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UNITED STATES

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

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  ¨

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.  ¨

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

The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant, based upon the closing sale price of common stock on June 30, 2003 as reported by The Nasdaq Stock Market’s National Market, was approximately $232,045,585. As of March 8, 2004 there were 58,009,287 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 2004 annual meeting of shareholders are incorporated by reference in this Form 10-K.

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PART I

Overview

PTEK Holdings, Inc., a Georgia corporation (“PTEK” or the “Company”), is a global provider of business communications services to large- and medium-sized enterprise customers. The Company has two business units, Premiere Conferencing and Xpedite. Premiere Conferencing offers a variety of conferencing and Web-based data collaboration services, and Xpedite offers enhanced electronic messaging services through various modalities, including e-mail, fax, wireless and voice. The Company has a worldwide presence and an established customer base of over 32,000 corporate accounts, including a majority of the Fortune 500, spanning virtually every major industry.

A large number of businesses rely on data, audio and Web conferencing or electronic transactional messaging to manage a wide variety of important business communications. The rapid proliferation of these technologies and the growing complexity of service requirements have motivated companies to outsource these managed group communications requirements. In addition, the current geopolitical climate and corporate cost-cutting trends have encouraged companies to replace business travel with more convenient, reliable and economical communications such as conferencing and messaging.

For the year ended December 31, 2003, segment revenues for Premiere Conferencing and Xpedite were 41.4% and 58.7%, respectively, before eliminations of consolidated revenues. Geographic revenues for North America, Asia Pacific and Europe were 64.7%, 17.1% and 18.2%, respectively, of consolidated revenues for 2003.

To better serve PTEK’s global corporate customers, the Company has launched new services and enhancements to existing services at each of its business units to help position them in larger market categories. Premiere Conferencing has expanded into automated and Web-based data conferencing services, and Xpedite has developed a suite of transactional e-mail, wireless and voice-based messaging services.

PTEK was incorporated in Florida in 1991 and reincorporated in Georgia in 1995. The Company’s corporate headquarters 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 communications 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.

The conferencing and Web-based collaboration market is projected to reach $4.3 billion by 2006 (Source: Wainhouse Research). The multimedia messaging segment, which traditionally combines outsourced e-mail, voice and fax, is projected to reach $2.7 billion by 2006 (Source: Davidson Consulting). PTEK provides market leading services 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 are provided through its two business units — Premiere Conferencing and Xpedite.

Premiere Conferencing offers a full suite of integrated audio conferencing and Web-based data collaboration services for all forms of group communications activities, from large events, such as investor relations calls and training sessions, to smaller meetings, such as sales planning calls and project team meetings. Premiere Conferencing provides group communications services for leading companies in virtually every major industry. Premiere Conferencing hosted more than 1.3 billion conferencing minutes in 2003.

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Utilizing proprietary software technology, Premiere Conferencing offers ReadyConference^®, its automated conferencing service that does not require hands-on involvement from an operator. These automated services allow users to begin and conduct their conference calls without the assistance of an operator or the need of a reservation via a dedicated dial-in number and passcode available for use anytime. In addition, Premiere Conferencing’s Ready Conference^® Global Meet service provides local access for international users for audio conferencing via a voice-over-IP (“VoIP”)-based network. This service enables international callers to dial into a local number and connect to a conference call in North America without the need to use international long distance toll calls.

Premiere Conferencing’s PremiereCall services provide customers with operator assistance to introduce the speakers and topics, give participants instructions and monitor all facets of a conference. In addition, PremiereCall Event management services provide a dedicated team and professional announcer to work with any customization requests. Typical PremiereCall applications include sales meetings, investor relations calls, press conferences, customer seminars, product rollouts, continuing medical and legal education and branded customer seminars. Premiere Conferencing’s automated entry into an operator-assisted service, PremiereCall Auditorium^®, enables customers to start a larger-scale conference immediately using automated passcode access, 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’s suite of Web-based data collaboration services efficiently combine the visual power of the Internet with its audio conferencing capabilities to provide real-time, multimedia presentation services. Premiere Conferencing recently released ReadyConference Plus, a data collaboration service which offers customers a simplified web interface to manage audio conference calls and share slide presentations. Premiere Conferencing also offers VisionCast^® and ReadyCast^®. Customers use VisionCast to conduct large, interactive events, such as training, seminars, company meetings, focus groups and media conferences. VisionCast can be used in conjunction with PremiereCall services and includes features such as chat, Web tours, polling, whiteboarding, record and playback capabilities, roll call and live demo options. ReadyCast combines similar data collaboration capabilities for smaller meetings with the cost efficiency and convenience of the 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 messaging services that enables actionable two-way communications which allow companies to better acquire and retain customers as well as automate their core business processes. Xpedite provides tailored services that help businesses manage the electronic delivery of critical time-sensitive information, such as mortgage rate updates, equity research reports and regulatory updates to their customers, trading partners and constituents. Xpedite also offers transaction-based communications services for reservation confirmations, proof of delivery notices, lab results, subscription renewal notices, account statements, invoices 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 nearly three billion messages in 2003 through its proprietary communications platform.

Xpedite’s messageREACH^® e-mail service provides control, tracking, security, personalization and automated administration for high volume e-mail and e-commerce applications. This service includes 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

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with text and graphical inserts, opt-in list building and the hosting of customer databases for campaign management. Customers can also utilize secureMAIL^SM to deliver confidential, transaction-based data via e-mail as a password-protected HTML attachment. Xpedite’s e-statement and e-invoicing services provide customers with secure document delivery via the Web, e-mail or fax. In addition, Xpedite offers bill payment services as part of its Web-based e-invoicing services. messageREACH customers can access a proprietary software tool, intelliSEND^SM Wizard, to help with the creation of HTML documents with graphics, tables or links to Web sites or other documents.

Xpedite offers enhanced fax messaging through faxREACH^®, which utilizes Web-based interfaces and proprietary software for personalized fax distribution to multiple recipients. In addition, Xpedite recently launched its fax2MAIL service which allows customers to send and receive faxes from their computer utilizing a local or toll-free number, with no additional software required.

Xpedite also provides voiceREACH^®, an automated service that simultaneously delivers large volumes of pre-recorded 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 also provides smsREACH^SM, short message services for wireless users which allows text messages to be delivered to GSM phones using existing Xpedite access methods.

Xpedite’s services support multiple protocols and can be accessed through a variety of methods including ftp, TCP/IP, PC-Xpedite software, or SMTP. Xpedite services are available throughout the world with local sales and customer support available in 18 countries throughout North America, Asia Pacific and Europe.

Customer Base

PTEK customers represent nearly every major industry, and the Company serves a majority of the Fortune 500. Millions of business people worldwide depend on PTEK services everyday.

Premiere Conferencing has over 11,000 domestic and international corporate accounts, supporting over 120,000 active conferencing hosts. The business unit has successfully penetrated key accounts in various industries including technology, healthcare, investor relations, financial services, public relations and market research.

One of Premiere Conferencing’s customers, IBM, accounts for a significant amount of revenues. Sales to that customer accounted for approximately 11% of consolidated revenues from continuing operations (27% of Premiere Conferencing’s segment revenue) in 2003, 12% of consolidated revenues from continuing operations (29% of Premiere Conferencing’s segment revenue) in 2002, and 10% of consolidated revenues from continuing operations (29% of Premiere Conferencing’s segment revenue) in 2001. The initial term of the IBM agreement ends December 31, 2004. Thereafter, it will automatically renew for additional one-month periods unless IBM provides 30 days’ notice of non-renewal prior to the expiration of the initial term. During the initial term, neither party can terminate the agreement without cause. IBM may terminate the agreement without cause upon 30 days’ notice during any renewal term. The agreement does not contain any revenue commitments, termination charges or use requirements. Premiere Conferencing’s relationship with IBM may not continue at historical levels, and there is no long-term price protection for services provided to IBM.

