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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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, 2002.

Commission file number: 0-27778

PTEK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

3399 Peachtree Road, N.E., The Lenox Building, Suite 700, 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:

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 o

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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12-b-2) Yes x No o

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 25, 2003 as reported by The Nasdaq Stock Market’s National Market, was approximately $217,575,085.

As of March 25, 2002 there were 53,458,252 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 2003 meeting of shareholders are incorporated by reference in Part III.

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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, particularly after the emergence of WorldCom and Global Crossing from protection under Chapter 11 of the United States Bankruptcy Code;

•         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 ability to service, repay or refinance all or a portion of our convertible notes issued to the public, which mature on July 1, 2004;

•         The failure of the purchaser to pay the liabilities assumed in, or incurred after, the sale of the Voicecom business unit;

•         Our services may be interrupted due to failure of the platforms and network infrastructure utilized in providing our services;

•         Our services may be interrupted and our costs may increase due to the filing by WorldCom and Global Crossing for protection under Chapter 11 of the United States Bankruptcy Code;

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•         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;

•         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 business communications services, including conferencing (audio conferencing and Web-based collaboration) and multimedia messaging (high-volume actionable communications, including e-mail, wireless messaging, voice message delivery and fax). The Company’s services are directed primarily at the global enterprise marketplace and the Company has more than 80,000 corporate accounts, including 70% of the Fortune 500. PTEK believes that corporate customers will increasingly rely on outsource providers for these mission critical business communications services because these tasks are too complex and/or too costly to handle internally and do not represent a core competency.

The Company operates two separate business units — Premiere Conferencing, an industry leader for enhanced, automated and Web conferencing solutions, and Xpedite, the global leader in multimedia messaging 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 and Xpedite has developed a suite of e-mail, wireless and voice-based messaging 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. The transaction was accounted for as discontinued operations in the first quarter of 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Discontinued Operations”, and Note 9 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, The Lenox Building, Suite 700, 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 business communications services solutions are provided through its two business units — Premiere Conferencing and Xpedite.

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Premiere Conferencing offers a full suite 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 daily/weekly meetings. Premiere Conferencing provides group communications services for leading companies in virtually every major industry. Premiere Conferencing hosted approximately three million calls comprising nearly one billion minutes in 2002.

Through its own proprietary software technology, Premiere Conferencing offers ReadyConference^®, its automated service that does not require hands-on involvement from an operator. These automated services, which are easily coupled with Premiere Conferencing’s Web conferencing products, 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 has a complete product line of high-touch, operator-assisted conferences that can be easily integrated with Premiere Conferencing’s Web products. Premiere Conferencing’s PremiereCall services include assistance from an operator or operators to introduce the speakers and topics, give participants instructions, and monitor all facets of a conference. In addition, complete event management services, which include a dedicated team and professional announcer to work with any customization requests, are available. Typical PremiereCall applications include sales meetings, investor relations calls, press conferences, customer seminars, product rollouts, and continuing medical education, continuing legal education, and branded customer seminars. Premiere Conferencing’s semiautomated operator-assisted service, PremiereCall Auditorium^SM, experienced strong growth in 2002, as more customers leveraged their ability to start a high touch conference immediately, while still utilizing the resource of a dedicated operator during the entire call. 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^® and ReadyCast^®, that efficiently combine the visual power of the Internet with its audio conferencing capabilities 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 also includes features such as chat, Web tours, polling, whiteboarding 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^®, 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 globally through its network of operations centers and international toll free numbers. Premiere Conferencing has bridging and sales infrastructure in the United States, Canada, Australia, New Zealand, Hong Kong, Singapore, Japan, France, Germany, Ireland and the United Kingdom.

Xpedite offers a comprehensive suite of business services that enable actionable two-way communications which allow companies to better acquire and retain customers as well as automate their core business processes. Xpedite provides tailored solutions to customers to help them manage the electronic delivery of critical time-sensitive information, such as inventory availability reports, updated mortgage rates and equity research reports/updates. In addition, the Xpedite solution set enables two-way communications for order and reservation confirmations, bank account statements and invoice and collection notices. By automating key business processes, Xpedite can also help global enterprise customers better manage their electronic order fulfillment and account payment settlement. 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 more than two billion messages in 2002 through its proprietary communications platform.

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In 2002, Xpedite added several significant service enhancements to messageREACH^®, its e-mail service that provides control, tracking, security, personalization and automated administration for high volume e-mail and e-commerce applications. These enhancements include 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 which allows text messages to be delivered to GSM phones using existing Xpedite access methods.

Xpedite also provides voiceREACH^SM, an 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, trade show operators and collections companies.

Xpedite services support 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 17 countries throughout Europe, Asia, Australia and North America.

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 6,500 domestic and international corporate accounts, supporting approximately 71,000 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 historically relied on sales through a particular customer, IBM, for a significant portion of its revenues. Sales to that customer accounted for approximately 12% of consolidated revenues from continuing operations (29% of Premiere Conferencing’s revenues) in 2002, 10% of consolidated revenues from continuing operations (29% of Premiere Conferencing’s revenues) in 2001, and 5% of consolidated revenues from continuing operations (22% of Premiere Conferencing’s revenues) in 2000. Premiere 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 revenues 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 have a material adverse effect on the Company’s business, financial condition and results of operations.

Xpedite has more than 12,000 enterprise customers, representing over 175,000 users. This business unit has successfully targeted industries such as securities, banking, mortgage, publishing, healthcare, associations, investor relations, public relations, travel and hospitality.

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 550

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sales professionals around the world.

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 deployed in local markets.

Platforms and Network Infrastructure

The Company, through its two business units, operates global Internet and telecom-based networks that allow customers to access 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; Lenexa, Kansas; Sydney, Australia; and Clonakilty, Ireland. Automated bridging nodes are maintained in the United States, Canada, Australia, New Zealand, Hong Kong, Singapore, Japan, France, Germany Ireland, and the United Kingdom. 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 these conferencing platform through direct inward dialing, 800 numbers, the Internet and virtual network access.

