Schrafft (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended March 31, 2000).
10.54 First Amendment to Sublease Agreement dated as of February 1, 2000 by and between Premiere Communications,
Inc. and Healtheon/WebMD Corporation (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 2000).
10.55 PTEK Holdings, Inc. 2000 Directors Stock Plan (incorporated by reference to Exhibit A to the Registrant's
Definitive Proxy Statement distributed in connection with the Registrant's June 7, 2000 annual meeting of
shareholders, filed April 28, 2000).**
10.56 Settlement Agreement dated as of April 7, 2000 by and between PTEK Holdings, Inc. and MCI WorldCom, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2000).*
10.57 Amendment No. 1 dated as of January 1, 2000 to Telecommunications Service Agreement dated October 29, 1999 by
and between Premiere Technologies, Inc. and MCI WorldCom, Inc. (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2000).
10.58 Addendum A dated as of January 1, 2000 to Carrier Services Agreement dated as of October 29, 1999 by and
between PTEK Holdings, Inc. and MCI WorldCom, Inc. (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2000).
10.59 Credit Agreement dated as of September 29, 2000 by and among Xpedite Systems, Inc., PTEK Holdings, Inc. and
ABN Amro Bank, N.V. (incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form
10-Q for the Quarter Ended September 30, 2000).
10.60 Asset Sale Agreement, together with exhibits, dated as of August 25, 2000 by and between Telecare, Inc. and
Premiere Communications, Inc. (incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report
on Form 10-Q for the Quarter Ended September 30, 2000).
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Arthur Andersen LLP.
* Confidential treatment has been granted. The copy on file as an exhibit omits the information subject to the
confidentiality request. Such omitted information has been filed separately with the Commission.
97
** Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to
Item 14(c) of this report.
(b) REPORTS ON FORM 8-K.
The Registrant did not file any Current Reports on Form 8-K during the
fourth quarter of 2001.
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PTEK Holdings, Inc.
By: /s/ Boland T. Jones
--------------------------------------
Boland T. Jones, Chairman of the Board
and Chief Executive Officer
Date: March 28, 2002
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Boland T. Jones Chairman of the Board and Chief March 28, 2002
- ------------------------------------------- Executive Officer (principal
Boland T. Jones executive officer) and
Director
/s/ William E. Franklin Executive Vice President and March 28, 2002
- ------------------------------------------- Chief Financial Officer
William E. Franklin (principal financial and
accounting officer)
/s/ George W. Baker, Sr. Director March 28, 2002
- -------------------------------------------
George W. Baker, Sr.
/s/ Raymond H. Pirtle, Jr. Director March 28, 2002
- -------------------------------------------
Raymond H. Pirtle, Jr.
/s/ Jeffrey A. Allred President and Chief Operating March 28, 2002
- ------------------------------------------- Officer and Director
Jeffrey A. Allred
/s/ Jackie M. Ward Director March 28, 2002
- -------------------------------------------
Jackie M. Ward
/s/ Jeffrey T. Arnold Director March 28, 2002
- -------------------------------------------
Jeffrey T. Arnold
/s/ Jeffrey M. Cunningham Director March 26, 2002
- -------------------------------------------
Jeffrey M. Cunningham
/s/ Hermann Buerger Director March 26, 2002
- -------------------------------------------
Hermann Buerger
/s/ J. Walker Smith, Jr. Director March 26, 2002
- -------------------------------------------
J. Walker Smith, Jr.
99
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger, together with exhibits, dated as of April 2, 1997 by and among Premiere
Technologies, Inc., PTEK Merger Corporation and Voice-Tel Enterprises, Inc. and the Stockholders of Voice-Tel
Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K
dated April 2, 1997 and filed April 4, 1997).
2.2 Agreement and Plan of Merger, together with exhibits, dated as of April 2, 1997 by and among Premiere
Technologies, Inc., PTEK Merger Corporation II, VTN, Inc. and the Stockholders of VTN, Inc. (incorporated by
reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated April 2, 1997 and filed April
4, 1997).