Xpedite has more than 21,000 corporate accounts worldwide and has successfully targeted industries such as securities, banking, mortgage, publishing, collections, healthcare, associations, investor relations, public relations, travel and hospitality.

While the Company’s business is generally not seasonal, it has experienced and can expect to continue to experience lower levels of sales and usage during periods which have reduced numbers of working days. For example, the Company’s operating results have decreased during the summer months (particularly in its international operations), as well as during Thanksgiving, December and New Year holidays. The Company expects that its revenues during these periods will not grow at the same rates as compared with other periods of the year because of decreased use of its services by business customers.

The Company typically does not enter into long-term contracts with its customers, with most customer agreements having terms of one to three years. Customers may generally terminate without penalty, unless their agreement contains an annual minimum revenue commitment that would require payment by the customer of any unused minimum amount upon termination.

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Sales and Marketing

Each of PTEK’s business units primarily markets its services through a globally distributed direct sales force focused on enterprise customers. 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 750 sales and marketing 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 600 customer service professionals deployed in local markets.

In addition, the Company has agreements with various resellers and agents and utilizes direct marketing programs to target sales of its services to small- and medium-sized customers.

Suppliers

The Company purchases telecommunications services and equipment for use in its operations from a variety of suppliers. Some of the Company’s telecommunications supply agreements contain commitments that require that the Company purchase a minimum amount of services through 2009. These costs total approximately $20.7 million, with annual costs of $9.2 million, $8.8 million, $1.1 million, $0.7 million, $0.7 million and $0.2 million in 2004 through 2009, respectively. The Company currently purchases telecommunications and other network services from WorldCom, Inc. (“MCI”) under service agreements which do not contain minimum commitments. The Company has significant outstanding disputes with MCI regarding charges billed under these agreements, and MCI rejected in bankruptcy the settlement agreement the Company had previously entered into with MCI. The Company’s ability to maintain network connections is dependent upon access to transmission facilities provided by MCI or an alternative provider. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Commitments and Contingencies”, and”—Risk Factors Affecting Future Performance – Our inability to resolve pending billing disputes with MCI could result in significant costs or service disruptions.”

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 toll-free numbers.

Premiere Conferencing operates over 68,000 conferencing ports worldwide. Its 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 platforms through direct inward dialing, toll-free numbers, the Internet and virtual network access.

Xpedite services are provided through its enhanced messaging network with more than 68,000 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, 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, the United Kingdom, the United States and France. Remote nodes on the network are located in Germany, Switzerland, Canada, Spain, Italy, Malaysia, Taiwan, Hong Kong and Singapore.

The Company has converted and will continue to convert some of both of its business units’ traffic to VoIP networks. Xpedite currently utilizes VoIP for origination and termination traffic for its voice and fax services, with a significant portion of its origination and fax2MAIL traffic delivered via VoIP. In addition, Premiere Conferencing currently utilizes VoIP for its ReadyConference Global Meet service.

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. Products or next generation versions of the Company’s services recently released include ReadyConference Plus, fax2MAIL and secureMAIL. Xpedite expects to release fax2MAIL

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in Europe and Asia in the second quarter of 2004 and currently has smsREACH in development for North America. Premiere Conferencing is continuing to enhance its Web-based data collaboration services following its recent launch of ReadyConference Plus. These services 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.

The Company devotes significant resources to the development of enhancements for existing services and to introduce new services. 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 over 85 research and development professionals. The Company’s research and development costs for 2003, 2002 and 2001 were $8.6 million, $7.2 million and $11.1 million, respectively.

Competition

Premiere Conferencing competes with major telecommunications service providers around the world such as AT&T Corp., MCI, Global Crossing Limited, Sprint Corporation and the international PTTs. Because these telecommunications providers own the underlying telecommunications network, they may have lower per minute long distance costs than the Company. Although these providers hold a large market share, conferencing is not the primary focus of their businesses. The Company believes that it has been able to compete with these providers on the basis of quality of customer service. Premiere Conferencing also competes with companies like West Corporation’s conferencing services segment, Raindance Communications, Inc., ACT Teleconferencing, Inc., WebEx Communications, Inc. and Genesys S.A. The Company believes that Premiere Conferencing is the second largest independent audio conferencing provider based on conferencing minutes hosted.

While the multimedia messaging industry is highly fragmented, the Company believes that Xpedite is the largest worldwide provider of these services. As Xpedite evolves into more of a business services company, its services will be positioned to displace existing services provided by companies such as West Corporation, TeleTech Holdings, Inc. and others in the customer relationship management (“CRM”) category, and it will continue to compete with EasyLink Services Corporation, Critical Path, Inc., DoubleClick Inc. and j2 Global Communications, Inc. in the multimedia messaging category. The Company’s newer service offerings, particularly those services that will compete in the CRM market, may not achieve the market acceptance of existing providers’ services.

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 services to its customers and to support them with superior customer service. The Company believes that its comprehensive package of conferencing and messaging services provides it an advantage over many of its competitors that have more limited service offerings. In addition, the Company believes that its global reach allows it to pursue contract opportunities with multinational enterprises providing an advantage over competitors that only focus on limited geographies.

Government Regulation

Federal, state, local and international laws regulating the provision of traditional telecommunications services may adversely impact the Company’s business. Management believes that the Company’s business units, Xpedite and Premiere Conferencing, operate as providers of unregulated information services. Consequently, the Company is not subject to Federal Communications Commission (“FCC’) or state public utility commission regulations applicable to providers of traditional telecommunications services in the United States. However, the Company may be affected by regulatory decisions, trends or policies issued or implemented by such federal, state, local or international telecommunications regulatory authorities. In addition, those authorities may seek to regulate, or impose requirements with respect to, the services provided by the Company. Management believes that the Company exercises reasonable efforts to monitor telecommunications laws, regulations, decisions and trends and to comply with any applicable legal requirements. The Company could, nevertheless, be subject to litigation, fines or other penalties for any non-compliance.

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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. Facsimile broadcast providers, such as Xpedite, generally are not liable for their customers’ violations of the TCPA, although facsimile broadcast providers that have a “high degree of involvement” in their customers’ facsimile advertisements or “actual knowledge” of a customer’s violation of the TCPA may be held liable under the TCPA. Although Xpedite has conducted its operations to meet the facsimile broadcaster provider exemption, third parties may seek to challenge this exemption which could lead to litigation and its accompanying costs and uncertainties.

In 2003, the FCC amended its rules under the TCPA. The FCC retained an exemption from liability for sending unsolicited commercial facsimile advertisements for facsimile broadcast providers, such as Xpedite, which solely transmit such advertisements on behalf of others. However, the FCC ordered that a sender may fax unsolicited commercial advertisements only to those from whom the sender has received prior express consent in writing. The 2003 rule amendments modified the FCC’s prior policy, which permitted such faxes when an “established business relationship” existed between the sender of a commercial unsolicited facsimile advertisement and the recipient. Several parties challenged the new rules, and the FCC has delayed the requirement to have prior written consent and the deletion of the established business relationship exemption until January 1, 2005. The FCC is also reviewing several appeals of these rules. The Company cannot predict the outcome of these proceedings. However, if the FCC decides to retain the rule amendments that deleted the established business relationship exemption, and requires advance written consent, these actions could have a material adverse effect on our customers’ use of Xpedite’s services.