Xpedite services are provided through its enhanced messaging network with more than 35,000 messaging ports that uses servers to perform all primary processing and switching functions. Xpedite’s proprietary platform supports multiple input methods including, but not limited to, priority PC-based software, e-mail gateways and high speed IP based interconnects. Outgoing communications 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 servers over a wide area network via either private lines or Xpedite’s global TCP/IP based network. Mission critical information is transported from one location domain to another using MCP to MCP protocol. The current domains include Australia, Japan, Korea, 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, Taiwan, Hong Kong and Singapore.

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, Auditorium, SecureTouch^SM, 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 69 research and development professionals.

Competition

PTEK competes with major communications service providers around the world such as AT&T, WorldCom, Global Crossing, Sprint, and the international PTTs. The Company also competes with smaller companies in each of its service categories. For example, Premiere Conferencing competes with Intercall, Raindance, ACT Teleconferencing, WebEx and Genesys. As Xpedite evolves into more of a business services company, its solution set will be positioned to displace existing services provided by companies such as West,

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Teletech and others in the customer relationship management (CRM) category, and it will continue to compete with EasyLink, AVT, Critical Path, DoubleClick and J2 Global Communications in the multimedia messaging category. 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, 2002, 2001 and 2000, see Note 23— “Segment Reporting.”

Government Regulation

One of the Company’s subsidiaries, Premiere Communications, Inc. (“PCI”), provides long distance telecommunications services and is subject to federal, state and local telecommunications regulations in the United States. In addition, other PTEK subsidiaries may be affected by regulatory decisions, trends or policies issued or implemented by federal, state or local regulatory authorities. Various international authorities may also seek to regulate, or impose requirements with respect to, the services provided by PCI or such other PTEK subsidiaries.

The Federal Communications Commission (“FCC”) classifies PCI as a non-dominant common carrier for its domestic interstate and international telecommunications services. Generally, such common carriers must maintain and publicly disclose price lists, describing rates, terms and conditions of service, must comply with federal regulatory programs such as universal service, and must comply with decisions and policies adopted or enforced by the FCC. 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. FCC or state PUC authorizations can generally be conditioned, modified or revoked for failure to comply with applicable laws, rules, regulations or regulatory policies. Fines or other penalties also may be imposed for such violations. Management believes that the Company and its subsidiaries exercise reasonable efforts to comply with applicable FCC and state PUC decisions, policies and regulatory programs. However, there can be no assurance that the Company and its subsidiaries are currently in compliance 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 the Company or its subsidiaries’ compliance with applicable laws or regulations.

Federal and state laws regulate telemarketing practices, and may adversely impact the Company’s business and that of its customers and potential customers. The FCC promulgated rules in 1992 to implement the Telephone Consumer Protection Act of 1991 (the “TCPA”). These rules, among others, regulate telemarketing methods and activities, including the use of prerecorded messages, the time of day when telemarketing calls may be made, maintenance of company-specific “do not call” databases, and restrictions on unsolicited facsimile advertising. The FCC is currently in the process of considering amendments to its rules under the TCPA. The FCC has also sought comment on the issue of a national “do not call” list and whether it should adopt such a list in conjunction with the Federal Trade Commission (the “FTC”).

Under the Federal Telemarketing Consumer Fraud and Abuse Act of 1994, the FTC has issued regulations designed to prevent deceptive and abusive telemarketing acts and practices. The FTC recently significantly amended its regulations, and these changes could impose additional costs on the Company and affect the industry adversely. As part of these rule amendments, the FTC has ordered that a national “do not call” registry be

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established, whereby telemarketers will be barred from calling consumers who register their telephone numbers in the national database. The “do not call” registry is expected to become effective approximately seven months after the FTC receives funding from Congress and awards the contract to create the registry. The Company will have to take the necessary steps to ensure compliance with the “do not call” registry and other FTC rule amendments.

In addition to the federal legislation and regulations, there are numerous state statutes and regulations governing telemarketing activities, including state “do not call” list requirements, and state registration and bonding requirements. The Company has compliance policies in place with regarding to telemarketing laws and regulations; however, there can be no assurance that the Company would not be subject to litigation alleging a violation of state or federal telemarketing 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 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 international activities also are 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

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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.

Available Information

The Company’s corporate Internet address is www.ptek.com. We have made available free of charge through our Internet Web site (follow the Invest tab to Investor Relations to link to “SEC Filings”) our annual report on Form 10-K, quarterly report on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as practicable after such material was electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”).

Employees

As of December 31, 2002, PTEK employed 1,927 people. PTEK employees are not represented by a labor union or covered by any collective bargaining agreements.

Item 2.             Properties

PTEK’s corporate headquarters occupy approximately 19,600 square feet of office space in Atlanta, Georgia under a lease expiring August 31, 2007. Xpedite occupies approximately 90,000 square feet of office space in Tinton Falls, New Jersey under a 15-year lease expiring in May 2016. Premiere Conferencing occupies approximately 106,000 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, 2004.

The Company also leases various 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.

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 Systems, Inc. (“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. On October 17, 2002, the Defendants filed a Motion for Summary Judgment and a Motion in Limine to exclude the testimony of the Plaintiffs’ expert. Both motions are

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pending.

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 $4.9 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, February 4-7, 2002, April 9-19, 2002, and May 30, 2002. On July 31, 2002, the NASD Panel issued its Award. The Award was subsequently amended on September 9, 2002. The Panel, among other things, held Xpedite, along with co-Respondents Angrisani, Erb, and CEA Financial, jointly and severally liable to Claimant Constance Nobis for $50,000, plus 9% simple interest from January 1, 1999 until September 9, 2002. The Panel also held Angrisani, Erb, and CEA Financial jointly and severally liable to Xpedite for $50,000, plus 9% simple interest from January 1, 1999 until September 9, 2002. Xpedite has filed a Notice of Petition, Verified Petition to Vacate Arbitration Award, and Request for Judicial Intervention in New York State. That proceeding is pending. At a hearing on January 10, 2003, the New Jersey Superior Court affirmed the NASD Award. No order or judgment, however, has been issued by the New Jersey Superior Court.

