Attached files
file | filename |
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8-K/A - EASYLINK SERVICES INTERNATIONAL CORP | v206749_8ka.htm |
EX-99.2 - EX-99.2 - EASYLINK SERVICES INTERNATIONAL CORP | v206749_ex99-2.htm |
EX-23.1 - EX-23.1 - EASYLINK SERVICES INTERNATIONAL CORP | v206749_ex23-1.htm |
EX-99.3 - EX-99.3 - EASYLINK SERVICES INTERNATIONAL CORP | v206749_ex99-3.htm |
EXHIBIT
99.1
Report
of Independent Auditors
The Board
of Directors of Premiere Global Services, Inc.
We have
audited the accompanying balance sheets of the PGiSend business ("PGiSend")
owned by Premiere Global Services, Inc. ("the Company") as of December 31, 2009
and 2008, and the related statements of operations, parent's investment, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in
the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit of the Company's
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the PGiSend business owned by
Premiere Global Services, Inc. at December 31, 2009 and 2008, and the results of
its operations and its cash flows for the years then ended in conformity with
U.S. generally accepted accounting principles.
Ernst
& Young LLP
October
12, 2010
PGISEND
(A Carve-Out of Premiere Global
Services, Inc.)
BALANCE
SHEETS
December
31, 2009 and 2008
(in
thousands)
2009
|
2008
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and equivalents
|
$ | 11,253 | $ | 11,358 | ||||
Accounts
receivable (less allowances of $670 and $1,038,
respectively)
|
20,048 | 23,865 | ||||||
Prepaid
expenses and other current assets
|
1,930 | 2,190 | ||||||
Income
taxes receivable
|
— | 302 | ||||||
Deferred
income taxes, net
|
3,450 | 4,571 | ||||||
Total
current assets
|
36,681 | 42,286 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
47,841 | 50,208 | ||||||
OTHER
ASSETS
|
||||||||
Goodwill
|
465 | 465 | ||||||
Intangibles,
net of amortization
|
366 | 608 | ||||||
Deferred
income taxes, net
|
5,953 | 3,007 | ||||||
Restricted
cash
|
103 | 165 | ||||||
Other
assets
|
2,252 | 2,218 | ||||||
TOTAL
ASSETS
|
$ | 93,661 | $ | 98,957 | ||||
LIABILITIES
AND PARENT'S INVESTMENT
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 12,343 | $ | 12,656 | ||||
Income
taxes payable
|
1,059 | - | ||||||
Accrued
taxes, other than income taxes
|
604 | 805 | ||||||
Accrued
expenses
|
5,181 | 7,448 | ||||||
Current
maturities of capital lease obligations
|
247 | 443 | ||||||
Accrued
restructuring costs
|
4,423 | 1,106 | ||||||
Total
current liabilities
|
23,857 | 22,458 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Capital
lease obligations
|
382 | 146 | ||||||
Accrued
restructuring costs
|
3,230 | 771 | ||||||
Accrued
expenses
|
1,385 | 533 | ||||||
Deferred
income taxes, net
|
6,143 | 2,812 | ||||||
Total
long-term liabilities
|
11,140 | 4,262 | ||||||
PARENT'S
INVESTMENT
|
||||||||
Accumulated
other comprehensive income
|
5,454 | 2,323 | ||||||
Accumulated
transactions with Parent
|
53,210 | 69,914 | ||||||
Total
Parent's investment
|
58,664 | 72,237 | ||||||
TOTAL
LIABILITIES AND PARENT'S INVESTMENT
|
$ | 93,661 | $ | 98,957 |
Accompanying
notes are integral to these financial statements
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
STATEMENTS
OF OPERATIONS
Years
Ended December 31, 2009 and 2008
(in
thousands)
2009
|
2008
|
|||||||
Net
revenues
|
$ | 130,306 | $ | 162,265 | ||||
Operating
expenses:
|
||||||||
Cost
of revenues (exclusive of depreciation and amortization shown
separately below)
|
64,588 | 74,822 | ||||||
Selling
and marketing
|
27,898 | 37,241 | ||||||
General
and administrative (exclusive of expenses shown separately
below)
|
18,500 | 20,713 | ||||||
Research
and development
|
6,732 | 7,122 | ||||||
Depreciation
|
15,486 | 13,626 | ||||||
Amortization
|
119 | 3,652 | ||||||
Restructuring
costs
|
13,320 | 1,949 | ||||||
Asset
impairments
|
2,869 | 3,205 | ||||||
Net
legal settlements and related expenses
|
298 | 128 | ||||||
Acquisition-related
costs
|
22 | 48 | ||||||
Total
operating expenses
|
149,832 | 162,506 | ||||||
Operating
loss
|
(19,526 | ) | (241 | ) | ||||
Other
(expense) income:
|
||||||||
Interest
income, net of interest expense
|
11 | 563 | ||||||
Intercompany
interest expense
|
(637 | ) | (424 | ) | ||||
Foreign
currency (loss) gain
|
(869 | ) | 477 | |||||
Total
other (expense) income, net
|
(1,495 | ) | 616 | |||||
(Loss)
income before income taxes
|
(21,021 | ) | 375 | |||||
Income
tax expense
|
1,325 | 3,470 | ||||||
Net
loss
|
$ | (22,346 | ) | $ | (3,095 | ) |
Accompanying
notes are integral to these financial statements
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
STATEMENTS
OF PARENT'S INVESTMENT
Years
Ended December 31, 2009 and 2008
(in
thousands)
Accumulated
|
||||||||||||
Other
|
Accumulated
|
|||||||||||
Comprehensive
|
transactions
|
Total Parent's
|
||||||||||
Income
|
with Parent
|
Investment
|
||||||||||
Balance
at January 1, 2008