The FCC, with the Federal Trade Commission (“FTC”), has also instituted a national “do not call” registry for residential and wireless telephone numbers. Telemarketers are barred from calling consumers who register their telephone numbers in the national database. In summary, with certain exceptions, telemarketers are required to access the list before engaging in telemarketing in any particular area code. Xpedite, as a service provider to companies that engage in telemarketing, has subscribed to the federal do not call registry. Although the Company believes it has taken the necessary steps to ensure compliance with the do not call registry and other rule amendments, regulators or third parties could seek to challenge the Company’s compliance with the federal do not call registry, federal telemarketing laws, and FCC and FTC rules. The national do not call registry, while currently in effect, remains subject to legal challenges in federal court.

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. Xpedite 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 recently passed federal legislation regulating at the federal level, for the first time, unsolicited commercial e-mails. This legislation will require unsolicited e-mail marketing messages to have a valid return address. E-mail marketers will also be required to remove customers from their mailing lists if requested. The legislation allows the FTC to impose fines, and gives state attorneys general the power to bring lawsuits. The federal legislation also preempts state laws in many respects, although it allows states to continue to regulate deceptive e-mails. Xpedite provides a service for its customers to distribute e-mails, including e-mails that may be subject to the new legislation. The Company will need to assess what changes, if any, need to be made to its current compliance policies regarding spam. There can be no assurance that the Company would not be subject to litigation alleging a violation of the new legislation. The federal anti-spam legislation may be subject to judicial review, and the impact of the law and the eventual implementing regulations on the Company cannot be predicted at this time.

The Company monitors applicable 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

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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, Xpedite’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 currently has three issued U.S. patents relating to its fax distribution services, each of which will expire in 2013, and three pending U.S. patents covering aspects of its conferencing services. In addition, the Company owns and uses a number of federally registered trademarks in connection with its products and services, such as PTEK^®, ReadyCast^®, ReadyConference^®, SoundCast^®, VisionCast^®, faxREACH^®, messageREACH^®, Auditorium^®, voiceREACH^® and Xpedite^®. Applications for ReadyClick & Conference^SM, smsREACH^SM and intelliSEND^SM are pending in the United States. The Company also owns applications and registrations for many of these and other trademarks and service marks in the United States and in other countries. 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, which 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. Despite the Company’s efforts to protect its proprietary rights and technology, there can be no assurance that others will not be able to copy or otherwise obtain and use the Company’s proprietary technology without authorization, or independently develop technologies that are similar or superior to the Company’s technology. However, the Company believes that, due to the rapid pace of technological change in communications and data services, factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements and the timeliness and quality of support services are of equal or greater importance to establishing and maintaining a competitive advantage in the industry.

Available Information

The Company’s corporate Internet address is www.ptek.com. The Company has made available free of charge through its Web site (follow the Invest tab to Investor Relations to link to “SEC Filings”) its annual report on Form 10-K, quarterly reports 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, 2003, PTEK employed 1,973 people. PTEK employees are not represented by a labor union or covered by any collective bargaining agreements.

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PTEK’s corporate headquarters occupy approximately 42,000 square feet of office space in Atlanta, Georgia under a lease expiring August 2007. This office space also includes both Xpedite’s and Premiere Conferencing’s corporate headquarters. Xpedite occupies additional office space of approximately 45,000 square feet in Tinton Falls, New Jersey under a lease expiring in May 2016. Premiere Conferencing occupies additional office space of approximately 106,000 square feet in Colorado Springs, Colorado under a lease expiring August 2006, and approximately 46,000 square feet of office space in Lenexa, Kansas under a lease expiring August 2009.

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.

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 who acquired common stock of the Company. 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, as amended (the “Securities Act”), 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. By Order dated September 26, 2003, the Court granted in its entirety the defendants’ Motion for Summary Judgment and denied as moot the defendants’ Motion in Limine. On September 30, 2003, the Court entered judgment for the defendants and against the plaintiffs. Plaintiffs have appealed the Court’s rulings on summary judgment to the 11^th Circuit. That appeal is pending.

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. The Digital Franchise Agreement contained a mandatory arbitration provision, which was not found in the JOBA Franchise Agreement, and the breach of franchise claims pertaining to Digital were severed and sent to arbitration. On July 16, 2002, Voicecom Telecommunications, LLC (“Voicecom”) was added as a party Plaintiff in the lawsuit against JOBA and Digital. On March 31, 2003, the Federal court granted PTEK and PCI’s Motion for Summary Judgment, and dismissed them from the case. The court also granted Partial Summary Judgment in favor of each of the parties such that the only remaining claims in the case arise out of alleged breaches in the franchise agreement and alleged overpayments of certain fees between the franchisor and the franchisee. In 2004, JOBA filed a Motion for Relief from the Summary Judgment Orders dismissing PTEK and PCI as well as a Motion to Disqualify Counsel for plaintiffs and third party defendants to which plaintiffs and third party defendants responded and objected. The trial court has not yet ruled on these motions and there is no date set for trial in the federal case.

On August 28, 2003, the arbitrator issued his ruling relating to the Digital franchise disputes. The arbitrator found that the Digital franchise was constructively terminated in December 2001 and that the franchise value was approximately $1.0 million. The arbitrator rejected other pending claims, except a $15,000 award to the franchisor for equipment that was ordered and used by the franchisee for which no payment was made. The arbitration award was paid in full by Voice-Tel in November 2003.

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On November 17, 2003, Xpedite filed suit against Cable & Wireless USA, Inc. (“C&W”) in the Superior Court of Fulton County, Georgia. The lawsuit arises out of Xpedite’s purchase of certain voice, e-mail and fax messaging assets from C&W. Pursuant to a transition services agreement, C&W was to continue to provide certain services to Xpedite until such time C&W circuits were assigned to Xpedite. Xpedite alleges that C&W failed to perform these services in accordance with the agreement and improperly invoiced Xpedite for charges incurred by CW which were not provided for in the agreement. On November 18, 2003, a day after the above-referenced Georgia lawsuit was filed, C&W filed a Complaint against Xpedite in Virginia State Court. The Virginia lawsuit sought recovery for those charges allegedly incurred by C&W relating to C&W’s telecommunications charges of not less than $776,619.49. Xpedite answered the Virginia Complaint, denying that is was liable for the charges. Xpedite also asserted counterclaims against C&W, which were identical to the claims set forth in Xpedite’s Georgia Complaint. C&W filed for reorganization under Chapter 11 of the Federal Bankruptcy Code in December 2003. In 2004, the Georgia lawsuit by Xpedite was dismissed without prejudice, and the Virginia lawsuit by C&W was stricken from the docket without prejudice to either party. In February 2004, Xpedite filed a proof of claim in the C&W bankruptcy case asserting a claim in the case based on the same facts as set forth in the Georgia lawsuit. While Xpedite expects this claim to be dealt with in the C&W bankruptcy case’s claim resolution process, at this time the Company cannot predict the outcome of the claim.

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.

The Company has settled the litigation matter described below.