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 PTEK 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 PTEK are limited to plaintiff’s investment in Xpedite. Plaintiff’s claims against Xpedite and PTEK 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, February 4-7, 2002, April 9-19, 2002, and May 30, 2002. On July 31, 2002, the NASD Panel issued its Award. The Award was subsequently amended on September 9, 2002. The Panel, among other things, held

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Xpedite, along with co-respondents Angrisani, Erb, and CEA Financial, jointly and severally liable to claimant Elizabeth Tendler for $57,500, plus 9% simple interest from March 1, 1999 until September 9, 2002. The Panel also held Angrisani, Erb, and CEA Financial jointly and severally liable to Xpedite for $57,500, plus 9% simple interest form March 1, 1999 until September 9, 2002. Xpedite has filed a Notice of Petition, Verified Petition to Vacate Arbitration Award, and Request for Judicial Intervention in New York State. That proceeding is pending. At a hearing on January 10, 2003, the New Jersey Superior Court affirmed the NASD Award. No order or judgment, however, has been issued by the the New Jersey Superior Court.

On December 10, 2001, Voice-Tel filed a Complaint against Voice-Tel franchisees JOBA, Inc. (“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. On January 7, 2002, JOBA and Digital answered Voice-Tel’s Complaint and asserted counterclaims against Voice-Tel for alleged breach of franchise agreements and other alleged franchise-related agreements. JOBA and Digital also asserted claims alleging tortious interference of contract against Premiere Communications, Inc. (“PCI”) and PTEK. 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. In March 2002, Voice-Tel and JOBA and Digital sought leave of court to file amended complaints and answers, which the court granted as to JOBA and Digital and granted in part and denied in part as to Voice-Tel. The Digital Franchise Agreement contained a mandatory arbitration provision, which was not found in the JOBA Franchise Agreement. Therefore, on April 10, 2002, the federal court severed the Digital breach of franchise agreement claims and ordered them to be arbitrated. The Court ordered that all remaining claims, including but not limited to the breach of franchise agreement claims as to JOBA, would remain in federal court. The arbitration is currently scheduled for July 13, 2002 and will be held in Atlanta, Georgia. There is a proposal outstanding that all parties agree to submit all claims to arbitration including the Federal Court claims. At this time, this proposal has not been agreed to by any of the parties. Discovery with respect to the arbitration will end on June 25, 2003. On July 10, 2002, JOBA and Digital moved to amend their Complaint to add claims for constructive termination of their franchises, which was subsequently denied by the court on September 11, 2002. On July 16, 2002, Voicecom Telecommunications, LLC (“Voicecom”) was added as a party Plaintiff in the lawsuit against JOBA and Digital. With the exception of expert and damages testimony, discovery has now concluded and the parties are awaiting a trial date contingent on the parties agreeing to submit all claims to arbitration. The parties have filed motions and cross motions for partial summary judgment, including responses thereto. A mediation of all claims between all parties was held on March 24, 2003, which failed to resolve any of the issues in litigation.

On January 30, 2002, a complaint was filed by 15 Lake Bellevue, LLC in the Superior Court of King County, Washington. Plaintiff sought 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 was limited to the lesser of the lease obligations or $2,000,000, together with attorneys’ fees, interest and collection expenses. The Company filed an answer to the lawsuit, and on May 17, 2002, the plaintiff filed a motion for partial summary judgment. On June 18, 2002, the court entered an order finding unconditional liability on the part of the Company with respect to the guaranty but reserving the issue of the amount of the Company’s liability for trial. On December 31, 2002 the parties entered into a settlement agreement resolving in full all claims asserted by each party against the other.

On March 25, 2003, EasyLink Services Corporation (“EasyLink”) filed an amended complaint against the Company, Xpedite and AT&T Corp. (“AT&T”), in the Superior Court of New Jersey, Chancery Division: Middlesex County. EasyLink’s complaint alleges, among other things, that the Company entered into an agreement to purchase a secured promissory note in the original principal amount of $10 million and 1,423,980 shares of EasyLink’s Class A common stock for the purpose of obtaining EasyLink’s business by using the acquired securities to block a debt restructuring that EasyLink was allegedly pursuing with its creditors, including AT&T, and for other improper motives. EasyLink’s complaint alleges that it pursued such debt restructuring in reliance on its understanding that AT&T would participate in the restructuring on certain terms to which EasyLink and AT&T allegedly had agreed, and that AT&T misled EasyLink as to its intentions with respect to such restructuring. The complaint further alleges that AT&T disclosed confidential information of EasyLink to the Company in violation of AT&T’s agreements with EasyLink, and that such information was used by AT&T and the Company in furtherance of a joint scheme to force EasyLink out of the marketplace. EasyLink’s complaint also alleges that employees of the Company and Xpedite have knowingly made false statements to EasyLink’s customers, investors and creditors

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regarding EasyLink and its financial stability. EasyLink claims that these various actions have impaired its ability to restructure its debt effectively and caused it to suffer various other commercial losses. EasyLink’s complaint seeks to (i) enjoin AT&T from selling the secured promissory note to the Company, improperly interfering with EasyLink’s business and contracts and disclosing EasyLink’s confidential information without EasyLink’s consent; (ii) compel AT&T to consummate EasyLink’s proposed restructuring; (iii) enjoin the Company and Xpedite from making false statements to EasyLink’s customers and creditors regarding EasyLink and its financial position; (iv) enjoin the Company from contacting EasyLink’s creditors and preventing the restructuring of EasyLink’s debt; and (v) enjoin the Company and Xpedite from using EasyLink’s confidential information and contacting EasyLink’s current and former employees to obtain such confidential information. EasyLink’s complaint also seeks unspecified damages from AT&T and the Company. The Company intends to answer and defend this 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.