2.3 Purchase and Sale Agreement dated April 2, 1997 by and between Premiere Technologies, Inc. and Merchandising
Productions, Inc. (incorporated by reference to Exhibit 2.3 to the Registrant's Current Report on Form 8-K
dated April 2, 1997 and filed April 4, 1997).
2.4 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Continuum, Inc. and
Owners of Continuum, Inc. (incorporated by reference to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.5 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., DMG, Inc. and Owners
of DMG, Inc. and Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., VTG,
Inc. and Owners of VTG, Inc. (incorporated by reference to Exhibit 2.5 to the Registrant's Current Report on
Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.6 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Penta Group, Inc. and
Owners of Penta Group, Inc. and Transfer Agreement dated as of April 2, 1997 by and among Premiere
Technologies, Inc., Scepter Communications, Inc. and Owners of Scepter Communications, Inc. (incorporated by
reference to Exhibit 2.6 to the Registrant's Current Report on Form 8-K dated April 30, 1997 and filed May
14, 1997).
2.7 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Premiere Business
Services, Inc. and Owners of Premiere Business Services, Inc. (incorporated by reference to Exhibit 2.7 to
the Registrant's Current Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.8 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Dunes Communications,
Inc., Sands Communications, Inc., Sands Comm, Inc., SandsComm, Inc., and Owner of Dunes Communications, Inc.,
Sands Communications, Inc., Sands Comm, Inc., and SandsComm, Inc. (incorporated by reference to Exhibit 2.8
to the Registrant's Current Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.9 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Shamlin, Inc. and
Owner of Shamlin, Inc. (incorporated by reference to Exhibit 2.9 to the Registrant's Current Report on Form
8-K dated April 30, 1997 and filed May 14, 1997).
2.10 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., VT of Ohio, Inc. and
Owners of VT of Ohio, Inc.; Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies,
Inc., Carter Voice, Inc. and Owners of Carter Voice, Inc.; Transfer Agreement dated as of April 2, 1997 by
and among Premiere Technologies, Inc., Widdoes Enterprises, Inc. and Owners of Widdoes Enterprises, Inc.; and
Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Dowd Enterprises, Inc.
and Owners of Dowd Enterprises, Inc. (incorporated by reference to Exhibit 2.10 to the Registrant's Current
Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.11 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., SDVT, Inc. and Owners
of SDVT, Inc. (incorporated by reference to Exhibit 2.11 to the Registrant's Current Report on Form 8-K dated
April 30, 1997 and filed May 14, 1997).
100
Exhibit
Number Description
- ------ -----------
2.12 Amended and Restated Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc.,
Car Zee, Inc. and Owners of Car Zee, Inc. (incorporated by reference to Exhibit 2.12 to the Registrant's
Current Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.13 Transfer Agreement dated as of March 31, 1997 by and among Premiere Technologies, Inc. and Owners of the VTEC
Franchisee: 1086236 Ontario, Inc. (incorporated by reference to Exhibit 2.13 to the Registrant's Current
Report on Form 8-K dated April 30, 1997 and filed May 14, 1997).
2.14 Transfer Agreement dated as of March 31, 1997 by and among Premiere Technologies, Inc. and Owners of the
Eastern Franchisees: 1139133 Ontario Inc., 1116827 Ontario Inc., 1006089 Ontario Inc., and 1063940 Ontario
Inc. (incorporated by reference to Exhibit 2.14 to the Registrant's Current Report on Form 8-K dated April
30, 1997 and filed May 14, 1997).
2.15 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Communications
Concepts, Inc. and Owners of Communications Concepts, Inc. (incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.16 Transfer Agreement dated as of May 20, 1997 by and among Premiere Technologies, Inc., DARP, Inc. and Owners
of DARP, Inc. (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated
May 16, 1997 and filed June 2, 1997).