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 (referred to as “EasyLink I”). EasyLink’s complaint alleged, among other things, that the Company entered into agreements to purchase a secured promissory note in the original principal amount of $10 million (the “Note”) and 1,423,980 shares of EasyLink’s Class A common stock (the “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 claimed that these various actions have impaired its ability to restructure its debt effectively and caused it to suffer various other commercial losses. On July 11, 2003, the court entered an order granting AT&T’s, the Company’s and Xpedite’s motions to dismiss EasyLink’s complaint, without prejudice and without costs. EasyLink appealed, and the Company and Xpedite cross-appealed on the ground that the lower court should have dismissed the claims “with prejudice.” Simultaneously with noticing an appeal, EasyLink filed a new complaint on July 31, 2003 against the Company, Xpedite and AT&T in the Law Division of the same Superior Court (referred to as “EasyLink II”). The claims against the Company and Xpedite in EasyLink II, which substantially reasserted allegations from EasyLink I, are styled “unfair competition” and “tortious interference with contracts/prospective business advantage.” On October 20, 2003, the parties entered into a settlement agreement for EasyLink I and EasyLink II. Pursuant to the settlement, EasyLink consented to the transfer of the Note and the Stock to PTEK and the parties agreed to dismiss with prejudice the lawsuits and exchanged mutual releases. In exchange for the Note and Stock, PTEK paid AT&T approximately $1.9 million in cash and issued to AT&T a seven-year warrant to purchase 250,000 shares of PTEK common stock at $9.36 per share and costs associated with the investment. In addition, PTEK and EasyLink modified the Note to, among other things, amend the payment schedule of the Note as follows: PTEK is entitled to receive aggregate payments of approximately $13.8 million, consisting of ten quarterly payments of $0.8 million which commenced on December 1, 2003, and a balloon payment of approximately $5.8 million on June 1, 2006.

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

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 8, 2004 was $9.44. As of March 8, 2004 there were 509 record holders of the Company’s Common Stock.

The Company has never paid cash dividends on its Common Stock, and the current policy of the Company’s Board of Directors is to retain any available earnings for use in the operation and expansion of the Company’s business. The payment of cash dividends on the Common Stock is unlikely in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will depend upon the Company’s earnings, capital requirements, financial condition and any other factors deemed relevant by the Board of Directors.

In November 2003, the Company entered into a three-year, senior secured revolving credit facility with LaSalle Bank National Association, as agent (“Line of Credit”). See “Management’s Discussion and Analysis – Liquidity and Capital Resources – Capital resources.” The credit agreement related to the Line of Credit contains customary prohibitions on the Company’s ability to declare any cash dividends on its Common Stock until all obligations under the Line of Credit are paid in full and all letters of credit have been terminated.

During the year ended December 31, 2003, certain current and former employees exercised options to purchase an aggregate of 313,730 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 a settlement to multiple class action lawsuits in the United Stated District Court for the Northern District of Georgia brought by a class of individuals (including a subclass of former Voice-Tel Enterprises, Inc. franchisees and a subclass of former Xpedite Systems, Inc. shareholders) who purchased or otherwise acquired the Company’s Common Stock from as early as February 11, 1997 through June 10, 1998. The remaining 249,000 shares were exempt from registration pursuant to Section 3(a)(10) of the Securities Act.

Recent Sales of Unregistered Securities

In August 2003, the Company completed a private placement exempt under Section 4(2) of the Securities Act of $85 million aggregate principal amount of 5% convertible subordinated notes due 2008 raising net proceeds of $82.7 million, which were used to repurchase and redeem a portion of the Company’s 2004 Convertible Notes. The 2008 Convertible Notes were subsequently resold by the initial purchaser, CIBC World Markets Corp., to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2008 Convertible Notes are convertible at any time at the option of the holder into the Company’s common stock at a conversion rate of 149.3786 shares per $1,000 principal amount of notes (equal to a conversion price of approximately $6.6944 per share), subject to

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adjustment in certain events. The 2008 Convertible Notes and the common stock issuable upon conversion of those notes were subsequently registered for resale pursuant to a shelf registration statement on Form S-3 under the Securities Act, which was declared effective on February 6, 2004.

As part of the settlement agreement reached on October 20, 2003 related to the Easylink I and Easylink II litigation, the Company issued a seven-year warrant to AT&T to purchase 250,000 shares of the Company’s common stock at $9.36 per share. This warrant was issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act. The Company did not receive any cash proceeds from the issuance of this warrant.

The following selected consolidated statement of operations data, balance sheet data, and cash flow data as of and for the years ended December 31, 2003, 2002, 2001, 2000 and 1999 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 hereto.

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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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Discontinued Operations.”

Overview

PTEK Holdings, Inc., a Georgia corporation, (collectively with its subsidiaries, the “Company” or “PTEK”) is a global provider of business communications services, including conferencing (audio conferencing and Web-based data collaboration) and electronic messaging (e-mail, fax, wireless and voice messaging). 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 conferencing and Web-based data collaboration 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. The Australian operations were subsequently exited in December 2003. Voicecom offered a suite of integrated communications services, including voice messaging, interactive voice response services and unified communications. 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 and usage fees generally based on per minute or transaction rates. 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.

“Cost of revenues” includes telecommunication costs and direct operating costs exclusive of depreciation as defined below. Telecommunication costs consist primarily of the cost of metered and fixed telecommunication 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 telecommunication networks, regulatory fees and non-telecommunication 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 line item.

“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

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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, the variable accounting expense for options that were not exchanged, 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 directors, advisors and 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.

“Gain on repurchase of bonds” includes proceeds on the early retirement of bonds purchased in the open market and losses on the redemption of bonds, net of unamortized debt issuance costs.

“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.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. See also the section entitled “—Critical Accounting Policies.” The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. This discussion should be read in conjunction with the Company’s consolidated financial statements contained herein and notes thereto.

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Results of Operations

The following table presents the percentage relationship of certain statements of operations line 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 Xpedite and Premiere Conferencing operating segments and the parent company (the “Holding Company”) for the periods presented (in millions), with amortization expense and asset impairments allocated to the appropriate operating segment:

The following table presents financial information based on the Company’s continuing geographic segments for the years ended December 31, 2003, 2002 and 2001 (in millions):

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Revenues

Consolidated revenues from continuing operations increased 11.7% to $381.3 million in 2003 from $341.3 million in 2002, and increased 3.3% from $330.4 million in 2001. Revenues in the Company’s operating segments are as follows:

Xpedite revenue was 58.7%, 59.5% and 65.3% of consolidated revenues for 2003, 2002 and 2001, respectively. Xpedite revenue increased 10.3% to $223.8 million in 2003 from $202.9 million in 2002, and decreased 5.9% in 2002 from $215.7 million in 2001. The growth in 2003 resulted from increased revenue in messageREACH, voiceREACH and transactional-based messaging services, which increased 30.5% over 2002, the beneficial impact of foreign currency exchange rates, and the additional customers required from C&W and MediaLinq. The increases were offset by a general decline in broadcast fax revenue primarily in North America. The decline in revenue in 2002 is mainly attributable to decreased rates of approximately 23.9% from 2001 in Xpedite’s traditional or “legacy” store and forward fax business as a result of price compression in this market from increased competition and decreased demand. In addition, volumes for these products decreased approximately 5.5% as a percentage of total volumes from 2001 to 2002. The Company believes that product growth will continue in its messageREACH and voiceREACH products.

Premiere Conferencing revenue was 41.4%, 40.6% and 34.8% of consolidated revenues for 2003, 2002 and 2001, respectively. Premiere Conferencing revenue increased 13.9% to $157.7 million in 2003 from $138.5 million in 2002, and increased 20.2% in 2002 from $115.1 million in 2001. Revenue growth in 2003 resulted from continued increases in international revenue of 99.9% over 2002 and domestically from continued expansion of ReadyConference and Web conferencing services. The increases in 2002 are attributable to growth in the ReadyConference service. In addition, this increase is related to 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. The Company believes audio conferencing revenue will continue to grow through minute volume with some decline in average revenue per minute.