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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.

The closing price of the Common Stock as reported on the NASDAQ National Market on March 12, 2003 was $3.68. As of March 12, 2003 there were 487 record holders and approximately 11,600 beneficial 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, 2002, certain current and former employees exercised options to purchase an aggregate of 47,080 shares of Common Stock at prices ranging from $0.71 per share to $1.61 per share in transactions exempt from registration pursuant to Section 4(2) and Rule 701 of the Securities Act. In the third quarter of 2002 the Company issued 601,997 shares of Common Stock of which 352,997 shares were returned in November 2002 pursuant to the terms of the class action settlement. The remaining 249,000 shares were exempt from registration pursuant to Section 3(a)(10) 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, 2002, 2001, 2000, 1999 and 1998 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.

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______________

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    1)    Basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income (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).

On March 26, 2002 the Company sold substantially all of the assets of the Voicecom operating segment, exclusive of its Australian operations, to Gores Technology Group, for a total purchase price of approximately $22.4 million, comprised of cash and the assumption of certain liabilities. In accordance with Statement of Financial Accounting Standards (“SFAS”) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the transaction was accounted for as a discontinued operation. See Discontinued Operations section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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 business communications services, including conferencing (audio conferencing and Web-based collaboration) and multimedia messaging (high-volume actionable communications, including e-mail, wireless messaging, voice message delivery and fax). The Company’s reportable segments align the Company into two operating segments based on product offering. These segments are Premiere Conferencing and Xpedite. Premiere Conferencing offers a full suite of enhanced audio, automated audio and Web conferencing services for all forms of group communications activities. Xpedite offers a comprehensive suite of business services that enable actionable two-way communications which allow companies to better acquire and retain customers as well as automate their core business processes. In addition, the Company had one other reportable segment, Voicecom, which the Company exited through a sale, exclusive of its Australian operations, effective March 26, 2002. Voicecom offered a suite of integrated communications solutions, including voice messaging, interactive voice response services and unified communications. 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 investment arm.

Revenues of the Company are recognized 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. Unbilled revenue consists of earned but unbilled revenue which results from the weekly billing cycle that was implemented at Premiere Conferencing during the third quarter of 2002. 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 and all costs associated with international hardware system sales.

“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.

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“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 (prior to 2002), customer lists, developed technology and assembled work force (prior to 2002). Intangible assets are amortized over the useful life of the asset 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. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” effective January 1, 2002 and SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” for all periods prior to the adoption of SFAS No. 144. 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 loans and various capital lease obligations.

“Interest income” includes interest earned on highly liquid investments with a maturity at date of purchase of three months or less and interest on employee loans

“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.

“EBITDA” is defined by the Company as income (loss) from continuing operations before interest, taxes, depreciation and amortization.

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

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discussion should be read in conjunction with the Company’s consolidated financial statements contained herein and notes hereto.

On January 1, 2001, management responsibility for international conferencing services was transferred from Xpedite to Premiere Conferencing. Prior to that date, these international revenues were reported in the Xpedite operating segment. The revenues of the Australian operations of Voicecom that were retained in conjunction with the sale of this operating segment are reported in the international results of Xpedite effective January 1, 2002. 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. Overall, these reclassifications did not have a material impact on the financial results of the operating segments for the periods presented.

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:

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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:

Revenues

Consolidated revenues from continuing operations increased 3.3% to $341.3 million in 2002 from $330.4 million in 2001, and increased 9.0% in 2001 from $303.2 million in 2000. Revenues in the Company’s operating segments are as follows:

Xpedite revenues were 59.5%, 65.3% and 75.9% of consolidated revenues for 2002, 2001 and 2000, respectively. Xpedite revenues decreased 5.9% to $202.9 million in 2002 from $215.7 million in 2001 and decreased 6.3% from $230.1 million in 2001. The decline in revenues in 2002 is mainly attributable to price compression in Xpedite’s traditional or “legacy” store and forward fax business. The decline in revenues in 2001 is primarily attributable to the reduction in revenues from real-time fax and real-time telex as this business was exited in 2000, and which combined represented a decline of approximately $16.4 million. In addition, revenues from the legacy store and forward fax business declined 3.8% in 2001 due to price compression. In the fourth quarter of 2000 and the first quarter of 2001, Xpedite made three customer base acquisitions which generated approximately $12.0 million and $9.9 million in revenues in 2002 and 2001, respectively.

Premiere Conferencing revenues were 40.6%, 34.8% and 24.2% of consolidated revenue for 2002, 2001 and 2000, respectively. Premiere Conferencing revenues increased 20.2% to $138.5 million in 2002 from $115.1 million in 2001 and increased 57.0% from $73.4 million in 2001. The increases in 2002 and 2001 are primarily

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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, an expansion of these services into key foreign markets, and growth in Web conferencing services. Management expects revenue growth in this operating segment to continue, primarily driven by growth in minutes of use. However, the rate of growth is expected to decline as increased price compression is anticipated due to increased competition.

Gross margins

Consolidated gross profit margins from continuing operations were 81.0%, 77.9% and 72.6% in 2002, 2001 and 2000, respectively. Gross margins in the Company’s operating segments were as follows:

Xpedite gross profit margins were 79.4%, 74.7%, and 69.8%, in 2002, 2001 and 2000, respectively. In 2002 and 2001 gross margins increased due to decreases in per minute telecommunications rates for the Xpedite worldwide network, as well as increased sales of messageREACH and voiceREACH products, which carry higher gross margins. Lower telecommunications costs have become the general industry trend over the past several years. Xpedite utilizes several telecommunication service providers and, accordingly, can direct traffic to providers offering the lowest rates.