|
$ | 6,122 | $ | 65,170 | $ | 71,292 | ||||||
Comprehensive
income (loss):
|
||||||||||||
Net
loss
|
- | (3,095 | ) | (3,095 | ) | |||||||
Translation
adjustments
|
(3,799 | ) | - | (3,799 | ) | |||||||
Comprehensive
loss, net of taxes
|
(3,799 | ) | (3,095 | ) | (6,894 | ) | ||||||
Net
transactions with Parent
|
- | 7,839 | 7,839 | |||||||||
Balance
at December 31, 2008
|
2,323 | 69,914 | 72,237 | |||||||||
Comprehensive
income (loss):
|
||||||||||||
Net
loss
|
- | (22,346 | ) | (22,346 | ) | |||||||
Translation
adjustments
|
3,131 | - | 3,131 | |||||||||
Comprehensive
loss, net of taxes
|
3,131 | (22,346 | ) | (19,215 | ) | |||||||
Net
transactions with Parent
|
- | 5,642 | 5,642 | |||||||||
Balance
at December 31, 2009
|
$ | 5,454 | $ | 53,210 | $ | 58,664 |
Accompanying
notes are integral to these financial statements
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
STATEMENTS
OF CASH FLOWS
Years
Ended December 31, 2009 and 2008
(in
thousands)
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (22,346 | ) | $ | (3,095 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Depreciation
|
15,486 | 13,626 | ||||||
Amortization
|
119 | 3,652 | ||||||
Net
legal settlements and related expenses
|
298 | 128 | ||||||
Deferred
income taxes
|
1,977 | (469 | ) | |||||
Restructuring
costs
|
13,320 | 1,949 | ||||||
Payments
for restructuring costs
|
(6,767 | ) | (2,767 | ) | ||||
Asset
impairments
|
2,869 | 3,205 | ||||||
Equity-based
compensation
|
2,994 | 3,629 | ||||||
Provision
for doubtful accounts
|
866 | 861 | ||||||
Loss
on disposal of assets
|
13 | (6 | ) | |||||
Changes
in accounts receivable, net
|
3,388 | 3,946 | ||||||
Changes
in prepaid expenses and other current assets
|
267 | 1,336 | ||||||
Changes
in accounts payable and accrued expenses
|
(4,509 | ) | (11,812 | ) | ||||
Net
cash provided by operating activities
|
7,975 | 14,183 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Capital
expenditures
|
(12,026 | ) | (19,507 | ) | ||||
Other
investing activities
|
120 | (306 | ) | |||||
Net
cash used in investing activities
|
(11,906 | ) | (19,813 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Principal
payments under capital lease obligations
|
(1,961 | ) | (317 | ) | ||||
Net
transactions with Parent
|
5,642 | 7,839 | ||||||
Net
cash provided by financing activities
|
3,681 | 7,522 | ||||||
Effect
of exchange rate changes on cash and equivalents
|
145 | (191 | ) | |||||
NET
INCREASE IN CASH AND EQUIVALENTS
|
(105 | ) | 1,701 | |||||
CASH
AND EQUIVALENTS, beginning of period
|
11,358 | 9,657 | ||||||
CASH
AND EQUIVALENTS, end of period
|
$ | 11,253 | $ | 11,358 | ||||
Supplemental
Disclosure of Cash Flow Information:
|
||||||||
Cash
transactions during the period for:
|
||||||||
Income
tax payments
|
$ | 1,757 | $ | 1,386 | ||||
Income
tax refunds
|
$ | 1,256 | $ | 1,197 | ||||
Capitalized
interest allocated from the Parent
|
$ | 163 | $ | 737 |
Accompanying
notes are integral to these financial statements
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
1. THE
COMPANY AND ITS BUSINESS
Premiere
Global Services, Inc. (the "Parent") is a leading global provider of on-demand
communication technologies-based business process improvement solutions. The
Parent is headquartered in Atlanta, GA and has a global presence in 24
countries. The Parent offers a broad suite of business applications in two
solution sets, including audio and web conferencing and collaboration and
webcasting services in its PGiMeet solutions (the "Meet Business") and digital
fax, document delivery and notifications services in its PGiSend solutions
("PGiSend," the "Send Business" or "our").
On June
28, 2010, the Parent entered into a non binding letter of intent to sell the
assets of Xpedite Systems, LLC and all of the outstanding shares of Xpedite
Systems (UK) Limited along with certain assets and liabilities of Premiere
Conferencing (Canada) Limited, which collectively comprise the Parent's Send
Business, for approximately $105 million in cash subject to working capital
adjustments. The Parent expects to consummate this transaction during the fourth
quarter of 2010.
2. NATURE
OF OPERATION AND BASIS OF PRESENTATION
The
accompanying financial statements present the financial position, results of
operations, and cash flows of the Send Business as if the Send Business was
operated as a separate entity and have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). The financial position and results of operations of the Send Business
have been "carved-out" from the Parent's consolidated financial statements and
presented herein as if the Send Business was a separate entity.
The Send
Business includes fax and document delivery tools integrated with IP fax
technology and notifications and reminders between businesses and their
constituents delivered via automated speech, email, fax and SMS
technologies.
As
discussed further in Note 4, the accompanying financial statements include the
revenues, costs, assets and liabilities that are directly attributable to the
Send Business and have been prepared from the separate records maintained by the
Parent's corporate accounting department that relate to the Send Business (the
"Direct Resources"). In addition, the financial statements include certain
costs, assets and liabilities related to (i) company resources that are shared
by the Send Business and the Meet Business (the "Shared Resources") and (ii)
corporate overhead resources that are shared by the Send Business and the Meet
Business (the "Corporate Costs"). Amounts involving management's estimates,
including Shared Resources and Corporate Costs, have been allocated based on a
percentage of headcount, personnel costs, revenue or estimates of use relative
to the Parent's overall totals. The Parent believes the allocations of these
amounts were determined on a reasonable basis and, therefore, approximate
substantially all of the material incremental amounts that would have been
recognized had the Send Business been operated on a stand-alone basis. These
allocated amounts, however, are not necessarily indicative of the actual amounts
that might have been incurred or realized had the Send Business operated as an
unaffiliated entity during the period presented. Moreover, no independent
studies or third party valuations have been obtained to validate the
reasonableness of these allocated amounts. The financial statements have been
prepared on the historical cost basis, and present the Send Business's financial
position, results of operations and cash flows as derived from the Parent's
historical financial statements.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
3. SIGNIFICANT
ACCOUNTING POLICIES
Accounting
Estimates
Preparation
of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that impact the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of net revenues and expenses during the
reporting period. Changes in the facts or circumstances underlying these
estimates could result in material changes, and actual results could differ from
those estimates. These changes in estimates are recognized in the period they
are realized.
Foreign
Currency Translation
The
assets and liabilities of the Send Business with a functional currency other
than the U.S. Dollar are translated at rates of exchange existing at our balance
sheet dates. Revenues and expenses are translated at average rates of exchange
prevailing during the year. The resulting translation adjustments are recorded
in the "Accumulated other comprehensive (loss) income" component of the Total
Parent's investment section of our balance sheets. In addition, intercompany
loans with foreign operations generally are considered to be permanently
invested for the foreseeable future. Therefore, all foreign currency exchange
gains and losses related to these balances are recorded in the "Accumulated
other comprehensive income" component of the Total Parent's investment section
of our balance sheets.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Accounts
Receivable and Allowance for Doubtful Accounts
Provision
for doubtful accounts was $0.9 million for each of the years ended December 31,
2009 and 2008. Write-offs against the allowance for doubtful accounts were $1.2
million and $1.9 million in the years ended December 31, 2009 and 2008,
respectively. Our allowance for doubtful accounts represents reserves for
receivables that reduce accounts receivable to amounts expected to be collected.
Management uses significant judgment in estimating uncollectible amounts. In
estimating uncollectible amounts, management considers factors such as
historical and anticipated customer payment performance and industry-specific
economic conditions. Using these factors, management assigns reserves
for uncollectible amounts by accounts receivable aging categories to specific
customer accounts.
Revenue
Recognition
We
recognize revenues when persuasive evidence of an arrangement exists, services
have been rendered, the price to the buyer is fixed or determinable and
collectability is reasonably assured. Revenues consist primarily of usage fees
generally based on per fax page or per transaction methods. Deferred revenue
consists of payments made by customers in advance of the time services are
rendered. Should changes in conditions cause management to determine these
criteria are not met for certain future transactions, revenue recognized for any
reporting period could be adversely impacted.
Income
Taxes
Significant
judgment is required to determine our provision for income taxes, including
deferred tax assets, deferred tax liabilities and valuation allowances. Deferred
tax assets and liabilities reflect the tax effect of temporary differences
between asset and liability amounts recognized for income tax purposes and the
amounts recognized for financial reporting purposes. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates applicable to
future years in which the deferred tax assets or liabilities are expected to be
settled or realized. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized on a more
likely than not basis.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Comprehensive
Loss
Comprehensive
loss represents the change in equity of a business during a period, except for
investments by owners and distributions to owners. Comprehensive loss for the
years ended December 31, 2009 and 2008 was $19.2 million and $6.9 million,
respectively. The differences between net income, as reported and comprehensive
loss are foreign currency translation adjustments. The changes in the
accumulated other comprehensive gain balance presented in the statements of
Parent's investment were not impacted by taxes during the years ended December
31, 2009 and 2008.
Software
Development Costs
We
capitalize certain costs incurred to develop software features sold as part of
our service offerings, as part of "Property and Equipment, Net" on our balance
sheets. For the years ended December 31, 2009 and 2008, we capitalized
approximately $8.3 million and $10.9 million, respectively, of these costs. We
expense these capitalized costs on a straight-line basis over the estimated life
of the related software, not to exceed five years. These expenses are recorded
as "Depreciation" in our statements of operations and the amount directly
attributable to the Send Business was approximately $4.7 million and $3.0
million for the years ended December 31, 2009 and 2008,
respectively.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is recorded under the
straight-line method over the estimated useful lives of the assets, commencing
when the assets are placed in service. The estimated useful lives are five to
seven years for furniture and fixtures, two to five years for software and three
to ten years for computer servers and Internet and telecommunications equipment.
The cost of installation of equipment is capitalized, as applicable.
Amortization of assets recorded under capital leases is included in
depreciation. Assets recorded under capital leases and leasehold improvements
are depreciated over the shorter of their useful lives or the term ofthe related
lease.
Research
and Development
Research
and development costs primarily related to developing new serVices, features and
enhancements to existing services that do not qualify for capitalization are
expensed as incurred.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Cash
and Equivalents and Restricted Cash
Cash and
equivalents include cash on hand and highly liquid investments with an original
maturity at date of purchase of three months or less. Cash balances that are
legally restricted as to usage or withdrawal are separately disclosed on the
face of our balance sheets and are classified as either current or long-term
depending on the restrictions. At December 31, 2009 and 2008, we had $0.1 million
and $0.2 million, respectively, of restricted cash held in long-term other
assets that consist of cash held in escrow by third parties associated with
several of our facility leases in Asia Pacific.
Goodwill
Goodwill
is subject to a periodic impairment assessment by applying a fair value-based
test based upon a two-step method. The first step is to identify
potential goodwill impairment by comparing the estimated fair value of the
reporting unit to their carrying amounts. The second step measures the amount of
the impairment based upon a comparison of "implied fair value" of goodwill with
its carrying amount. We have adopted December 31 of a given calendar year as our
valuation date and have evaluated goodwill as of December 31, 2009 and 2008 with
no impairments identified.
Valuation
of Long-Lived Assets
We
evaluate the carrying values of long-lived assets when significant adverse
changes in the economic value of these assets require an analysis, including
property and equipment and other intangible assets. A long-lived asset is
considered impaired when its fair value is less than its carrying value. In that
event, a loss is calculated based on the amount the carrying value exceeds the
future cash flows, as calculated under the best-estimate approach, of such
asset. We believe that long-lived assets in our balance sheets are appropriately
valued. Asset impairments were $2.9 million and $3.2 million during 2009 and
2008, respectively, and are recognized as "Asset impairments" in our statements
of operations.
Restructuring
Costs
Restructuring
reserves are based on certain estimates and judgments related to severance and
exit costs, contractual obligations and related costs, and are recorded as
"Restructuring costs" in our statements of operations. See Note 5 to our
financial statements for additional information and related disclosures
regarding our restructuring costs.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Legal
Contingencies
We are
involved from time to time in litigation matters as disclosed in Note 13. We
accrue an estimate of the probable costs for the resolution of legal claims.
These estimates are developed in consultation with outside counsel handling
these matters and based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies.
Recent
Accounting Pronouncements
In
February 2010, the Financial Accounting Standards Board, or FASB, issued
Accounting Standards Update, or ASU, No. 2010-09, "Amendments to Certain
Recognition and Disclosure Requirements," as an amendment to FASB Accounting
Standards Codification,
or ASC, Topic 855, "Subsequent Events." ASU No. 2010-09 reinforced the
requirement for non-SEC registrants to disclose the date through which
management evaluated subsequent events in the financial statements and whether
that date is the date the financial statements were issued or were available to
be issued. The management of the Send Business has evaluated subsequent events
through October 12,2010, the date these financial statements were available to
be issued.
In
October 2009, the FASB issued ASU No. 2009-13, "Revenue Recognition,
Multiple-Deliverable Revenue Arrangements," an amendment to its accounting
guidance on revenue arrangements with multiple deliverables. This new accounting
guidance addresses the unit of accounting for arrangements involving multiple
deliverables and how consideration should be allocated to separate units of
accounting, when applicable. In the same month, the FASB also issued ASU No.
2009-14, "Software, Certain Revenue Arrangements That Include Software
Elements," which changes revenue recognition for tangible products containing
software and hardware elements. This update excludes from software revenue
recognition all tangible products containing both software and non-software
components that function together to deliver the product's essential
functionality and includes such products in the multiple-deliverable revenue
guidance discussed above. This guidance will be effective for fiscal years
beginning on or after June 15,2010. Early adoption is permitted. All guidance
contained within these updates must be adopted in the same period. We
do not expect this guidance to have a material impact on our financial position
or results of operations.
In June
2009, the FASB issued Accounting Standards Update No. 2009-01, "Generally
Accepted Accounting Principles," or ASC Topic 105, which establishes the ASC as
the official single source of authoritative GAAP. All existing accounting
standards are superseded. All other accounting guidance not included in the ASC
will be considered non-authoritative. The ASC also includes all relevant SEC
guidance organized using the same topical structure in separate sections within
the ASC. The ASC is effective for financial statements for interim or annual
reporting periods ending after September 15,2009.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
In April
2008, the FASB issued new accounting guidance related to the determination of
the useful life of intangible assets. This guidance indicates that in developing
assumptions about renewal or extension options used to determine the useful life
of an intangible asset, an entity needs to consider its own historical
experience adjusted for entity-specific factors. In the absence of that
experience, an entity shall consider the assumptions that market participants
would use about renewal or extension option. The new accounting guidance is to
be applied to intangible assets acquired after January 1, 2009. We adopted the
provisions of the new accounting guidance, and it had no material impact on our
financial statements.
In
December 2007, the FASB issued new accounting guidance related the principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired, as well as
adding the requirement that acquisition-related costs be expensed as incurred
rather than included in the purchase price. The guidance also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination. This guidance is effective for fiscal years
beginning after December 15, 2008. We adopted this guidance on January 1,2009,
and it had no material impact on our financial statements. The impact of its
adoption in future periods will depend on the nature and size of business
combinations completed subsequent to the date of adoption.
4. RELATED
PARTY TRANSACTIONS AND CORPORATE ALLOCATIONS
As
discussed in Note 2, the accompanying financial statements include the revenues,
costs, assets and liabilities that are directly attributable to the Send
Business. Accordingly, certain amounts included in these financial statements
have been derived by the Parent based on actual amounts directly attributable to
the Send Business or management's best estimate of the amounts directly
attributable to the Send Business.
The
Accumulated transactions with Parent balances in the accompanying balance sheets
include the original investment in the Send Business, accumulated earnings of
the Send Business and contributions from and distributions to the Parent and the
Meet Business. Such contributions from and distributions to the Parent and the
Meet Business arise from shared resources, our centralized approach to cash
management within specific tax jurisdictions and the allocation by the Parent of
certain amounts incurred by them that are directly attributable to supporting
the Send Business.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
The
following table details activity that impacted the Accumulated transactions with
Parent balances between January 1, 2008 and December 31, 2009 related to
contributions from and distributions to the Parent and the Meet Business from
the Send Business:
Balance
at January 1, 2008
|
$ | 65,170 | ||
Transactions
between the Send Business and Parent
|
13,428 | |||
Transactions
related to shared resources
|
(13,300 | ) | ||
Corporate
allocations for support costs
|
7,711 | |||
Net
loss
|
(3,095 | ) | ||
Balance
- December 31, 2008
|
69,914 | |||
Transactions
between the Send Business and Parent
|
27,028 | |||
Transactions
related to shared resources
|
(29,451 | ) | ||
Corporate
allocations for support costs
|
8,065 | |||
Net
loss
|
(22,346 | ) | ||
Balance
- December 31, 2009
|
$ | 53,210 |
There are
no intercompany purchase or sale transactions between the Parent or the Meet
business and the Send Business. Under the Parent's centralized cash
management approach, in tax jurisdictions where it is possible, all excess cash
is remitted to the Parent. The net of transactions between the Parent and the
Send Business are reflected in Accumulated transactions with Parent in the
accompanying balance sheets. We have incurred interest charges on certain
intercompany loans which are classified as intercompany interest expense in our
statements of operations.
As
discussed in Note 2, the Send Business has been allocated a portion of expenses
related to (i) the Parent's executive management and corporate personnel
salaries and related benefits; and (ii) the Parent's corporate costs to operate
its corporate finance, accounts payable, internal audit, legal, tax, investor
relations, marketing and human resources functions. The allocations of the
Parent's corporate costs were made based on estimates of the proportion of
corporate expenses related to the Send Business, utilizing such factors as
revenues, number of employees, salaries and wages expenses and other applicable
factors. In the opinion of management, these allocations have been made on a
reasonable basis. The costs of these services charged to the Send Business may
not reflect the actual costs the Send Business would have incurred for similar
services as a stand-alone company. Moreover, no independent studies or
third-party valuations have been obtained to validate the reasonableness of
these allocated amounts.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Corporate
costs allocated to the Send Business are as follows (in thousands):
Year Ended
December 31,
|
Year Ended
December 31,
|
|||||||
2009
|
2008
|
|||||||
Cost
of revenues
|
$ | 20 | $ | — | ||||
General
and administrative expenses
|
4,457 | 5,725 | ||||||
Selling
and marking expenses
|
1,646 | 427 | ||||||
Research
and development expenses
|
410 | 249 | ||||||
Depreciation
|
448 | 318 | ||||||
Restructuring
costs
|
782 | 272 | ||||||
Asset
impairment
|
— | 21 | ||||||
Net
legal settlements and related expenses
|
1 | 24 | ||||||
Acquisition-related
costs
|
22 | 48 | ||||||
Foreign
currency loss
|
279 | 627 | ||||||
Total
corporate expenses, pre-tax
|
$ | 8,065 | $ | 7,711 |
Included
within General and administrative expenses, selling and marketing expenses and
research and development expenses are (i) personnel related costs including
salaries, benefits, contract labor and equity-based compensation; (ii)
facilities related costs including utilities, taxes and operating expenses; and
(iii) general corporate overhead costs including insurance, legal and
professional fees, marketing costs and software and hardware costs.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
5. RESTRUCTURING
COSTS
Restructuring
costs for the years ended December 31, 2009 and 2008, are as follows (in
thousands):
Balance at
|
Balance at
|
|||||||||||||||||||
January 1,
|
Cash
|
December 31,
|
||||||||||||||||||
2008
|
Provisions
|
payments
|
Non-cash
|
2008
|
||||||||||||||||
Accrued
restructuring costs:
|
||||||||||||||||||||
Severance
and exit costs
|
$ | 868 | $ | 1,949 | $ | (1,964 | ) | $ | (557 | ) | $ | 296 | ||||||||
Contractual
obligations
|
2,384 | - | (803 | ) | - | 1,581 | ||||||||||||||
Total
restructuring costs
|
$ | 3,252 | $ | 1,949 | $ | (2,767 | ) | $ | (557 | ) | $ | 1,877 | ||||||||
Balance
at
|
Balance
at
|
|||||||||||||||||||
December
31,
|
Cash
|
December
31,
|
||||||||||||||||||
2008
|
Provisions
|
payments
|
Non-cash
|
2009
|
||||||||||||||||
Accrued
restructuring costs:
|
||||||||||||||||||||
Severance
and exit costs
|
$ | 296 | $ | 8,883 | $ | (5,590 | ) | $ | (613 | ) | $ | 2,976 | ||||||||
Contractual
obligations
|
1,581 | 4,437 | (1,177 | ) | (164 | ) | 4,677 | |||||||||||||
Total
restructuring costs
|
$ | 1,877 | $ | 13,320 | $ | (6,767 | ) | $ | (777 | ) | $ | 7,653 |
Realignment
of Workforce - 2009
During
the year ended December 31, 2009, we executed a restructuring plan to
consolidate and streamline various functions of our work force. As part of these
consolidations, we eliminated approximately 160 positions. During the year ended
December 31, 2009, we recorded total severance and exit costs of $8.9 million.
Additionally, during the year ended December 31, 2009, we recorded $1.2 million
of lease termination costs associated with office locations in North America and
Europe. The expenses associated with these activities are reflected in
"Restructuring costs" in our statements of operations. Our reserve for the 2009
restructuring costs was $3.8 million at December 31, 2009. We anticipate these
severance-related costs will be paid over the next year, and these lease
termination costs will be paid over the next nine years.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Realignment
of Workforce - 2008
During
the year ended December 31, 2008, we executed a restructuring plan to
consolidate the senior management of our technology development and network
operations functions and to consolidate our corporate communications function
into our marketing department. As part of these consolidations, we eliminated 11
positions, including entering into a separation agreement with our president,
global operations. During the year ended December 31, 2008, we expensed
restructuring costs of $1.8 million associated with this realignment of our
workforce, representing severance costs associated with the elimination of these
positions and $0.1 related to prior periods. As of December 31, 2009 we have
completed this restructuring plan and, accordingly, no reserves for the 2008
restructuring costs remain.
Realignment
of Workforce - Prior to 2008
Our
remaining reserve for restructuring costs incurred prior to 2008 is associated
with lease termination costs and totaled $3.9 million at December 31, 2009.
During the year ended December 31, 2009, we revised assumptions used in
determining the estimated costs associated with these lease terminations
incurred prior to 2008. As a result, an additional $3.2 million of lease
termination costs related to North America was recorded. The expenses associated
with these activities are reflected in "Restructuring costs" in our statements
of operations. We anticipate these remaining lease termination costs will be
paid over the next six years.
6. PROPERTY
AND EQUIPMENT, NET
Property
and equipment at December 31, 2009 and 2008 is as follows (in
thousands):
2009
|
2008
|
|||||||
Operations
equipment
|
$ | 53,996 | $ | 61,149 | ||||
Furniture
and fixtures
|
2,913 | 4,190 | ||||||
Office
equipment
|
3,169 | 5,645 | ||||||
Leasehold
improvements
|
5,501 | 5,181 | ||||||
Capitalized
software
|
52,040 | 40,835 | ||||||
Construction
in progress
|
2,416 | 11,783 | ||||||
Building
|
1,597 | 1,442 | ||||||
121,632 | 130,225 | |||||||
Less
accumulated depreciation
|
(73,791 | ) | (80,017 | ) | ||||
Property
and equipment, net
|
$ | 47,841 | $ | 50,208 |
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
During
2009, asset impairments were $2.9 million, associated primarily with the
abandonment of certain software projects previously included in "Property and
equipment, net." During 2008, included in total asset impairments was $2.3
million associated primarily with the abandonment of billing system software
projects previously included in "Property and equipment, net."
Assets
under capital leases included in property and equipment at December 31, 2009 and
2008 are as follows (in thousands):
2009
|
2008
|
|||||||
Operations
equipment
|
$ | 1,351 | $ | 1,922 | ||||
Less
accumulated depreciation
|
(691 | ) | (1,236 | ) | ||||
Assets
under capital lease, net
|
$ | 660 | $ | 686 |
7. GOODWILL
AND INTANGIBLE ASSETS
Summarized
below is the carrying value of goodwill as of December 31, 2009 and 2008. There
were no changes to the carrying value of goodwill from January 1, 2008 to
December 31, 2009 (in thousands):
North
America
|
Europe
|
Asia
Pacific
|
Total
|
|||||||||||||
Goodwill:
|
||||||||||||||||
Gross
value at beginning of year
|
$ | 188,617 | $ | 25,532 | $ | - | $ | 214,149 | ||||||||
Accumulated
impairment losses
|
(188,418 | ) | (25,266 | ) | - | (213,684 | ) | |||||||||
Carrying
value at end of year
|
$ | 199 | $ | 266 | $ | - | $ | 465 |
Goodwill
is not subject to amortization but is subject to periodic reviews for
impairment.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Other
Intangible Assets
Summarized
below are the carrying value and accumulated amortization by intangible asset
class at December 31, 2009 and 2008 (in thousands):
2009
|
2008
|
|||||||||||||||||||||||
Gross
|
Net
|
Gross
|
Net
|
|||||||||||||||||||||
carrying
|
Accumulated
|
carrying
|
carrying
|
Accumulated
|
carrying
|
|||||||||||||||||||
value
|
amortization
|
value
|
value
|
amortization
|
value
|
|||||||||||||||||||
Other
Intangible assets:
|
||||||||||||||||||||||||
Customer
lists
|
$ | 25,864 | $ | (25,831 | ) | $ | 33 | $ | 25,660 | $ | (25,576 | ) | $ | 84 | ||||||||||
Non-compete
agreements
|
280 | (280 | ) | - | 272 | (272 | ) | - | ||||||||||||||||
Developed
technology
|
330 | (242 | ) | 88 | 330 | (176 | ) | 154 | ||||||||||||||||
Other
|
289 | (44 | ) | 245 | 418 | (48 | ) | 370 | ||||||||||||||||
Total
other intangible assets
|
$ | 26,763 | $ | (26,397 | ) | $ | 366 | $ | 26,680 | $ | (26,072 | ) | $ | 608 |
During
2008, included in total asset impairments was $0.9 million associated primarily
with the write-off of a customer-list in Europe. Other intangible assets are
amortized over an estimated useful life between one and ten years. Estimated
amortization expense related to other intangible assets for 2010 and the next
four years is as follows (in thousands):
Estimated
Amortization
|
||||
Year
|
Expense
|
|||
2010
|
$ | 91 | ||
2011
|
$ | 36 | ||
2012
|
$ | 3 | ||
2013
|
$ | 3 | ||
2014
|
$ | 3 |
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
8. CAPITAL
LEASE OBLIGATIONS
Capital
lease obligations at December 31, 2009 and 2008 are as follows (in
thousands):
December 31,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Capital
lease obligations
|
$ | 629 | $ | 589 | ||||
Less
current portion
|
(247 | ) | (443 | ) | ||||
Total
capital lease obligations
|
$ | 382 | $ | 146 |
Future
minimum lease payments under capital leases consist of the following at December
31, 2009 (in thousands):
2010
|
$ | 309 | ||
2011
|
202 | |||
2012
|
187 | |||
2013
|
20 | |||
Total
minimum lease payments
|
718 | |||
Less
amounts representing interest
|
(89 | ) | ||
Present
value of minimum lease payments
|
629 | |||
Less
current portion
|
(247 | ) | ||
$ | 382 |
9. EQUITY-BASED
COMPENSATION
The
Parent has certain stock plans under which its restricted stock awards, stock
options, stock appreciation rights, restricted stock units and other stock-based
awards may be issued to employees, directors, non-employee consultants and
advisors. During 2008 and 2009 only restricted stock awards were issued. The
compensation committee of the Parent's board of directors administers these
stock plans.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
The fair
value of restricted stock awards is the market value of the stock on the date of
grant. The effect of vesting conditions that apply only during the requisite
service period is reflected by recognizing compensation cost only for the
restricted stock awards for which the requisite service is rendered. As a
result, we are required to estimate an expected forfeiture rate, as well as the
probability that performance conditions that affect the vesting of certain
stock-based awards will be achieved, and only recognize expense for those shares
expected to vest. We estimate that forfeiture rate based on historical
experience of our stock-based awards that are granted, exercised and voluntarily
canceled. If our actual forfeiture rate is materially different from our
estimate, the stockbased compensation expense could be significantly different
from what we have recorded in the current period. We use a forfeiture rate of
1.5% for each ofthe years ended December 31, 2009 and 2008.
The
following table presents total equity-based compensation expense for restricted
stock awards included in the line items below in our statements of operations
(in thousands):
Years Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cost
of revenues
|
$ | 53 | $ | 35 | ||||
Selling
and marketing
|
592 | 719 | ||||||
Research
and development
|
586 | 551 | ||||||
General
and administrative
|
1,763 | 2,324 | ||||||
Equity-based
compensation expense
|
2,994 | 3,629 | ||||||
Income
tax benefits
|
(1,048 | ) | (1,270 | ) | ||||
Total
equity-based compensation expense, net of tax
|
$ | 1,946 | $ | 2,359 |
Total
equity-based compensation expense includes cost related to stock awards of the
Parent granted to employees of the Send Business, Shared Resources and Corporate
Costs. The total amount of equity based compensation directly attributable to
the Send Business for employees and shared resources was $1.9 million and $2.0
million for the years ended December 31, 2009 and 2008, respectively. The total
amount of equity based compensation allocated to the Send Business as a
Corporate Cost was $1.1 million and $1.6 million for the years ended December
31, 2009 and 2008, respectively. Costs related to Shared Resources and Corporate
Cost employees have been allocated, as described in Notes 2 and 4.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
10. ACCRUED
EXPENSES
Accrued
expenses at December 31, 2009 and 2008 are as follows (in
thousands):
2009
|
2008
|
|||||||
Short
Term Accrued Expenses
|
||||||||
Accrued
wages and wage related taxes
|
$ | 1,980 | $ | 3,187 | ||||
Accrued
sales commissions
|
848 | 746 | ||||||
Accrued
professional fees
|
784 | 1,041 | ||||||
Accrued
utilities
|
224 | 185 | ||||||
Deferred
rent
|
142 | 529 | ||||||
Other
|
1,203 | 1,760 | ||||||
$ | 5,181 | $ | 7,448 | |||||
Long
Term Accrued Expenses
|
||||||||
Deferred
rent
|
$ | 760 | $ | 42 | ||||
Asset
retirement obligations
|
465 | 286 | ||||||
Other
|
160 | 205 | ||||||
$ | 1,385 | $ | 533 |
11. FAIR
VALUE MEASUREMENTS
The fair
value amounts for cash and equivalents, accounts receivable, net, and accounts
payable and accrued expenses approximate carrying amounts due to the short
maturities of these instruments. The estimated fair value of our capital lease
obligations at December 31, 2009 and 2008 was based on expected future payments
discounted using current interest rates offered to the Send Business and
characteristics, including credit quality, and did not vary materially from
carrying value.
12. EMPLOYEE
BENEFIT PLANS
The
Parent sponsors a defined contribution plan covering substantially all of our
U.S. employees. The Parent also sponsors similar voluntary contribution
arrangements for certain of our employees outside the United States that meet
applicable eligibility requirements. The Parent may make discretionary
contributions for the benefit of employees under these plans. Amounts expensed
related to these plans in 2009 and 2008 directly attributable to the Send
Business were approximately $1.3 million and $2.0 million, respectively.
Employer matching contributions were suspended for the last nine months ofthe
year ended December 31, 2009.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
13. COMMITMENTS
AND CONTINGENCIES
Operating
Lease Commitments
Office
space, computer and other equipment and automobiles are leased under
noncancelable lease agreements. The leases generally provide that we pay the
taxes, insurance and maintenance expenses related to the leased assets. Future
minimum lease payments for noncancelable operating leases as of December 31,
2009 are as follows (in thousands):
2010
|
$ | 7,241 | ||
2011
|
5,176 | |||
2012
|
3,816 | |||
2013
|
3,134 | |||
2014
|
3,098 | |||
Thereafter
|
5,062 | |||
Minimum
lease payments
|
$ | 27,527 |
Included
in our future minimum lease payments is an aggregate of $5.5 million for leases
included in our restructuring efforts. Rent expense under operating leases was
$6.4 million and $6.6 million for the years ended December 31, 2009 and 2008,
respectively.
Litigation
and Claims
We are
involved from time to time in legal proceedings that we do not believe will have
a material adverse effect upon our business, financial condition or results of
operations, although we can offer no assurance as to the ultimate outcome of any
such proceedings.
14. INCOME
TAXES
Historically,
the Send Business has been included in the consolidated federal income tax
return of the Parent and federal income taxes were paid by the Parent on behalf
of the Send Business. These financial statements recognize the current and
deferred income tax provisions that result from the activities of the Send
Business during the current and preceding periods on a separate return basis as
if it were a separate taxpayer rather than a member of the Parent's consolidated
income tax return group. Tax assets and liabilities presented do not necessarily
represent the assets and liabilities that would be assumed by a third party.
Current tax assets and liabilities represent the actual payables and receivables
of the legal entities that comprise the Send Business. Any change in current tax
expense as a result of preparing these income tax provisions on a separate
return basis is reflected as a transaction with Parent in these financial
statements.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Income
tax expense (benefit) for 2009 and 2008 is as follows (in
thousands):
2009
|
2008
|
|||||||
Current:
|
||||||||
Federal
|
$ | - | $ | - | ||||
State
|
- | - | ||||||
International
|
2,831 | 6,335 | ||||||
Total
current
|
$ | 2,831 | $ | 6,335 | ||||
Deferred:
|
||||||||
Federal
|
$ | - | $ | - | ||||
State
|
- | - | ||||||
International
|
(1,506 | ) | (2,865 | ) | ||||
Total
deferred
|
$ | (1,506 | ) | $ | (2,865 | ) | ||
Income
tax expense
|
$ | 1,325 | $ | 3,470 |
The
difference between the statutory federal income tax rate and our effective
income tax rate applied to income before income taxes from continuing operations
for 2009 and 2008 is as follows (in thousands):
2009
|
2008
|
|||||||
Federal
rate
|
$ | (7,357 | ) | $ | 131 | |||
Foreign
taxes
|
1,047 | 1,127 | ||||||
Change
in valuation allowance
|
9,538 | 3,702 | ||||||
Foreign
Tax Credits
|
(1,926 | ) | (1,351 | ) | ||||
R&D
Tax Credits
|
(428 | ) | (507 | ) | ||||
Non-deductible
employee compensation
|
451 | 368 | ||||||
Income
taxes at our effective rate
|
$ | 1,325 | $ | 3,470 |
In the
normal course of business, we are subject to inquiries from U.S. and non-U.S.
tax authorities regarding the amount of taxes due. These inquiries may result in
adjustments of the timing or amount of taxable income or deductions or the
allocation of income among tax jurisdictions. Further, during the ordinary
course of business, other changing facts and circumstances may impact our
ability to utilize income tax benefits as well as the estimated taxes to be paid
in future periods. We believe we are appropriately accrued for income taxes. In
the event that actual results differ from these estimates, we may need to adjust
"Income taxes payable" in our balance sheets, which could materially impact our
financial condition and results of operation.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
Differences
between the financial accounting and tax basis of assets and liabilities giving
rise to deferred tax assets and liabilities are as follows at December 31, 2009
and 2008 (in thousands):
2009
|
2008
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryforwards
|
$ | 15,384 | $ | 6,534 | ||||
Intangible
assets
|
4,702 | 7,285 | ||||||
Restructuring
costs
|
1,837 | 605 | ||||||
Other
tax credits
|
4,255 | 1,901 | ||||||
Gross
deferred tax assets
|
26,178 | 16,325 | ||||||
Valuation
allowance
|
(13,240 | ) | (3,702 | ) | ||||
Total
deferred tax assets
|
$ | 12,938 | $ | 12,623 | ||||
Deferred
tax liabilities:
|
||||||||
Property
and equipment
|
$ | (9,293 | ) | $ | (7,619 | ) | ||
Accrued
Expense
|
(385 | ) | (238 | ) | ||||
Total
deferred tax liabilities
|
$ | (9,678 | ) | $ | (7,857 | ) | ||
Deferred
income taxes, net
|
$ | 3,260 | $ | 4,766 |
We are
required to estimate our taxes in each jurisdiction in which we operate. This
process involves management estimating its tax exposure together with assessing
temporary differences resulting from differing treatment of items for tax and
accounting purposes. The ultimate recognition of uncertain tax matters is
realized in the period of resolution. The Send Business had no material
uncertain tax positions that met the criteria for recognition at December 31,
2009 or 2008.
The
undistributed earnings of our foreign operations that are not considered
permanently reinvested and have not been remitted to the United States totaled
$16.0 million and $17.1 million as of December 31, 2009 and 2008. These earnings
are not subject to U.S. income tax until they are distributed to the United
States. Historically, we have provided for deferred U.S. federal income taxes in
our statements of operations only on the undistributed earnings that were
determined not to be indefinitely reinvested. The foreign operations
not considered permanently reinvested are Australia, Japan and New Zealand. We
made the determination of permanent reinvestment on the basis of sufficient
evidence that demonstrates that we will invest the undistributed earnings
overseas indefinitely for use in working capital as well as foreign acquisitions
and expansion.
PGISEND
(A
Carve-Out of Premiere Global Services, Inc.)
NOTES
TO FINANCIAL STATEMENTS
The
valuation allowance at December 31, 2009 primarily relates to certain federal
income tax credit carryforwards that, in the opinion of management, are more
likely than not to expire unutilized. During the year ended December 31, 2009,
our valuation allowance increased by approximately $9.5 million, primarily a
result of a valuation reserves placed on federal income tax
credits.