Consolidated revenues on a geographic region basis increased in North America $18.1 million to $246.9 million, or 64.7% of consolidated revenues, in 2003 from $228.8 million, or 67.0% of consolidated revenues, in 2002 and increased $5.0 million in 2002 from $223.8 million, or 67.7% of consolidated revenues, in 2001. As a percentage of consolidated revenues, North America revenue decreased 2.3% from 2002 to 2003 and decreased 0.7% from 2001 to 2002. Asia Pacific revenue increased $9.1 million to $65.0 million, or 17.1% of consolidated revenues, in 2003 from $55.9 million, or 16.3% of consolidated revenues, in 2002. In 2002, Asia Pacific revenue decreased $0.3 million from $56.2 million, or 17.0% of consolidated revenues, in 2001. As a percentage of consolidated revenues, Asia Pacific revenue increased 0.7% from 2002 to 2003 and decreased 0.6% from 2001 to 2002. European revenue increased $12.8 million to $69.4 million, or 18.2% of consolidated revenues, in 2003 from $56.6 million, or 16.6% of consolidated revenues, in 2002 and increased $6.2 million in 2002 from $50.4 million, or 15.3% of consolidated revenues, in 2001. As a percentage of consolidated revenues, European revenue increased 1.6% from 2002 to 2003 and increased 1.3% from 2001 to 2002. In 2003, the international growth resulted from the continued expansion of Premiere Conferencing’s international operations and the positive impact of foreign currency exchange rates. In 2002, the Company experienced revenue growth in the European region mainly as a result of the expansion of Premiere Conferencing in that region and a customer base acquisition at Xpedite, which also accounted for a majority of the domestic growth in 2002. The Company believes it will have continued growth in revenues in both the European and Asia Pacific regions as it continues to expand internationally.

Cost of revenues

Consolidated cost of revenues were 34.9%, 34.5% and 37.9% of consolidated revenues in 2003, 2002 and 2001, respectively. Consolidated cost of revenues from continuing operations increased 13.5% to $133.5 million in 2003 from $117.7 million in 2002 and decreased 6.1% in 2002 from $125.3 million in 2001. Cost of revenues in the Company’s operating segments are as follows:

Xpedite cost of revenue was 31.2%, 30.3% and 34.0% of segment revenue in 2003, 2002 and 2001, respectively. Xpedite cost of revenue increased 13.6% to $69.8 million in 2003 from $61.4 million in 2002 and decreased 16.2% from $73.3 million in 2001. In 2003, the $8.4 million increase in cost of revenue was due to

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overall revenue growth associated with all services, increased hardware sales in Japan, the impact of acquisitions in 2003 and the negative impact of the weaker dollar. In 2002, cost of revenue decreased 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 lower cost of revenues. 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. These decreases in telecommunications costs were slightly offset by direct operating costs increases from 2001 to 2002 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 related to messageREACH and voiceREACH products.

Premiere Conferencing cost of revenue was 40.5%, 40.7% and 45.1% of segment revenue in 2003, 2002 and 2001, respectively. Premiere Conferencing’s cost of revenue increased 13.4% to $63.9 million in 2003 from $56.3 million in 2002 and increased 8.4% in 2002 from $52.0 million in 2001. Average telecommunications costs have declined on a per minute basis and increased in 2003 and 2002 on a percentage of revenue basis as a result of price compression in all services and the shift to unattended services, which generate a lower average selling price. Other direct operating costs during 2003, however, have remained flat in absolute dollars and decreased as a percent of revenue as operating efficiencies and the shift toward increased demand for unattended conferencing has allowed for a reduction in direct operating personnel over the past two years.

Selling and marketing

Consolidated selling and marketing costs from continuing operations as a percent of consolidated revenues were 26.6%, 26.2% and 22.8% in 2003, 2002 and 2001, respectively. Consolidated selling and marketing costs from continuing operations increased 13.9% to $101.3 million in 2003 from $89.0 million in 2002, and increased 17.8% in 2002 from $75.5 million in 2001. Selling and marketing costs in the Company’s operating segments were as follows:

Xpedite selling and marketing costs as a percentage of segment revenue were 28.7%, 30.4% and 24.8% in 2003, 2002 and 2001, respectively. Xpedite selling and marketing costs increased 4.5% to $64.3 million in 2003 from $61.6 million in 2002, and increased 15.0% in 2002 from $53.6 million in 2001. Despite the reduction in headcount in 2003, expenses increased primarily due to the negative impact of the weaker dollar, higher commissions due to higher revenue and higher commission rates, and increased travel, training and meeting costs. In 2002, the increase was due primarily to an increased sales and marketing headcount.

Premiere Conferencing selling and marketing costs as a percentage of segment revenue were 23.4%, 19.8% and 18.5% in 2003, 2002 and 2001, respectively. Premiere Conferencing selling and marketing costs increased 35.0% to $37.0 million in 2003 from $27.4 million in 2002, and increased 28.3% in 2002 from $21.3 million in 2001. In 2003, the increase is attributable to additional sales headcount in North America, Europe and Asia-Pacific and the effect of foreign currency exchange. In 2002, the 1.3% increase as a percent of segment revenue was due primarily to increased selling and marketing headcount.

General and administrative

Consolidated general and administrative costs from continuing operations as a percentage of consolidated revenues were 14.8%, 16.4% and 17.6% in 2003, 2002 and 2001, respectively. Consolidated general and administrative costs from continuing operations increased 1.0% to $56.5 million in 2003 from $55.8 million in 2002, and decreased 4.2% from $58.3 million in 2001. General and administrative costs in the Company’s operating segments were as follows:

Xpedite general and administrative costs as a percentage of segment revenue were 14.7%, 13.6% and 14.5% in 2003, 2002 and 2001, respectively. Xpedite general and administrative costs increased 19.7% to $32.9 million in 2003 from $27.5 million in 2002, and decreased 12.3% in 2002 from $31.4 million in 2001. The growth in 2003 was due to the negative impact of the weaker dollar, the reallocation of executive expenses from the Holding Company, and the MediaLinq acquisition. The decrease in general and administrative costs as a percentage of segment revenue from 2001 to 2002 of 0.9% is due primarily to reductions in headcount in administration and customer service during early 2002.

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Premiere Conferencing general and administrative costs as a percentage of segment revenue were 7.7%, 9.1% and 9.6% in 2003, 2002 and 2001, respectively. Premiere Conferencing general and administrative costs decreased 3.1% to $12.1 million in 2003 from $12.5 million in 2002, and increased 13.2% in 2002 from $11.1 million in 2001. The decrease in 2003 is primarily related to reduced bad debt expense from improved collections offset in part by changes in foreign currency exchange rates. In 2002, general and administrative costs as a percentage of segment revenue declined despite an overall dollar increase of $1.4 million. This decline is primarily due to the growth in unattended revenue as a percentage of consolidated revenues. The Company believes that its ReadyConference product is highly scalable and does not require proportional increases in back office support.

Holding Company general and administrative costs as a percentage of consolidated revenues were 3.0%, 4.6% and 4.9% in 2003, 2002 and 2001, respectively. Holding Company general and administrative costs were $11.4 million, $15.8 million and $16.3 million in 2003, 2002 and 2001, respectively. The decrease of $4.4 million from 2002 to 2003 is mainly due to a decrease in salary and wage expense due to headcount reduction and salary allocation, a decrease in acquisition-related costs and decreased travel costs. 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 acquisition-related costs consisting primarily of legal, accounting, investment, advisory and other consulting fees incurred in 2002 for two potential acquisitions that did not close.