Premiere Conferencing gross profit margins were 83.4%, 84.0% and 81.3%, in 2002, 2001 and 2000, respectively. In 2002, gross margins declined slightly as the decline in the average price per minute for its services was greater than the decrease in telecommunications costs. Gross margins increased in 2001 primarily due to significant decreases in per minute telecommunications transport costs. The significant decreases in telecommunication costs are the result of the general industry price declines seen for long distance delivery. Premiere Conferencing utilizes several telecommunication service providers and, accordingly, can direct traffic to providers offering the lowest rates.

Direct operating costs

Consolidated direct operating costs from continuing operations as a percentage of consolidated revenues were 15.5%, 15.8% and 14.2% in 2002, 2001 and 2000, respectively. Direct operating costs remained relatively constant on a percentage basis in 2002 and in 2001. The increase from 2000 to 2001 resulted from the growth in Premiere Conferencing revenues as a percentage of total revenue during such period. Premiere Conferencing carries higher direct operating costs than Xpedite as a result of its call center operations. Direct operating costs in the Company’s operating segments were as follows:

Xpedite direct operating costs as a percentage of segment revenues were 9.7%, 8.7% and 7.8% in 2002, 2001 and 2000, respectively. Direct operating costs increased from 2001 to 2002 by approximately 1.0 percentage point as a result of the increase in Xpedite’s hardware sales in Japan, which carries a 70% direct cost, and an increase in message volume of 11.3% during such period. In 2001, direct operating costs increased 0.9 percentage points primarily due to increased message volume of 36.6%.

Premiere Conferencing direct operating costs as a percentage of segment revenues were 24.1%, 29.1% and 34.2% in 2002, 2001 and 2000, respectively. In 2002 and 2001, direct operating costs as a percentage of segment revenues decreased 5.0 and 5.1 percentage points, respectively, due to the growth in the automated ReadyConference product, which carries a low direct cost compared to the operator assisted product because it does not require an operator to facilitate the conference call. Revenues from this product grew to 69% of segment revenues in 2002 from 60% in 2001.

Selling and marketing

Consolidated selling and marketing costs from continuing operations as a percent of consolidated revenues were 26.2%, 22.8% and 22.4% in 2002, 2001 and 2000, respectively. Selling and marketing costs in the Company’s operating segments were as follows:

Xpedite selling and marketing costs as a percentage of segment revenues were 30.4%, 24.8% and 23.5% in 2002, 2001 and 2000, respectively. In 2002 the 5.6 percentage point increase was due primarily to a 29 employee increase in sales and marketing headcount. In 2001, the 1.3 percentage point increase was primarily due to the higher costs of launching messageREACH globally.

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Premiere Conferencing selling and marketing costs as a percentage of segment revenues were 19.8%, 18.5% and 17.7% in 2002, 2001 and 2000, respectively. In 2002 and 2001 the 1.3 and 0.8 percentage point increases were due primarily to increased sales and marketing headcount of 86 and 74 employees in 2002 and 2001, respectively.

General and administrative

Consolidated general and administrative costs from continuing operations as a percentage of consolidated revenues were 16.4%, 17.6% and 15.7% in 2002, 2001 and 2000, respectively. General and administrative costs in the Company’s operating segments were as follows:

Xpedite general and administrative costs as a percentage of segment revenues were 13.6%, 14.5% and 11.9% in 2002, 2001 and 2000 respectively. The decrease in general and administrative costs as a percentage of segment revenues from 2001 to 2002 of 0.9 percentage points is due primarily to reductions in headcount in administration and customer service during early 2002. The increase from 2000 to 2001 of 2.6 percentage points of segment revenues is primarily due to increased headcount in administration and customer service.

Premiere Conferencing general and administrative costs as a percentage of segment revenues were 9.1%, 9.6% and 8.1% in 2002, 2001 and 2000, respectively. In 2002 general and administrative costs as a percentage of segment revenues declined despite an overall dollar increase of approximately $1.4 million. This is primarily due to the growth in Premiere Conferencing automated revenues as a percentage of consolidated revenues. The ReadyConference product is highly scalable and does not require proportional increases in back office support. The increase from 2001 to 2000 is primarily due to infrastructure support increases related to the overall expansion of the Premiere Conferencing operating segment.

Holding Company general and administrative costs as a percentage of total revenues were 4.6%, 4.9% and 5.6% in 2002, 2001 and 2000, respectively. Holding Company general and administrative costs were $15.8 million, $16.3 million and $15.6 million in 2002, 2001 and 2000, respectively. The $0.5 million decrease from 2001 to 2002 is primarily due to salary reductions, which were offset in part by approximately $1.6 million in strategic deal costs. The $0.7 million increase from 2000 to 2001 is primarily the result of costs associated with the PtekVentures business.

Research and development

Consolidated research and development costs from continuing operations as a percentage of consolidated revenues were 2.1%, 3.4% and 2.8% in 2002, 2001 and 2000, respectively. Research and development costs in the Company’s operating segments were as follows:

Xpedite research and development costs as a percentage of segment revenues were 2.7%, 4.1% and 3.3% in 2002, 2001 and 2000, respectively. In 2002, research and development costs as a percentage of segment revenues decreased as a result of a reduction in headcount, increased capitalized development costs of approximately $1.6 million and management’s continued policy of initiating only those development projects with a high probability of economic benefit. The increase in 2001 was attributable to continued development of the messageREACH and voiceREACH products.

Premiere Conferencing research and development costs as a percentage of segment revenues were 1.3%, 1.9% and 1.5% in 2002, 2001 and 2000, respectively. In 2002 the slight decrease as a percentage of segment revenues is primarily due to management’s continued policy of initiating only those development projects with a high probability of economic benefit. The slight increase in 2001 was primarily attributable to increased headcount of 8 employees needed for the continued development of ReadyConference, ReadyCast and VisionCast.