2.17 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Hi-Pak Systems, Inc.
and Owners of Hi-Pak Systems, Inc. (incorporated by reference to Exhibit 2.3 to the Registrant's Current
Report on Form 8-K dated May 16, 1997 and filed June 2. 1997).
2.18 Transfer Agreement dated as of May 29, 1997 by and among Premiere Technologies, Inc., MMP Communications,
Inc. and Owners of MW Communications, Inc. (incorporated by reference to Exhibit 2.4 to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.19 Transfer Agreement dated as of May 16, 1997 by and among Premiere Technologies, Inc., Lar-Lin Enterprises,
Inc., Lar-Lin Investments, Inc. and Voice-Mail Solutions, Inc. and Owners of Lar-Lin Enterprises, Inc.,
Lar-Lin Investments, Inc. and Voice-Mail Solutions, Inc. (incorporated by reference to Exhibit 2.5 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.20 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Voice-Net
Communications Systems, Inc. and Owners of Voice-Net Communications Systems, Inc. and Transfer Agreement
dated as of April 2, 1997 by and among Premiere Technologies, Inc., VT of Long Island Inc. and Owners of VT
of Long Island Inc. (incorporated by reference to Exhibit 2.6 to the Registrant's Current Report on Form 8-K
dated May 16, 1997 and filed June 2, 1997).
2.21 Transfer Agreement dated as of May 22, 1997 by and among Premiere Technologies, Inc., Voice Systems of
Greater Dayton, Inc. and Owner of Voice Systems of Greater Dayton, Inc. and Transfer Agreement dated as of
May 22, 1997 by and among Premiere Technologies, Inc., Premiere Acquisition Corporation, L'Harbot, Inc. and
the Owners of L'Harbot, Inc. (incorporated by reference to Exhibit 2.7 to the Registrant's Current Report on
Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.22 Transfer Agreement dated as of May 30, 1997 by and among Premiere Technologies, Inc., Audioinfo Inc. and
Owners of Audioinfo Inc. (incorporated by reference to Exhibit 2.8 to the Registrant's Current Report on Form
8-K dated May 16, 1997 and filed June. 2, 1997).
2.23 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., D&K Communications
Corporation and Owners of D&K Communications Corporation (incorporated by reference to Exhibit 2.10 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.24 Transfer Agreement dated as of May 19, 1997 by and among Premiere Technologies, Inc., Voice-Tel of South
Texas, Inc. and Owners of VoiceTel of South Texas, Inc. (incorporated by reference to Exhibit 2.11 to the
Registrant's Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
101
Exhibit
Number Description
- ------ -----------
2.25 Transfer Agreement dated as of May 31, 1997 by and among Premiere Technologies, Inc., Indiana Communicator,
Inc. and Owner of Indiana Communicator, Inc. (incorporated by reference to Exhibit 2.12 to the Registrant's
Current Report on Form 8-K dated May 16, 1997 and filed June 2, 1997).
2.26 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., Voice Messaging
Development Corporation of Michigan and the Owners of Voice Messaging Development Corporation of Michigan
(incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K/A dated May 16,
1997 and filed June 24, 1997).
2.27 Transfer Agreement dated as of June 13, 1997 by and among Premiere Technologies, Inc., Voice Partners of
Greater Mahoning Valley, Ltd. And the Owners of Voice Partners of Greater Mahoning Valley, Ltd. (incorporated
by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K/A dated May 16, 1997 and filed
June 24, 1997).
2.28 Transfer Agreement dated as of April 2, 1997 by and among Premiere Technologies, Inc., In-Touch Technologies,
Inc. and the Owners of InTouch Technologies, Inc. (incorporated by reference to Exhibit 2.3 to the
Registrant's Current Report on Form 8-K/A dated May 16, 1997 and filed June 24, 1997).