Research and development

Consolidated research and development costs from continuing operations as a percentage of consolidated revenues were 2.2%, 2.1% and 3.4% in 2003, 2002 and 2001, respectively. Consolidated research and development costs from continuing operations increased 18.4% to $8.6 million in 2003 from $7.2 million in 2002, and decreased 34.7% in 2002 from $11.1 million in 2001. Research and development costs in the Company’s operating segments were as follows:

Xpedite research and development costs as a percentage of segment revenue were 2.9%, 2.7% and 4.1% in 2003, 2002 and 2001, respectively. Xpedite research and development costs increased 19.1% to $6.5 million in 2003 from $5.4 million in 2002, and decreased 39.2% in 2002 from $8.9 million in 2001. The increase in 2003 is due primarily to the additional cost associated with newly released products, fax2MAIL and financial supply chain management services. In 2002, research and development costs as a percentage of segment revenue decreased as a result of a reduction in headcount and increased capitalized development costs of approximately $1.6 million.

Premiere Conferencing research and development costs as a percentage of segment revenue were 1.3%, 1.3% and 1.9% in 2003, 2002 and 2001, respectively. Premiere Conferencing research and development costs increased 16.4% to $2.1 million in 2003 from $1.8 million in 2002, and decreased 16.0% in 2002 from $2.2 million in 2001. The increase in 2003 was the result of additional headcount during the year deployed in developing new products. In 2002, the slight decrease as a percentage of segment revenue was due primarily to increased revenue of existing products and reduced headcount.

Depreciation

Consolidated depreciation costs from continuing operations as a percentage of consolidated revenues were 6.2%, 6.3% and 6.3% in 2003, 2002 and 2001, respectively. Consolidated depreciation costs from continuing operations increased 9.5% to $23.6 million in 2003 from $21.5 million in 2002 and increased 4.0% from $20.7 million in 2001. Depreciation costs in the Company’s operating segments were as follows:

Xpedite depreciation costs were 6.4%, 6.5% and 6.3% of segment revenue in 2003, 2002 and 2001, respectively. Xpedite depreciation costs increased 8.2% to $14.2 million in 2003 from $13.1 million in 2002, and decreased 3.2% in 2002 from $13.6 million in 2001. This change represents a $1.1 million increase from 2002 to 2003 and a $0.5 million decrease in costs from 2001 to 2002. The $1.1 million increase in 2003 is related to fixed assets acquired through acquisition in 2003 of approximately $3.5 million and increased capital expenditures of $3.1 million from 2002. The $0.5 million decrease in 2002 is attributable to the timing of depreciation for capital expenditures purchased in the later half of 2001.

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Premiere Conferencing depreciation costs were 5.3%, 5.4% and 6.0% of segment revenue in 2003, 2002 and 2001, respectively. Premiere Conferencing depreciation costs increased 12.2% to $8.4 million in 2003 from $7.5 million in 2002 and increased 6.1% in 2002 from $7.1 million in 2001. This change represents a $0.9 million increase from 2002 to 2003 and a $0.4 million increase from 2001 to 2002. As a percentage of segment revenue, depreciation remained relatively constant from 2002 to 2003 as capital expenditures have remained relatively constant to revenue growth over the past fiscal year.

Holding Company depreciation costs remained relatively constant at $0.9 million, $0.9 million and $0.8 million in 2003, 2002 and 2001, respectively.

Amortization

Consolidated amortization from continuing operations as a percentage of consolidated revenues was 1.8%, 3.2% and 26.8% in 2003, 2002 and 2001, respectively. Consolidated amortization from continuing operations was $6.7 million, $10.9 million and $88.6 million in 2003, 2002 and 2001, respectively. Goodwill amortization was $65.1 million in 2001. Other intangibles amortization which consists of customer lists, developed technology and assembled workforce was $6.7 million, $10.9 million and $23.5 million in 2003, 2002 and 2001, 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 years ended December 31, 2003 and 2002 and no impairment was identified. Amortization as a percentage of consolidated revenues, exclusive of goodwill amortization, would have been 7.1% in 2001. In 2003, 2002 and 2001, amortization decreased due to the customer list impairments associated with the Xpedite operating segment in 2002 and 2001. This decrease in 2003 was slightly offset by increased amortization associated with acquisitions completed during the year, resulting in approximately $2.9 million of new amortization in 2003. See “Asset impairments” below for a further discussion related to these impairments in 2002 and 2001.

Restructuring costs

Realignment of Workforce – 2003

During the third and fourth quarters of 2003, management executed a plan to reduce annual operating expenses through a reduction in personnel costs related to the Company’s operations, sales and administration and the abandonment of certain facilities deemed to have no future economic benefit to the Company, net of estimated sublease payments. The plan eliminated, through a reduction in workforce of, approximately 135 employees across both business units and at the Holding Company.

On a business unit basis, Xpedite recorded a charge of approximately $9.3 million, comprised of severance and exit costs of approximately $3.7 million and contractual lease obligations, including estimated sublease income of $3.1 million, of approximately $5.6 million. During 2003, Xpedite paid approximately $1.5 million related to severance obligations and $0.3 million in contractual obligations. A majority of the contract termination costs relate to an Xpedite real property lease which expires in 2016, and, as such, approximately $4.3 million of this liability has been classified in other long-term liabilities on the balance sheet at December 31, 2003. The remaining restructuring reserve was approximately $7.5 million at December 31, 2003. Premiere Conferencing recorded a charge of approximately $1.0 million, including approximately $0.6 million in severance and exits costs and approximately $0.4 million in contract termination and other associated costs. During 2003, Premiere Conferencing paid approximately $0.8 million related to severance obligations. The remaining accrual for Premiere Conferencing at December 31, 2003 was approximately $0.2 million. The Holding Company recorded a charge of approximately $0.7 million relating to severance obligations due to the former Chief Legal Officer of which $0.2 million had been paid as of December 31, 2003, leaving a remaining accrual of $0.5 million.

Realignment of Workforce – Fourth Quarter 2002

In the fourth quarter of 2002, Xpedite and the Holding Company terminated employees pursuant to a plan to reduce headcount and 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 total $1.5 million, of which $0.7 million and $0.3 million were paid in 2003 and 2002, respectively. Of the remaining balance $0.4 million and $0.1 million will be paid in 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

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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 reduced annual operating expenses by $6.7 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 2003, 2002 and 2001 associated with this plan were $0.2 million, $2.1 million and $1.0 million, respectively. In addition in 2003, the Company was able to terminate a lease for one of the network equipment sites that was eliminated as part of this plan and therefore approximately $0.2 million of costs were reversed to the discontinued operations line item. Of the $4.1 million of costs associated with this plan, approximately $0.7 million of non-cash charges were incurred for severance cost obligations paid through immediately vested stock options issued below market price on the date of grant. Accordingly, this portion of the restructuring costs was recorded as additional paid-in-capital. The Company paid the remaining severance obligations during 2003 and does not expect any further payments.

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 $1.2 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 Company paid the remaining severance obligations during 2003 and does not expect any further payments. 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.

Asset impairments

Effective January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment of Disposal of Long Lived Assets” (“SFAS No. 144”). The following table summarizes the asset impairments from continuing operations incurred by operating segment for the years ended December 31, 2002 and 2001 (in thousands):

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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.

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 revenues of certain services and evaluated the potential impairment of certain 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 revenue.

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.