Depreciation

Consolidated depreciation costs from continuing operations as a percentage of consolidated revenues were 6.3%, 6.3% and 6.5% in 2002, 2001 and 2000, respectively. Depreciation costs in the Company’s operating segments were as follows:

Xpedite depreciation costs were 6.5%, 6.3% and 5.1% of segment revenues in 2002, 2001 and 2000, respectively. This represents a $0.4 million decrease in costs from 2001 to 2002 and a $1.9 million increase from

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2000 to 2001. The $0.4 million decrease is attributable to the timing of depreciation for capital expenditures purchased in the later half of 2001. The $1.9 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.

Premiere Conferencing depreciation costs were 5.4%, 6.0% and 8.2% of segment revenues in 2002, 2001 and 2000, respectively. This represents a $0.4 million increase from 2001 to 2002 and a $1.1 million increase from 2000 to 2001. The 2002 percentage decrease is primarily due to the significant segment revenue growth in 2002. In 2001 the increase in depreciation in terms of dollars is attributable to increased capital expenditures in 2000 and 2001 to provide additional capacity to accommodate the growth of the business.

Holding Company depreciation costs were $0.9 million, $0.8 million and $2.2 million in 2002, 2001 and 2000, respectively. This represents a $0.1 million increase from 2001 to 2002 and a $1.4 million decrease from 2000 to 2001. The decrease in depreciation from 2000 to 2001 was associated with the normal run out of depreciable assets not replaced.

Amortization

Consolidated amortization from continuing operations as a percentage of consolidated revenues was 3.2%, 26.8% and 29.8% in 2002, 2001 and 2000, respectively. Consolidated amortization from continuing operations was $10.9 million, $88.6 million and $90.2 million in 2002, 2001 and 2000, respectively. Goodwill amortization was $0.0 million, $65.1 million and $65.1 million in 2002, 2001 and 2000, respectively. Other intangibles amortization, which consist primarily of customer lists, developed technology and assembled workforce was $10.9 million, $23.5 million and $25.1 million in 2002, 2001 and 2000, respectively. With the adoption of SFAS No. 142, “Accounting for Goodwill and Other Intangible Assets,” which became effective January 1, 2002, the Company no longer records amortization expense associated with goodwill, but instead goodwill is subject to a periodic impairment assessment by applying a fair value based test. This analysis was completed for the year ended December 31, 2002 and no impairment was identified. Amortization as a percentage of revenues, exclusive of goodwill amortization, would have been 3.2%, 7.1% and 8.3%, for 2002, 2001 and 2000, respectively. The decline in amortization in 2001 is primarily related to the impairment of certain other intangibles during the fourth quarter of 2001. Other intangibles amortization decreased in 2002 and 2001 due to customer list impairments associated with the Xpedite operating segment. See “Asset impairments” below for a further discussion related to these impairments.

Restructuring costs

Realignment of Workforce – Fourth Quarter 2002

In the fourth quarter of 2002, Xpedite and the Holding Company terminated employees pursuant to a plan to shrink headcount and reduce sales and administration costs. The plan called for the reduction of 54 and 5 employees at Xpedite and the Holding Company, respectively. The combined costs associated with the restructuring plan are $1.5 million, of which $0.3 million was paid in 2002. Of the remaining balance, $0.8 million, $0.3 million and $0.1 million will be paid in 2003, 2004 and 2005, respectively. Virtually all costs will be paid in cash. This restructuring plan will eliminate approximately $1.4 million and $0.6 million in annual costs at Xpedite and the Holding Company, respectively. Also, in the fourth quarter of 2002 Xpedite decided to exit the voice messaging business in Australia due to declining revenue and the need to make substantial capital investments. The costs associated with exiting this business of $0.3 million are primarily non-cash and represent the loss on disposal of the voice messaging assets.

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 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 allowed for reinvesting these cost savings 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 2002 and 2001 associated with this plan were $2.1 million and $1.0 million, respectively. The Company expects to incur $0.4 million of additional cash payments in 2003 to satisfy this plan obligation. Of the $4.1 million of costs associated with this plan, approximately $0.7 million of non-cash charges

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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. The remaining costs at December 31, 2002 and 2001 were $0.4 million and $2.4 million, respectively.

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 the Holding Company, 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 allowed the Company to exit 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 a total of approximately $5.0 million of cash payments related to severance, exit costs and contractual obligations associated with the $6.7 million plan costs. Approximately $0.8 million and $3.8 million of these cash payments were made by December 31, 2002 and 2001, respectively, and were primarily related to severance and exit cost activities. The remaining cash payments are associated with severance costs, exit costs and contractual obligations and are expected to be paid in 2003. Approximately $1.7 million of non-cash charges recorded in 2001 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. The remaining costs at December 31, 2002 and 2001 were approximately $40,000 and $1.2 million, respectively.

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. 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. The decentralization plan of the Company was completed and all payments were made during 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, 2002, 2001 and 2000 of $0.0 million, $0.1 million and $0.6 million, respectively, represents remaining severance reserve for a former executive manager. Cash severance payments in 2002 and 2001 were $0.1 and $0.5 million, respectively. The Company paid the remaining severance obligations during 2002 and does not expect any further payments.

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Asset impairments

The following table summarizes the asset impairments from continuing operations incurred by operating segment for the years ended December 31, 2002, 2001 and 2000 (in thousands):

Effective January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment of Disposal of Long Lived Assets.” During the fourth quarter of 2002 the Company assessed the carrying value of the customer lists at Xpedite pursuant to SFAS No. 144 as Xpedite experienced a decline in revenues in certain international markets during the later half of 2002. Using the best estimate approach, the fair value of certain customer lists associated with the markets experiencing the decline were determined to be less than the carrying value at December 31, 2002, resulting in a $3.2 million asset impairment. The remaining amortization of the other intangible assets will be approximately $3.9 million, $2.0 million and $1.9 million in 2003, 2004 and 2005, respectively.

During the second half of 2001, business conditions declined significantly in the Xpedite operating segment. The following is a comparison of revenue performance for the first six months of 2001 versus the second six months of 2001 (in thousands).