2.29 Transfer Agreement dated as of March 31, 1997 by and among Premiere Technologies, Inc. and Owners of the
Western Franchisees: 3325882 Manitoba Inc., 601965 Alberta Ltd., 3266622 Manitoba Inc., 3337821 Manitoba Inc.
and 3266631 Manitoba Inc. (incorporated by reference to Exhibit 2.4 to the Registrant's Current Report on
Form 8-K/A dated May 16, 1997 and filed June 24, 1997).
2.30 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by and among Premiere Technologies, Inc., Wave
One Franchisees and Owners of Wave One Franchisees (incorporated by reference to Exhibit A to Exhibit 2.4 to
the Registrant's Current Report on Form 8-K dated April 2, 1997 and filed April 4, 1997).
2.31 Uniform Terms and Conditions, Exhibit A to Transfer Agreements by and among Premiere Technologies, Inc., Wave
Two Franchisees and owners of Wave Two Franchisees (incorporated by reference to Exhibit 2.14 to the
Registrant's Current Report on dated May 16, 1997 and filed June 2, 1997).
2.32 Stock Purchase Agreement, together with exhibits, dated as of September 12, 1997, by and among Premiere
Technologies, Inc., VoiceCom Holdings, Inc. and the Shareholders of VoiceCom Holdings, Inc. (incorporated by
reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September
30, 1997).
2.33 Agreement and Plan of Merger, dated as of November 13, 1997, together with exhibits, by and among Premiere
Technologies, Inc., Nets Acquisition Corp. and Xpedite Systems, Inc. (incorporated by reference to Exhibit
99.2 to the Registrant's Current Report on Form 8-K dated November 13, 1997 and filed December 5, 1997, as
amended by Form 8-K/A filed December 23, 1997).
2.34 Agreement and Plan of Merger, dated April 22, 1998, by and among the Company, American Teleconferencing
Services, Ltd. ("ATS"), PTEK Missouri Acquisition Corp. and the shareholders of ATS (incorporated by
reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated April 23, 1998, and filed with
the Commission on April 28, 1998.)
3.1 Articles of Incorporation of Premiere Technologies, Inc., as amended, (incorporated by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1998).
3.2 Articles of Amendment of Articles of Incorporation of Premiere Technologies, Inc. (changing the name of the
Registrant to PTEK Holdings, Inc.) (incorporated by reference to Exhibit 3.2 to the Registrant's Yearly
Report on Form 10-K for the year ended December 31, 1999, as filed on March 30, 2001).
3.3 Amended and Restated Bylaws of Premiere Technologies, Inc., as amended (incorporated by reference to Exhibit
3.1 to the Registrant's Amended Quarterly Report on Form 10-Q/A for the Quarter Ended June 30, 2001, as filed
on August 14, 2001).
102
Exhibit
Number Description
- ------ -----------
3.3(a) Amendment No. 6 to Amended and Restated Bylaws of PTEK Holdings, Inc.
4.1 See Exhibits 3.1-3.3 (including Exhibit 3.3(a)) for provisions of the Articles of Incorporation and Bylaws
defining the rights of the holders of common stock of the Registrant.
4.2 Specimen Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).
4.3 Indenture, dated as of June 15, 1997, between Premiere Technologies, Inc. and IBJ Schroder Bank & Trust
Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated July 25, 1997 and filed August 5, 1997).
4.4 Form of Global Convertible Subordinated Note due 2004 (incorporated by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated July 25, 1997 and filed August 5, 1997).
4.5 Registration Rights Agreement, dated as of June 15, 1997, by and among the Registrant, Robertson, Stephens &
Company LLC, Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K dated July 25, 1997
and filed August 5, 1997).
4.6 Shareholder Protection Rights Agreement, dated June 23, 1998, between the Company and SunTrust Bank, Atlanta,
as Rights Agent (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K dated
June 23, 1998, and filed with the Commission on June 26, 1998).
10.1 Shareholder Agreement dated as of January 18, 1994 among the Registrant, NationsBanc Capital Corporation,
Boland T. Jones, D. Gregory Smith, Leonard A. DeNittis and Andrea L. Jones (incorporated by reference to
Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 (No. 33-80547)).
10.2 Amended and Restated Executive Employment Agreement and Incentive Option Agreement dated November 6, 1995
between the Registrant and David Gregory Smith (incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).**
10.3 Amended and Restated Executive Employment Agreement dated November 6, 1995 between Premiere Communications,
Inc. and David Gregory Smith (incorporated by reference to Exhibit 10.16 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
10.4 Mutual Release dated December 5, 1997 by and among the Registrant, Premiere Communications, Inc. and David
Gregory Smith (incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.5 Amended and Restated Executive Employment and Incentive Option Agreement dated November 6, 1995 between the
Registrant and Boland T. Jones (incorporated by reference to Exhibit 10.17 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
10.6 Amended and Restated Executive Employment Agreement dated November 6, 1995 between Premiere Communications,
Inc. and Boland T. Jones (incorporated by reference to Exhibit 10.18 to the Registrant's Registration
Statement on Form S-1 (No. 33-80547)).**
10.7 Executive Employment and Incentive Option Agreement dated November 1, 1995 between the Registrant and Patrick
G. Jones (incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form S-1
(No. 33-80547)).**
10.8 Executive Employment Agreement dated November 1, 1995 between Premiere Communications, Inc. and Patrick G.
Jones (incorporated by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form S-1 (No.
33-80547)).**
103
Exhibit
Number Description
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10.9 Executive Employment and Incentive Option Agreement, effective as of July 24, 1997, by and between the
Company and Jeffrey A. Allred (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1998).**
10.10 Executive Employment and Incentive Option Agreement effective as of July 6, 1998, by and between the Company
and William Porter Payne (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998).**
10.11 Memorandum of Understanding dated as of July 6, 1998, by and between the Company and William Porter Payne
(incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998).**
10.12 Restricted Stock Award Agreement between the Registrant and Boland T. Jones dated May 5, 1999 (incorporated
by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.13 Restricted Stock Award Agreement between the Registrant and Jeffrey A. Allred dated May 5, 1999 (incorporated
by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.14 Restricted Stock Award Agreement between the Registrant and Patrick G. Jones dated May 5, 1999 (incorporated
by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.15 Recourse Promissory Note dated December 20, 1999 payable to the Registrant by Boland T. Jones (incorporated
by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.16 Recourse Promissory Note dated December 20, 1999 payable to the Registrant by Jeffrey A. Allred (incorporated
by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).**
10.17 Premiere Communications, Inc. 401(k) Profit Sharing Plan (incorporated by reference to Exhibit 10.30 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).**
10.18 Form of Director Indemnification Agreement between the Registrant and Non-employee Directors (incorporated by
reference to Exhibit 10.31 to the Registrant's Registration Statement on Form S-1 (No. 33- 80547)).**
10.19 Park Place Office Lease dated May 31, 1993 between Premiere Communications, Inc. and Mara-Met Venture, as
amended by First Amendment dated December 15, 1995 (incorporated by reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form S-1 (No. 33-80547)).
10.20 Second and Third Amendment to 55 Park Place Office Lease dated November 5, 1996 between Premiere
Communications, Inc. and Mara-Met Venture (incorporated by reference to Exhibit 10.49 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.21 Office Lease Agreement dated May 12, 1996 between Premiere Communications, Inc. and Beverly Hills Center LLC,
as amended by the First Amendment dated August 1, 1996 (incorporated by reference to Exhibit 10.50 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
10.22 Second Amendment of Lease dated July 1, 1997, between Premiere Communications, Inc. and Beverly Hills Center
LLC (incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
104
Exhibit
Number Description
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10.23 Agreement of Lease between Corporate Property Investors and Premiere Communications, Inc., dated as of March
3, 1997, as amended by Modification of Lease dated August 4, 1997, as amended, by Second Modification of
Lease, dated October 30, 1997 (incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.24 Sublease Agreement dated as of December 16, 1997, by and between Premiere Communications, Inc. and Endeavor
Technologies, Inc. (incorporated by reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.25 Form of Officer Indemnification Agreement between the Registrant and each of the executive officers
(incorporated by reference to Exhibit 10.36 to the Registrant's Registration Statement on Form S-1 (No. 33-
80547)).**
10.26 Telecommunications Services Agreement dated December 1, 1995 between Premiere Communications, Inc. and
WorldCom Network Services, Inc. d/b/a WilTel (incorporated by reference to Exhibit 10.40 to the Registrant's
Registration Statement on Form S-1 (No. 33-80547)).