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Equity based compensation charges

The following summarizes the components of equity-based compensation expense for the years ended December 31, 2003, 2002 and 2001 (in thousands, except share data):

Options exchanged for restricted shares

Due to declines in the Company’s share price over the course of the several years prior to 2001, most 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 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 line item “Unearned restricted share compensation.” This value was also determined using the closing price of the Company’s common stock at the date of the exchange. The unearned restricted share compensation will be recognized as equity based compensation expense as these shares vest. In 2003 and 2002, approximately 170,000 and 402,000 shares vested, and equity based compensation expense of $0.6 million and $1.3 million was recognized, respectively. Assuming all employees at December 31, 2003 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 $0.3 million in 2004.

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, 2003, this option count was approximately 397,000 due to the sale of Voicecom, exercises subsequent to the date of exchange and other cancellations of these options. These options will be subject to variable accounting until such options are exercised, are forfeited, or expire

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unexercised. These options have exercise prices ranging from $5.23 to $29.25. At December 31, 2003, a charge of approximately $1.1 million was recorded because the market value of the Company’s common stock was greater than the exercise price of a portion of the options. 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 on a straight-line basis through 2004, and the equity based compensation expense recorded in 2003 was $0.4 million. The anticipated remaining equity based compensation expense resulting therefrom will be approximately $0.5 million for 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 Chief Executive Officer, Chief Operating Officer 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 Chief Executive Officer and Chief Operating Officer 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 Chief Executive Officer and Chief Operating Officer, 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. During 2003 several of these loans, including interest, were paid off leaving a principal balance at December 31, 2003 of $1.7 million. The total interest accrued on these loans as of December 31, 2003 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.

Options and restricted shares issued for services rendered

In 2003, the Company has recognized approximately $0.9 million of non-cash stock compensation expense. Of this expense, $0.4 million relates to non-employees, $0.2 million relates to employees and $0.3 million relates to the acceleration of options associated with the resignation of several board members. In 2001, the Company issued stock options and restricted shares of Company Common Stock to consultants for various consulting services performed for the Company.

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Net legal settlements and related expenses

Net legal settlements and related expenses were $0.0 million, $7.3 million and $2.3 million in 2003, 2002 and 2001, respectively. 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 a shareholder lawsuit relating to the Company’s acquisition of its Premiere Conferencing operating segment. Net legal settlements and related expenses in 2001 were primarily related to $1.6 million of costs incurred that relate to shareholder litigation matters.

Interest expense

Interest expense from continuing operations was $9.6 million, $11.5 million and $11.5 million in 2003, 2002 and 2001, respectively. Interest expense decreased in 2003 as a result of the repurchase and redemption of $157.5 million of 2004 Convertible Notes and $4.1 million of term loans offset by the interest expense associated with the 2008 Convertible Notes issued in August 2003. For a description of the 2004 and 2008 Convertible Notes, see “Liquidity and Capital Resources.” Interest expense remained constant in 2002.

Interest income

Interest income was $0.9 million, $1.5 million and $0.6 million in 2003, 2002 and 2001, respectively. The decrease in interest income in 2003 of $0.6 million was the result of a decrease in cash and cash equivalents of $44.8 million as a result of repurchase and redemption of the 2004 Notes and several employee loans being paid off during 2003. Interest income increased in 2002 primarily due to growth in cash and cash equivalents of $19.9 million from 2001 to 2002 that was invested in interest bearing accounts, and from interest accrued for employee loans.

Gain on sale of marketable securities

Gain on marketable securities was $1.6 million, $0.9 million and $3.0 million in 2003, 2002 and 2001, respectively. During 2003 the Company sold all of its remaining shares of its investment in WebMD Corporation (“WebMD”) for aggregate proceeds less commissions of $0.8 million and realized gains of approximately $0.6 million. In addition, the Company sold all of its investment in EasyLink common stock for aggregate proceeds less commissions of $2.1 million and realized gains of approximately $1.0 million. During 2002, the Company sold 133,857 shares of its investment in WebMD for aggregate proceeds less commissions of approximately $1.0 million and realized gains of approximately $0.9 million. During 2001, the Company sold 200,000 shares of its investment in WebMD, 88,596 shares of its investment in S1 Corporation and 120,000 shares of its investment in WebEx, Inc. for aggregate proceeds less commissions of approximately $5.2 million and realized gains of $3.0 million.

Gain on repurchase of bonds

The Board of Directors of the Company authorized the Company’s management to repurchase or redeem the 2004 Convertible Notes in the open market or in privately negotiated transactions, at management’s discretion. During 2003, the Company used existing cash, borrowings on the Line of Credit and the net proceeds from the 2008 Convertible Notes offering to repurchase or redeem approximately $157.5 million in face value of the 2004 Convertible Notes, resulting in a gain of approximately $41,000. See “—Capital Resources.”

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

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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 2001. During 2001, market conditions declined for the non-public companies in the PtekVentures portfolio, with certain of these companies filing for bankruptcy and subsequently being liquidated. The remaining portfolio companies’ financial performance and updated financial forecasts for the near term led management to the conclusion that there was an “other than temporary” decline in the carrying value of these companies. Accordingly, the Company decided to exit the venture business and cease future funding in its portfolio companies. As a result, the Company recorded an impairment charge of approximately $29.2 million during the second quarter of 2001 for the remaining carrying value of its non-public company investment portfolio.

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.

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 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 7— “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.

During 2003, an arbitrator issued his ruling relating to franchise disputes brought by Digital Communication Services, Inc., a former franchisee of the Voicecom business unit. The arbitrator found that the Digital franchise was constructively terminated in December 2001, and that the franchise value was approximately $1.0 million. The arbitrator rejected other pending claims, except a $15,000 award to the franchisor for equipment that was ordered and used by the franchisee for which no payment was made. This settlement amount and related legal fees of approximately $0.5 million has been included in the discontinued operations line item in the income statement. See Note 18— “Commitments and Contingencies” to the Consolidated Financial Statements.

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Effective income tax rate

In 2003, 2002 and 2001, the Company’s effective income tax rate varied from the statutory rate, primarily as a result of nondeductible goodwill amortization in 2001 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 valuation 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 third quarter of 2003, the Company reviewed its provision for uncertain tax matters. The result of this review indicated it was appropriate to reduce this provision by approximately $9.0 million. In addition, during the third quarter of 2003, the Company utilized certain tax planning strategies to reduce taxes and additional exposures were identified associated with revenue agent examinations. The net effect of these tax strategies and additional exposures was a benefit of approximately $0.2 million. 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 estimate. See Note 19— “Income Taxes.”

During the third quarter of 2003, the Company reviewed its provision for uncertain tax matters. The result of this review indicated it was appropriate to reduce this provision by approximately $9.0 million. Net of this tax benefit, income from continuing operations for the year ended December 31, 2003 would have been $17.9 million. Net income would have been $16.9 million. Basic income per share from continuing operations would have been $0.33, and net income per share would have been $0.32 for the year ended December 31, 2003. Diluted earnings per share from continuing operations and from net income would have been $0.31 and $0.29, respectively, for the year ended December 31, 2003.

The Company believes it has appropriately accrued for tax exposures. If the Company is required to pay an amount less than or exceeding its provisions for uncertain tax matters, the financial impact will be reflected in the period in which the matter is resolved. In the event that actual results differ from these estimates, the Company may need to adjust tax accounts which could materially impact its financial condition and results of operations.

Acquisitions

Xpedite - MediaLinq

In September 2003, Xpedite entered into an asset purchase agreement with Captaris, Inc. (“Captaris”) and its wholly-owned subsidiary MediaTel Corporation (Delaware) (“MediaTel”), whereby Xpedite purchased substantially all of the assets of MediaLinq, an outsource division of Captaris operated by MediaTel. The effective date of this transaction was September 1, 2003, and the results of MediaLinq have been included in the consolidated financial statements since that date. The aggregate purchase price for MediaLinq was approximately $16.0 million, including $15.4 million paid at closing, subject to a post-closing net working capital adjustment, and approximately $0.6 million is estimated transaction fees and closing costs. Xpedite funded the purchase through its existing working capital. In accordance with SFAS No. 141, “Business Combinations,” the purchase price was allocated as follows (in thousands):

The acquired intangibles have an estimated useful life of five years. Developed technology of approximately $1.8 million and customer lists of approximately $9.3 million are included in the intangible assets.

In addition, Xpedite and Captaris entered into license and reseller agreements for Captaris’ e-document delivery technology, and the parties will cooperate in providing mutual resale opportunities for each other’s products and services. The license and reseller agreements provide for minimum compensation to Captaris of $2.0 million over a three-year period.

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The unaudited pro forma combined historical results, as if MediaLinq had been acquired at the beginning of fiscal 2001 are estimated to be (in thousands):

The pro forma results include amortization of the acquired intangibles as identified above. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of each fiscal period presented, nor are they necessarily indicative of future consolidated results.

Xpedite - Other acquisitions

In April 2003, Xpedite and its Canadian subsidiary acquired substantially all of the assets of BillWhiz, Inc. d/b/a Linkata Technologies, a Canadian company. The Company will pay a minimum of approximately $0.4 million, up to a maximum of approximately $0.8 million, in cash purchase price over a three-year earn-out period based on the achievement of specified revenue targets. If the earn-out is achieved, the purchase price will be adjusted in accordance with SFAS No. 141, “Business Combinations.”

In January 2003, Xpedite acquired substantially all of the assets related to the U.S. based e-mail and facsimile messaging business of C&W, and assumed certain liabilities, for a total purchase price of $11.4 million. The Company paid $6.0 million in cash at closing, $0.4 million in transaction fees and closing costs, and will pay $5.0 million in 16 equal quarterly installments commencing with the quarter ended March 31, 2003, which is secured under the Line of Credit. The Company followed SFAS No. 141, “Business Combinations,” and approximately $1.1 million of the aggregate purchase price has been allocated to acquired property, plant and equipment, and $10.3 million of the aggregate purchase price has been allocated to identifiable customer lists which are being amortized over a five-year useful life.

Premiere Conferencing

In July 2003 Premiere Conferencing acquired substantially all of the assets related to the Affinity Conferencing Services, Inc. The Company will pay a minimum of approximately $0.3 million up to a maximum of approximately $0.5 million in cash purchase price over a one-year earn-out period based on the achievement of specified revenue targets. If the earn-out is achieved, the purchase price will be adjusted in accordance with SFAS No. 141, “Business Combinations.”

EasyLink Investment

In March 2003, the Company entered into agreements 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 from AT&T. The parties agreed to dismiss with prejudice the EasyLink I and II lawsuits, and in exchange for the note and stock, PTEK paid AT&T approximately $1.9 million in cash and issued to AT&T a seven-year warrant to purchase

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250,000 shares of PTEK common stock at $9.36 per share and costs associated with the investment. The warrant is recorded at its fair market value under the Black-Scholes method, in accordance with FAS 123 “Accounting for Stock-Based Compensation.” In addition, PTEK and EasyLink modified the note to, among other things, amend the payment schedule of the note as follows: PTEK is entitled to receive aggregate payments of approximately $13.8 million, consisting of ten quarterly payments of $0.8 million which commenced on December 1, 2003, and a balloon payment of approximately $5.8 million on June 1, 2006. The note is accounted for in accordance with AICPA Statement of Position 03-03 “Accounting for Certain Loans and Debt Securities Acquired in a Transfer.”

Liquidity and Capital Resources

As of December 31 2003, the Company had $23.9 million in cash and cash equivalents compared to $68.8 million at December 31, 2002. Cash balances residing outside of the United States at December 31, 2003 were $19.3 million compared to $10.3 million at December 31, 2002. The Company routinely repatriates cash in excess of operating needs in certain countries where the cost to repatriate does not exceed the economic benefits. Intercompany loans with foreign subsidiaries generally are considered by management to be permanently invested for the foreseeable future. Therefore, all foreign exchange gains and losses are recorded in the cumulative translation adjustment account on the balance sheet. Based on potential cash positions of the Company and potential conditions in the capital markets, management could require repayment of these loans despite the long-term intention to hold them as permanent investments. Net working capital at December 31, 2003 was $8.6 million compared to $62.1 million at December 31, 2002. At December 31, 2003, the Company had $50.2 million of undrawn credit available under its Line of Credit. For a further description on the Line of Credit see “—Liquidity and Capital Resources—Capital Resources.”

Cash provided by operating activities

Consolidated operating cash flows from continuing operations were $59.8 million, $37.2 million and $29.0 million in 2003, 2002 and 2001, respectively. Consolidated operating cash flows from continuing operations increased $22.6 million from 2002 to $59.8 million in 2003. In 2003, 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 $55.6 million. The balance sheet movement associated with operating activities in 2003 was attributable primarily to an increase in accounts receivable of approximately $1.9 million due to growth in consolidated revenues, and reductions in accounts payable and accrued liabilities including payments for the settlement of a lawsuit that was previously accrued and a discretionary cash 401(k) plan match of approximately $4.4 million.

Cash used in investing activities

Consolidated investing activities from continuing operations used cash of approximately $41.9 million, $6.2 million and $32.5 million in 2003, 2002 and 2001, respectively. The $35.7 million increase in cash used in 2003 was primarily composed of $7.0 million due to the C&W acquisition, $15.3 million due to the MediaLinq acquisition, payments for two smaller acquisitions exceeding payments for prior year acquisitions by $0.2 million, an increase in capital expenditures of $4.7 million and the purchase of marketable securities of $1.6 million. These uses were offset slightly by the incremental proceeds from the sale of marketable securities of $1.9 million over 2002. Also included in the use of cash from investing activities was $1.4 million composed of the $2.2 million in cash paid to AT&T and outside legal fees related to the EasyLink note, net of $0.8 million in proceeds received from EasyLink. 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 the 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.

Cash (used in) provided by financing activities

Consolidated financing activities (used) or provided cash of approximately $(62.6) million, $(5.9) million, and $1.7 million in 2003, 2002 and 2001, respectively. The increase in cash used of $(56.7) million from 2002 to 2003 is primarily the result of the repurchase and redemption of $157.5 million of 2004 Convertible Notes and incremental debt payments for equipment loans and capital leases of $7.0 million paid off in 2003. These uses were offset by the $82.7 million in proceeds from the issuance of the 2008 Convertible Notes, the net borrowings on the Line of Credit of $5.0 million, the incremental proceeds from stock option exercises of $15.0 million and a $5.1 million decreased in the amount of treasury stock being purchased in 2003 as compared to 2002. 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.

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Off-balance sheet arrangements

As of December 31, 2003, the Company did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Commitments and contingencies

At December 31, 2003, the Company’s had the following contractual obligations. The Company is primarily obligated under operating leases for network facilities and office space, the 2004 and 2008 Convertible Notes, semiannual interest payments on the Convertible Notes, outstanding balances and commitment fees on the Line of Credit, remaining cash payments on current and prior year acquisitions and telecommunications contractual minimum purchase agreements.

The following table displays contractual obligations as of December 31, 2003 (in thousands):