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 of 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 at their asset grouping level. Based on the results of these assessments, the Company recorded the $100.8 million impairment in the fourth quarter of 2001 from continuing operations ($99.0 million of which was related to Xpedite, as discussed further below).

Xpedite impairment - 2001

In Xpedite, a decline in the legacy store and forward fax revenues 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 of 2001. 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.

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Other impairments - 2001

Additionally, management 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 charges

The following summarizes the components of equity-based compensation expense for the years ended December 31, 2002, 2001 and 2000 (in thousands, except share data):

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 therefore 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

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vest. In 2002 approximately 402,000 shares vested and equity based compensation expense of $1.3 million was recognized. Assuming all employees at December 31, 2002 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 $0.4 million in 2003 and $0.2 million in 2004. See further discussion in the “Restricted Stock Exchange Offer” section of Note 17—“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. At December 31, 2002, the option count was approximately 627,000 due to the sale of Voicecom and other cancellations of these options. 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, 2002 and 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 management

Certain members of 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 management’s performance with the interests of the shareholders. Certain of these restricted shares vested immediately in 2001 and were restricted from trading for a one-year period. The remaining restricted shares vest straight line through 2004 and the equity based compensation expense recorded in 2002 was $0.5 million. The anticipated remaining equity based compensation expense resulting therefrom will be approximately $0.6 million per year for 2003 and 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. 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 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 remaining balance of 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 – employees

During 2002, the Company loaned approximately $2.0 million with recourse to certain members of management to pay taxes in connection with the restricted shares issued in exchange for options in December 2001 and the discretionary restricted shares issued in November 2001. These loans are due in 2012, accrue interest at a weighted average rate of 5.5%, and are secured by the restricted shares granted. The total interest accrued on these loans as of December 31, 2002 was approximately $0.1 million. The Company is obligated to make additional loans to pay taxes associated with the future vesting of restricted shares, but the dollar amount of such loans cannot be determined at this time.

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.

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Options and restricted shares issued for services rendered

In 2001, the Company issued stock options and restricted shares of Company Common Stock to consultants for various consulting services performed for the Company.

Net legal settlements and related expenses

Net legal settlements and related expenses were $7.3 million, $2.3 million and $(1.5) million in 2002, 2001 and 2000, respectively. See Note 20—“Commitments and Contingencies” to the Consolidated Financial Statements and “Legal Proceedings” under Item 3 of Part I of this report. Net legal settlements and related expenses in 2002 consisted of approximately $3.3 million attributable to the settlement of the shareholder class action lawsuit and $4.0 million for the settlement of the Cowan lawsuit. Net legal settlements and related expenses in 2001 were primarily related to $1.6 million of costs incurred that relate to shareholder litigation matters. Net legal settlements and related expenses in 2000 related primarily to the favorable settlement of a contractual dispute with WorldCom.

Interest expense

Interest expense from continuing operations was $11.5 million, $11.5 million and $11.3 million in 2002, 2001 and 2000, respectively. Interest expense remained constant in 2002, and increased slightly in 2001 primarily due to long term financing for facility improvements to Xpedite’s new headquarters and Premiere Conferencing entering into a term equipment loan for $6.5 million in late 2001.

Interest income

Interest income was $1.5 million, $0.6 million and $0.9 million in 2002, 2001 and 2000, respectively. Interest income increased in 2002 primarily due to growth in cash and cash equivalents of approximately $19.9 million from 2001 to 2002 that was invested in interest bearing accounts, and from interest accrued for employee loans. Interest income remained primarily flat from 2000 to 2001 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 internet commerce. These investments were classified initially as either cost or equity investments in accordance with APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock,” and evaluated based upon activity. The Company continually evaluated the carrying value of its ownership interests in non-public investments in the PtekVentures portfolio for impairment that was “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 experienced difficulty in raising additional capital necessary to fund operating losses and make continued investments that their management teams believed 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 nonpublic 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 nonpublic company investment portfolio. During 2000, the Company made similar evaluations of the portfolio companies and recorded approximately $15.0 million in impairments.

Further, 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 standby 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 was recorded at December 31, 2001. During the first quarter of 2002, the Company paid its commitment on the standby letter of credit in the amount of $0.5 million. See “Legal

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Proceedings” under Item 3 of Part I of this report.

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 interest.

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.

Discontinued operations

Consistent with the Company’s increased focus on extending its market leadership in conferencing and multimedia messaging services for global enterprise customers, the Company retained a financial advisor to assist in evaluating strategic alternatives for portions of its business during 2001. As a result of that evaluation, the Company decided to pursue the separation of Voicecom from the rest of PTEK and on March 26, 2002 the Company sold substantially all the assets of its Voicecom business unit to an affiliate of Gores Technology Group for a total purchase price of approximately $22.4 million, comprised of cash and the assumption of certain Voicecom liabilities. In accordance with SFAS No. 144, the transaction was accounted for as a discontinued operation in the first quarter of 2002. The Voicecom discontinued operations included the loss from operations through the closing date and the loss on disposal. See Note 9 – “Acquisitions and Dispositions” to the Consolidated Financial Statements.

During the fourth quarter of 2002, the Company assessed the Voicecom liabilities that were retained at the time of the sale and determined, based upon the activity in these accounts and the passage of time, that certain of these liabilities were no longer required. Thus, in the fourth quarter of 2002 an adjustment was made to these estimates reducing the loss on discontinued operations of approximately $2.9 million, net of taxes.

Of the Voicecom liabilities, approximately $4.3 million represents capital leases guaranteed by the Company.

Effective income tax rate

In 2002, 2001 and 2000, 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 that have been accounted for under the purchase method of accounting, and changes in calculating allowances and estimates. Changes in valuations allowances and estimates are required when facts and circumstances indicate that realization of tax benefits or the actual amount of taxes expected to be paid has changed. During the year ending December 31, 2002, the Company realized tax benefits of approximately $5.6 million of which approximately $1.0 million and $4.6 million were realized in the third and fourth quarters, respectively, due to changes in previous estimates. See Note 21—“Income Taxes” to the Notes to Consolidated Financial Statements for additional information.