10.27 Amended and Restated Program Enrollment Terms dated September 30, 1997 by and between Premiere
Communications, Inc. and WorldCom Network Services, Inc., d/b/a WilTel, as amended by Amendment No. I dated
November 1, 1997 (incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997).*
10.28 Service Agreement dated September 30, 1997, by and between VoiceCom Systems, Inc. and AT&T Corp.
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1997).*
10.29 Strategic Alliance Agreement dated November 13, 1996 by and between the Registrant and WorldCom, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated November 13,
1996).*
10.30 Investment Agreement dated November 13, 1996 by and between the Registrant and WorldCom, Inc. (incorporated
by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated November 13, 1996).
10.31 Service and Reseller Agreement dated September 28, 1990 by and between Amway Corporation and Voice-Tel
Enterprises, Inc. (incorporated by reference to Exhibit 2.33 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 1997).*
10.32 Amendment to Service and Reseller Agreement dated as of May 13, 1999 by and between Amway Corporation and
Voice-Tel Enterprises, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1999).*
10.33 Form of Stock Purchase Warrant Agreement (incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-8 (No. 333-11281)).**
10.34 Form of Warrant Transaction Statement (incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (No. 333-11281)).
10.35 Form of Director Stock Purchase Warrant (incorporated by reference to Exhibit 4.3 to the Registrant's
Registration Statement on Form S-8 (No. 333-17593)).**
10.36 Purchase Agreement, dated June 25, 1997, by and among Premiere Technologies, Inc., Robertson, Stephens &
Company LLC, Alex. Brown & Sons Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation
(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated July 25, 1997
and filed August 5, 1997).
105
Exhibit
Number Description
- ------ -----------
10.37 1991 Non-Qualified and Incentive Stock Option Plan of Voice-Tel Enterprises, Inc. (assumed by the Registrant)
(incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 (No.
333-29787)).
10.38 1991 Non-Qualified and Incentive Stock Option Plan of VTN, Inc. (assumed by the Registrant) (incorporated by
reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 (No. 333-29787)).
10.39 Form of Stock Option Agreement by and between the Registrant and certain current or former employees of
Voice-Tel Enterprises, Inc. (incorporated by reference to Exhibit 4.4 to the Registrant's Registration
Statement on Form S-8 (No. 333-29787)).
10.40 Premiere Technologies, Inc. Second Amended and Restated 1995 Stock Plan (incorporated by reference to Exhibit
A to the Registrant's Definitive Proxy Statement distributed in connection with the Registrant's June 11,
1997 annual meeting of shareholders, filed April 30, 1997).**
10.41 First Amendment to Premiere Technologies, Inc. Second Amended and Restated 1995 Stock Plan (incorporated by
reference to Exhibit 10.43 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997).**
10.42 VoiceCom Holdings, Inc. 1995 Stock Option Plan (assumed by the Registrant) (incorporated by reference to
Exhibit 10.44 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1997).
10.43 VoiceCom Holdings, Inc. Amended and Restated 1985 Stock Option Plan (assumed by the Registrant) (incorporated
by reference to Exhibit 10.45 to Registrant's Annual Report on Form 10-K for the year ended December 31,
1997).
10.44 Premiere Technologies, Inc., Amended and Restated 1998 Stock Plan (incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999).
10.45 Amendment No. 1 to the Premiere Technologies, Inc. Amended and Restated 1998 Stock Plan (incorporated by
reference to Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000).
10.46 Xpedite Systems, Inc. 1992 Incentive Stock Option Plan (assumed by the Registrant) (incorporated by,
reference to Xpedite's Registration Statement on Form S-1 (No. 33-73258)).
10.47 Xpedite Systems, Inc. 1993 Incentive Stock Option Plan (assumed by the Registrant) (incorporated by reference
to Xpedite's Registration Statement on Form S-I (No. 33-73258)).
10.48 Xpedite Systems, Inc. 1996 Incentive Stock Option Plan (assumed by the Registrant) (incorporated by reference
to Xpedite's Annual Report on Form 10-K for the year ended December 31, 1995).
10.49 Xpedite Systems, Inc. Non-Employee Directors' Warrant Plan (assumed by the Registrant) (incorporated by
reference to Exhibit 10.31 to Xpedite's Annual Report on Form 10-K for the year ended December 31,
1996).
10.50 Xpedite Systems, Inc. Officer's Contingent Stock Option Plan (assumed by the Registrant) (incorporated by
reference to Exhibit 10.30 to Xpedite's Annual Report on Form 10-K for the year ended December 31, 1996).
10.51 Associate Stock Purchase Plan (incorporated by reference to Appendix A to the Registrant's Definitive Proxy
Statement distributed in connection with the Registrant's June 22, 1999 annual meeting, filed on May 19,
1999).
10.52 Intellivoice Communications, Inc. 1955 Incentive Stock Plan (assumed by the Registrant) (incorporated by
reference to Exhibit 10.52 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999, as filed on March 30, 2000.
106
Exhibit
Number Description
- ------ -----------
10.53 Employment Agreement dated as of January 1, 2000 by and between American Teleconferencing Services, Ltd. And
Tehordore P. Schrafft (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended March 31, 2000).
10.54 First Amendment to Sublease Agreement dated as of February 1, 2000 by and between Premiere Communications,
Inc. and Healtheon/WebMD Corporation (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 2000).
10.55 PTEK Holdings, Inc. 2000 Directors Stock Plan (incorporated by reference to Exhibit A to the Registrant's
Definitive Proxy Statement distributed in connection with the Registrant's June 7, 2000 annual meeting of
shareholders, filed April 28, 2000).**
10.56 Settlement Agreement dated as of April 7, 2000 by and between PTEK Holdings, Inc. and MCI WorldCom, Inc.
(incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2000).*
10.57 Amendment No. 1 dated as of January 1, 2000 to Telecommunications Service Agreement dated October 29, 1999 by
and between Premiere Technologies, Inc. and MCI WorldCom, Inc. (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2000).
10.58 Addendum A dated as of January 1, 2000 to Carrier Services Agreement dated as of October 29, 1999 by and
between PTEK Holdings, Inc. and MCI WorldCom, Inc. (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2000).
10.59 Credit Agreement dated as of September 29, 2000 by and among Xpedite Systems, Inc., PTEK Holdings, Inc. and
ABN Amro Bank, N.V. (incorporated by reference to Exhibit 10.1 to the Registrants Quarterly Report on Form
10-Q for the Quarter Ended September 30, 2000).
10.60 Asset Sale Agreement, together with exhibits, dated as of August 25, 2000 by and between Telecare, Inc. and
Premiere Communications, Inc. (incorporated by reference to Exhibit 10.2 to the Registrants Quarterly Report
on Form 10-Q for the Quarter Ended September 30, 2000).
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Arthur Andersen LLP.
* Confidential treatment has been granted. The copy on file as an exhibit omits
the information subject to the confidentiality request. Such omitted information
has been filed separately with the Commission.
** Management contracts and compensatory plans and arrangements required to be
filed as exhibits pursuant to Item 14(c) of this report.
107