The deferred tax assets and liabilities contain a significant accrual for certain tax events in 2003. If future facts and circumstances indicate this accrual is unnecessary, the elimination of this accrual will have a material impact on the Company’s financial statements in the future.

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Liquidity and capital resources

As of December 31, 2002, the Company had $68.8 million of cash and cash equivalents compared to $48.0 million at December 31, 2001. Cash balances residing outside of the United States at December 31, 2002 were $10.3 million compared to $14.5 million at December 31, 2001. Net working capital at December 31, 2002 was $62.1 million compared to $13.1 million at December 31, 2001.

Cash provided by operating activities

Consolidated operating cash flows from continuing operations were $37.2 million, $29.0 million and $7.5 million in 2002, 2001 and 2000, respectively. Consolidated operating cash flows from continuing operations increased $8.2 million from 2001 to 2002 to $37.2 million. In 2002, net income from continuing operations, adjusted for the non-cash items of depreciation, amortization and asset impairment, and gain on sale of marketable securities, generated cash of $49.1 million. Other significant generators of operating cash were non-cash expenses paid with equity, consisting of employee compensation of $1.9 million and a legal settlement of $1.3 million. Other significant areas in which cash was generated (consumed) in the balance sheet were through the increase in accounts receivable of $(2.4) million, payment of accrued expenses of $(17.7) million, a decrease in prepaid expenses and other assets of $3.6 million and a decrease in deferred income taxes of $2.5 million. Consolidated operating cash flows from continuing operations increased $21.5 million from 2000 to 2001 to $29.0 million. In 2001, net income from continuing operations, adjusted for the non-cash items of depreciation, amortization and asset impairment, and gain on sale of marketable securities, generated cash of $30.7 million. Other significant generators of operating cash were non-cash expenses consisting of employee compensation of $20.4 million and a legal settlement of $0.7 million. Other significant areas in which cash was generated (consumed) in 2001 in the balance sheet were through a decrease in accounts receivable of $6.4 million, an increase in accrued expenses of $0.6, a decrease in prepaid expenses and other assets of $2.9 million and an increase in deferred income taxes and taxes receivable of $(34.4) million. Consolidated operating cash flows from continuing operations 2000 were $7.5 million. In 2000 net income from continuing operations plus the non-cash items of depreciation, amortization, asset impairment and gain on sale of marketable securities generated cash of $24.4 million. Other significant generators of operating cash were the non cash expense of employee compensation of $2.1 million and positive net legal settlements of $10.5 million. Other significant areas in which cash was generated (consumed) in 2000 in the balance sheet were through an increase in accounts receivable of $(4.6) million, a decrease in accrued expenses and restructuring costs of $(20.3) million, a decrease in prepaid expenses and other assets of $4.5 million and an increase in deferred income taxes $(9.2) million.

Cash provided by (used in) investing activities

Consolidated investing activities from continuing operations (used) provided cash of approximately $(6.2) million, $(32.5) million and $3.6 million in 2002, 2001 and 2000, respectively. The decrease in cash used in investing activities from continuing operations of $26.3 million from 2001 to 2002 was the result of proceeds from sale of Voicecom of approximately $7.2 million and the decrease in capital expenditures of approximately $11.8 as part of the Company’s continued efforts to expend resources only on necessary expenditures or those with a high probability of economic benefit. The increase in cash used in investing activities of $(36.1) million from 2000 to 2001 is related to decreased proceeds from the sale of marketable securities of $(57.6) million, increased capital expenditures of $(2.8) million, reduced investments in PtekVentures’ portfolio companies of $30.0 million and increased acquisitions of business assets of $(3.3) million.

Cash provided by (used in) financing activities

Consolidated financing activities (used) or provided cash of approximately $(5.9) million, $1.7 million and $(0.6) million in 2002, 2001 and 2000, respectively. The increase in cash used of $(7.5) million from 2001 to 2002 is primarily the result of additional treasury stock purchases of $(3.5) million in 2002, increased payments under borrowing arrangements of $(2.6) million from the term loans at Premiere Conferencing and the decrease in the proceeds from long term borrowings of $(2.5) million as a result of a new $4.0 million loan in 2002 for Premiere Conferencing compared to $6.5 million of borrowings in 2001. The Company’s financing activities increased $2.2 million from 2000 to 2001 primarily due to proceeds from borrowing arrangements of $6.5 million, a decrease in the issuance of notes receivables to shareholders of $2.0 million and a decrease in proceeds from the exercise of stock options of $(6.9) million. Principal payments under borrowing arrangements were primarily attributable to capital lease obligations at 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. The

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shareholder notes receivable issued during 2001 were for prior years’ taxes on Company stock option exercises by the CEO. 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 2002, the Company repurchased approximately 1.8 million shares of its Common Stock under this program for approximately $6.6 million. During 2001, the Company repurchased approximately 1.1 million shares of its Common Stock under this program for approximately $3.1 million. In January 2003, the Company’s Board of Directors approved an increase in its 2000 stock repurchase program by authorizing the repurchase of up to an additional 10% of the Company’s outstanding Common Stock, or approximately 5.3 million additional shares of Common Stock.

EBITDA TO OPERATING CASH FLOW

“EBITDA” is considered a measure of liquidity. Management uses this measure as an indicator of cash generated solely from operating activities and is an important measurement of each business unit’s contribution towards overall liquidity. Further, it provides management with a consistent measurement tool for evaluating the operating activities of a business unit before investing activities, interest and taxes. EBITDA is a non standard accounting term as defined by generally accepted accounting principles in the United States (“GAAP”). Management believes the most directly comparable GAAP financial measure is “net cash provided by operating activities from continuing operations” presented in the Consolidated Statement of Cash Flows. EBITDA is reconciled directly to net cash provided by operating activities from continuing operations below: