<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
COMMISSION FILE NUMBER: 0-27778
PTEK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA
(State or other jurisdiction of incorporation or organization)
59-3074176
(I.R.S. Employer Identification No.)
3399 PEACHTREE ROAD NE
THE LENOX BUILDING, SUITE 600
ATLANTA, GEORGIA 30326
(Address of principal executive offices, including zip code)
(404) 262-8400
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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.
(1) Yes [X] No [_] (2) Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 8, 2000
----- -----------------------------
Common Stock, $0.01 par value 47,995,476 shares
<PAGE>
PTEK HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 2000 and December 31, 1999................................................................ 3
Condensed Consolidated Statements of Operations
for the Three and Six Month Periods ended June 30, 2000 and 1999......................................... 4
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 2000 and 1999.......................................................... 5
Notes to Condensed Consolidated Financial Statements..................................................... 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................................ 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk............................................... 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings........................................................................................ 21
Item 2 Changes in Securities.................................................................................... 22
Item 3 Defaults Upon Senior Securities.......................................................................... 23
Item 4 Submission of Matters to a Vote of Security Holders...................................................... 23
Item 5 Other Information........................................................................................ 23
Item 6 Exhibits and Reports on Form 8-K........................................................................... 23
SIGNATURES.......................................................................................................... 24
EXHIBIT INDEX....................................................................................................... 25
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
PTEK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents......................................................................... $ 25,055 $ 15,366
Marketable securities, available for sale.................................................... 14,598 86,615
Accounts receivable, net..................................................................... 74,782 67,652
Prepaid expenses and other................................................................... 7,549 13,299
--------- ---------
Total current assets..................................................................... 121,984 182,932
PROPERTY AND EQUIPMENT, NET................................................................... 109,442 118,725
OTHER ASSETS
Strategic alliance contract, net............................................................. - 8,036
Investments in and notes receivable from associated companies, at cost....................... 43,615 14,620
Intangibles, net............................................................................. 387,707 435,978
Deferred income taxes, net................................................................... 2,148 -
Other assets.............................................................................. 13,308 10,190
--------- ---------
$ 678,204 $ 770,481
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................................................. $ 25,700 $ 33,512
Deferred revenue............................................................................. 1,796 1,586
Accrued taxes................................................................................ 33,437 31,607
Accrued liabilities.......................................................................... 53,679 57,686
Deferred income taxes, net................................................................... - 15,426
Current maturities of long-term debt and capital lease obligations........................... 2,873 2,671
Accrued restructuring, merger costs and other special charges................................ 2,431 5,698
--------- ---------
Total current liabilities................................................................ 119,916 148,186
--------- ---------
LONG-TERM LIABILITIES
Convertible subordinated notes............................................................... 172,500 172,500
Long-term debt and capital lease obligations................................................. 2,291 4,454
Other accrued liabilities.................................................................... 5,449 7,419
Deferred income taxes, net................................................................... - 15,702
--------- ---------
Total long-term liabilities.............................................................. 180,240 200,075
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value; 150,000,000 shares authorized, 49,141,532 and
48,074,566 shares issued in 2000 and 1999, respectively, and 47,994,532 and
46,977,566 shares outstanding in 2000 and 1999, respectively............................... 491 481
Unrealized gain on marketable securities..................................................... 7,774 50,774
Additional paid-in capital................................................................... 574,075 570,054
Treasury stock, at cost...................................................................... (9,330) (9,133)
Note receivable, shareholder................................................................. (1,047) (1,047)
Cumulative translation adjustment............................................................ 162 527
Accumulated deficit.......................................................................... (194,077) (189,436)
--------- ---------
Total shareholders' equity............................................................... 378,048 422,220
--------- ---------
$ 678,204 $ 770,481
========= =========
</TABLE>
Accompanying notes are integral to these condensed consolidated financial
statements.
3
<PAGE>
PTEK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE................................................... $111,458 $114,444 $227,171 $227,253
TELECOMMUNICATIONS COSTS.................................. 28,276 32,204 59,739 64,660
-------- -------- -------- --------
GROSS PROFIT.............................................. 83,182 82,240 167,432 162,593
DIRECT OPERATING COSTS.................................... 17,242 17,472 34,213 33,214
-------- -------- -------- --------
CONTRIBUTION MARGIN....................................... 65,940 64,768 133,219 129,379
-------- -------- -------- --------
OTHER OPERATING EXPENSES
Selling and marketing.................................... 24,702 30,882 48,346 55,006
General and administrative............................... 19,296 29,040 41,054 48,529
Research and development................................. 3,488 2,722 7,079 5,343
Depreciation............................................. 12,342 17,033 22,306 32,483
Amortization............................................. 25,674 23,963 51,433 47,680
Gain on legal settlement................................. (3,730) - (3,730) _
-------- -------- -------- --------
Total other operating expenses.......................... 81,772 103,640 166,488 189,041
-------- -------- -------- --------
OPERATING LOSS............................................ (15,832) (38,872) (33,269) (59,662)
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest, net............................................ (2,692) (6,420) (5,403) (12,016)
Gain on sale of marketable securities.................... 7,043 - 53,059 -
Other, net............................................... 97 13,664 (319) 13,219
-------- -------- -------- --------
Total other income (expense)............................ 4,448 7,244 47,337 1,203
-------- -------- -------- --------
INCOME/(LOSS) BEFORE INCOME TAXES......................... (11,384) (31,628) 14,068 (58,459)
INCOME TAX EXPENSE/(BENEFIT).............................. 1,548 (6,439) 18,708 (8,858)
-------- -------- -------- --------
NET LOSS.................................................. $(12,932) $(25,189) $ (4,640) $(49,601)
======== ======== ======== ========
BASIC NET LOSS PER SHARE.................................. $ (0.27) $ (0.55) $ (.10) $ (1.08)
======== ======== ======== ========
DILUTED NET LOSS PER SHARE................................ $ (0.27) $ (0.55) $ (.10) $ (1.08)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC.................................................... 48,031 46,168 47,743 46,083
======== ======== ======== ========
DILUTED.................................................. 48,031 46,168 47,743 46,083
======== ======== ======== ========
</TABLE>
Accompanying notes are integral to these condensed consolidated financial
statements.
4
<PAGE>
PTEK HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................................................ $ (4,640) $(49,601)
Adjustments to reconcile net loss to cash flows from operating activities:
Depreciation and amortization............................................................ 73,739 80,163
Loss on disposal of property and equipment............................................... 415 -
Gain on sale of marketable securities.................................................... (53,059) -
Gain on legal settlement................................................................. (3,730) -
Deferred income taxes.................................................................... 17,163 (9,941)
Payments for restructuring, merger costs and other special charges....................... (3,267) (1,622)
Proceeds from legal settlement........................................................... 12,000 -
Income taxes paid........................................................................ (15,389) (524)
Changes in assets and liabilities:
Accounts receivable, net................................................................ (7,130) (2,269)
Prepaid expenses and other.............................................................. (7,170) (8,479)
Accounts payable and accrued expenses................................................... (12,573) 4,823
-------- --------
Total adjustments........................................................................ 999 62,151
-------- --------
Net cash (used in) provided by operating activities...................................... (3,641) 12,550
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................................................................... (14,631) (20,791)
Proceeds from disposal of property and equipment......................................... 1,937 -
Redemption of marketable securities...................................................... 55,628 20,613
Payments made related to acquisitions.................................................... (495) (24,047)
Investments.............................................................................. (26,891) (8,089)
Other.................................................................................... (781) 7,407
-------- --------
Net cash provided by (used in) investing activities...................................... 14,767 (24,907)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments under) borrowing arrangements.................................... (4,605) 6,307
Exercise of stock options................................................................ 3,503 970
Purchases of treasury stock, at cost..................................................... (197) -
-------- --------
Net cash (used in) provided by financing activities...................................... (1,299) 7,277
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................................... (138) (5)
-------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS........................................... 9,689 (5,085)
CASH AND EQUIVALENTS, beginning of period................................................. 15,366 19,226
-------- --------
CASH AND EQUIVALENTS, end of period....................................................... $ 25,055 $ 14,141
======== ========
Income taxes paid......................................................................... $ 15,389 $ 524
======== ========
Interest paid............................................................................. $ 5,340 $ 15,269
======== ========
</TABLE>
Accompanying notes are integral to these condensed consolidated financial
statements.
5
<PAGE>
PTEK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
have been prepared by management of PTEK Holdings, Inc. and its subsidiaries
(collectively, the "Company") in accordance with rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, certain information and
footnote disclosures usually found in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of management of the Company, all adjustments
(consisting only of normal recurring adjustments, except as disclosed herein)
considered necessary for a fair presentation of the condensed consolidated
financial statements have been included. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Examples include provisions for bad
debts, carrying values and useful lives assigned to goodwill and other long-
lived assets and accruals for restructuring costs and employee benefits. Actual
results could differ from those estimates. These interim condensed consolidated
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
2. ACCOUNTING CHANGES
Restatement
In February 2000, PTEK announced that as a result of discussions with the
Securities and Exchange Commission, PTEK was required to change its accounting
for certain costs incurred as part of its restructuring, merger costs and other
special charges. These changes primarily affect certain asset impairment charges
and contractual obligation charges taken as part of the restructuring charges
related to Voice-Tel Enterprises, Inc. ("Voice-Tel") and VoiceCom Systems, Inc.
("VoiceCom Systems"). These changes are primarily to change the timing of when
costs are recognized in determining earnings and to reclassify certain
restructuring, merger costs and other special charges to selling, general and
administrative costs and depreciation costs. Accordingly, the Company has
restated its 1997 and 1998 annual financial statements and related disclosures
and its unaudited interim financial statements for 1999.
3. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," in June 1998,
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of the FASB Statement No. 133," in June 1999 and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133," in June 2000. SFAS No.
133 establishes accounting and reporting standards for derivatives and hedging.
It requires that all derivatives be recognized as either assets or liabilities
at fair value and establishes specific criteria for the use of hedge accounting.
SFAS No. 137 defers the effective date of SFAS No. 133 by one year to fiscal
years beginning after June 15, 2000. SFAS No. 138 amends the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
certain hedging activities. The Company's required adoption date is January 1,
2001. Upon adoption of the three statements, the Company expects no material
impact to its results of operations or financial position.
4. NET INCOME (LOSS) PER SHARE
Net loss per share is computed in accordance with SFAS No. 128, "Earnings per
Share." Basic and diluted net loss per share are the same in the three and six
month periods ended June 30, 2000 and 1999 because both of the Company's
potentially dilutive securities, convertible subordinated notes and stock
options, are antidilutive in such periods.
5. COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income represents the change in equity of a business during a
period, except for investments by owners and distributions to owners. Foreign
currency translation adjustments and unrealized gain on available-for-sale
marketable securities represent the Company's components of other comprehensive
income in 2000. In the six months ended June 30, 1999, foreign currency
translation was the only component of comprehensive income. For the three month
periods ended June 30, 2000 and 1999, total comprehensive loss was
6
<PAGE>
approximately $(24.9) million and $(23.4) million, respectively. For the six
month periods ended June 30, 2000 and 1999, total comprehensive income/(loss)
was approximately $5.1 million and $(49.6) million, respectively.
6. MARKETABLE SECURITIES, AVAILABLE FOR SALE
Marketable securities, available for sale at June 30, 2000 and December 31,
1999, are principally common stock investments carried at fair value and based
on quoted market prices, and mutual funds carried at amortized cost. Common
stock investments carried at fair value are primarily minority equity interests
in Healtheon/WebMD and S1 Corporation. Healtheon/WebMD is a leading end-to-end
Internet healthcare company connecting physicians and consumers to the entire
healthcare industry. S1 Corporation is a leading global provider of innovative
Internet-based financial services solutions.
The cost, gross unrealized gains, fair value, proceeds from sale and realized
gains and losses are as follows for the three and six months ended June 30, 2000
(in thousands):
<TABLE>
<CAPTION>
Gross
Gross Proceeds Realized
Unrealized Fair From Gains/
Cost Gains Value Sale (Losses)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Three Months Ended June 30, 2000
Healtheon/WebMD $ 596 $10,393 $10,989 $ - $ -
S1 Corporation 685 2,546 3,231 7,982 7,043
Other 562 (183) 379 - -
---------------------------------------------------------------------------
$1,843 $12,756 $14,599 $ 7,982 $ 7,043
---------------------------------------------------------------------------
Six Months Ended June 30, 2000
Healtheon/WebMD $ 596 $10,393 $10,989 $32,040 $31,646
S1 Corporation 685 2,546 3,231 23,588 22,032
Other 562 (183) 379 - (619)
---------------------------------------------------------------------------
$1,843 $12,756 $14,599 $55,628 $53,059
---------------------------------------------------------------------------
</TABLE>
During the second quarter of 2000, the Company sold 190,000 shares of its
investment in S1 Corporation, with proceeds less commissions of approximately
$8.0 million. At June 30, 2000, the Company held 741,889 shares of
Healtheon/WebMD and 138,597 shares of S1 Corporation. The deferred tax liability
on unrealized gains related to these investments is approximately $5.0 million
at June 30, 2000.
7. ACQUISITIONS
Intellivoice Communications Inc. Acquisition
In August 1999, the Company acquired all remaining ownership interests it did
not already own in Intellivoice Communications, Inc. ("Intellivoice"), a company
engaged in developing Internet-enabled communications products. The Company
issued approximately 573,000 shares of its common stock and paid cash
consideration of approximately $1,365,000 in connection with this acquisition.
This transaction has been accounted for as a purchase. Excess purchase price
over fair value of net assets acquired of approximately $10.5 million has been
recorded as developed technology and is being amortized on a straight-line basis
over three years. The developed technology relates to work associated with Web-
based communications services.
Xpedite France, S.A. Acquisition
During the second quarter of 1999, the Company purchased all remaining ownership
interests it did not already own in an affiliated electronic document
distribution company located in France for approximately $19 million in cash and
liabilities assumed. The Company held an approximate 18% ownership interest in
the affiliate prior to this transaction which has been accounted for as a
purchase. Excess purchase price over fair value of net assets acquired of
approximately $18 million has been recorded as goodwill and is being amortized
on a straight-line basis over seven years.
7
<PAGE>
The following unaudited pro-forma consolidated results of operations for the
three and six month period ended June 30, 1999 assumes the acquisitions made by
the Company in 1999 which were accounted for as purchases occurred on January 1,
1999. Pro-forma adjustments consist of amortization of intangible assets
acquired and lost interest income reflecting cash paid in the acquisitions
(amounts in thousands).
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------------ ----------------
Revenues $117,367 $234,057
Net loss $(26,075) $(51,982)
Basic net loss per share $ (0.56) $ (1.13)
Diluted net loss per share $ (0.56) $ (1.13)
8. RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES
Decentralization of Company
In the third quarter of 1999, the Company recorded a charge of approximately
$8.2 million to restructure the administrative overhead of the corporate
headquarters, the sales force of the former Emerging Enterprise Solutions
("EES") group and certain operations of EES and the former Corporate Enterprise
Solutions ("CES") groups. The $8.2 million charge was comprised of $7.3 million
of severance and exit costs, $0.7 million of lease termination costs and $0.2
million of facility exit costs. Severance benefits have been provided for the
termination of 203 employees, primarily related to corporate administrative
functions and direct sales force and operations of under-performing operating
segments in the former EES and CES groups. 114 employees were severed from the
Voicecom operating segment, 61 employees were severed from the Xpedite operating
segment and 28 employees were severed from the Corporate headquarters. As of
December 31, 1999 all 203 employees were terminated. Anticipated annual savings
of approximately $13.1 million are expected from these terminations. Lease
termination and clean-up costs were provided for the exit of one operating site
in the Retail Calling Card Services operating segment.
The balance at December 31, 1999 and June 30, 2000 for severance represents the
remaining severance reserve for former corporate executive management and
various management in the former CES group that were terminated in 1999. In the
six month period ended June 30, 2000, cash severance payments made were $2.4
million. The company expects to continue payments over the next three months.
Lease termination and clean-up costs of $82,000 were paid in the first quarter
of 2000 for the exit of one operating site in the Retail Calling Card Services
operating segment. No further payments are expected by management.
Reorganization of Company into EES and CES Business Segments
In the fourth quarter of 1998, PTEK recorded a charge of $11.4 million to
reorganize the Company into two business segments that focus on specific groups
of customers. These segments were named Emerging Enterprise Solutions
and Corporate Enterprise Solutions. EES focused on small office/home
office and multi-level marketing organizations, and CES focused on large
corporate accounts. This charge was comprised of $4.9 million of severance, $4.7
million of asset impairments, $0.4 million of contractual obligation costs and
$1.4 million of other costs, primarily to exit facilities and certain
activities.
As part of this reorganization, PTEK identified 59 employees to terminate.
These employees included administrative personnel from the Company's Cleveland
headquarters for the previous Voice-Tel and VoiceCom Systems entities, personnel
from customer service centers from eight locations and executive management from
the acquired companies that were not part of previous restructuring plans. As of
December 31, 1998, all 59 employees were terminated. The balance at December 31,
1999 and June 30, 2000 represent the remaining severance reserve for former
executive management. In the six month period ended June 30, 2000, cash
severance payments made to eight former executives was $0.8 million. The company
expects to pay the remaining $0.9 million balance of severance over the next
nineteen months.
8
<PAGE>
Accrued costs for restructuring, merger costs and other special charges at
December 31, 1999 and June 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Reorganization of Company into EES and CES Business Segments Accrued Costs at
December 31, Costs Accrued Costs at
1999 Incurred June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance and exit costs $1,730 $ 789 $ 941
--------------------------------------------------------
Accrued restructuring, merger costs and other special charges $1,730 $ 789 $ 941
--------------------------------------------------------
Decentralization of Company Accrued Costs at
December 31, Costs Accrued Costs at
1999 Incurred June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
Severance and exit costs $3,886 $2,396 $1,490
Other 82 82 -
--------------------------------------------------------
Accrued restructuring, merger costs and other special charges $3,968 $2,478 $1,490
--------------------------------------------------------
Consolidated Accrued Costs at
December 31, Costs Accrued Costs at
1999 Incurred June 30, 2000
----------------------------------------------------------------------------------------------------------------------------------
Severance and exit costs $5,616 $3,185 $2,431
Other 82 82 -
--------------------------------------------------------
Accrued restructuring, merger costs and other special charges $5,698 $3,267 $2,431
--------------------------------------------------------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company has several litigation matters pending, as described below, which it
is defending vigorously. Due to the inherent uncertainties of the litigation
process and the judicial system, the Company is unable to predict the outcome of
such litigation matters. If the outcome of one or more of such matters is
adverse to the Company, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company and certain of its officers and directors have been named as
defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals (including a subclass of former Voice-Tel
franchisees and a subclass of former Xpedite Systems, Inc. ("Xpedite")
shareholders) who purchased or otherwise acquired the Company's common stock
from as early as February 11, 1997 through June 10, 1998. Plaintiffs allege the
Company admitted it had experienced difficulty in achieving its anticipated
revenue and earnings from voice messaging services due to difficulties in
consolidating and integrating its sales function. Plaintiffs allege, among other
things, violation of Sections 10(b), 14(a) and 20(a) of the Securities Exchange
Act of 1934 and Sections 11, 12 and 15 of the Securities Act of 1933. We filed a
motion to dismiss this complaint on April 14, 1999. On December 14, 1999, the
court issued an order that dismissed the claims under Sections 10(b) and 20 of
the Exchange Act without prejudice, and dismissed the claims under Section
12(a)(1) of the Securities Act with prejudice. The effect of this order was to
dismiss from this lawsuit all open-market purchases by the plaintiffs. The
plaintiffs filed an amended complaint on February 29, 2000. The defendants filed
a motion to dismiss on April 14, 2000, which is pending.
A lawsuit was filed on November 4, 1998 against the Company and certain of its
officers and directors in the Southern District of New York. Plaintiffs are
shareholders of Xpedite who acquired common stock of the Company as a result of
the merger between the Company and Xpedite in February 1998. Plaintiffs'
allegations are based on the representations and warranties made by the Company
in the prospectus and the registration statement related to the merger, the
merger agreement and other documents incorporated by reference, regarding the
Company's acquisitions of Voice-Tel and VoiceCom Systems, the Company's roll-out
of Orchestrate(R), the Company's relationship with customers Amway Corporation
and DigiTEC, 2000, Inc., and the Company's 800-based calling card service.
Plaintiffs allege causes of action against the Company for breach of contract,
against all
9
<PAGE>
defendants for negligent misrepresentation, violations of Sections 11 and
12(a)(2) of the Securities Act of 1933 and against the individual defendants for
violation of Section 15 of the Securities Act. Plaintiffs seek undisclosed
damages together with pre- and post-judgment interest, recission or recissory
damages as to violation of Section 12(a)(2) of the Securities Act, punitive
damages, costs and attorneys' fees. The defendants' motion to transfer venue to
Georgia has been granted. The defendants' motion to dismiss has been granted in
part and denied in part. The defendants filed an answer on March 30, 2000.
On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint in
the Superior Court of Union County, New Jersey against 15 named defendants
including Xpedite and certain of its alleged current and former officers,
directors, agents and representatives. The plaintiffs allege that the 15 named
defendants and certain unidentified "John Doe defendants" engaged in wrongful
activities in connection with the management of the plaintiffs' investments with
Equitable Life Assurance Society of the United States and/or Equico Securities,
Inc. (collectively "Equitable"). More specifically, the complaint asserts
wrongdoing in connection with the plaintiffs' investment in securities of
Xpedite and in unrelated investments involving insurance-related products. The
defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited to
plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of the
named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they were
promised. Plaintiffs allege that Xpedite knew or should have known of alleged
wrongdoing on the part of other defendants. Plaintiffs seek an accounting of the
corporate stock in Xpedite, compensatory damages of approximately $4.85 million,
plus $200,000 in "lost investments," interest and/or dividends that have accrued
and have not been paid, punitive damages in an unspecified amount, and for
certain equitable relief, including a request for Xpedite to issue 139,430
shares of common stock in the plaintiffs' names, attorneys' fees and costs and
such other and further relief as the court deems just and equitable. This case
has been dismissed without prejudice and compelled to NASD arbitration.
In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the purported current
owner of certain patents, filed suit against the Company and Premiere
Communications, Inc. ("PCI") alleging that they had violated claims in these
patents and requesting damages and injunctive relief. In the fourth quarter of
1999, the Company and PCI entered into a settlement agreement with Aspect, which
settled and disposed of Aspect's claims in this litigation. This settlement will
not have a material adverse effect on the Company's business, financial
condition or results of operations.
On June 11, 1999, the Company filed a complaint against MCI WorldCom in the
Superior Court of Fulton County for the State of Georgia. The Company
subsequently filed an amended complaint on June 18, 1999. The amended complaint
alleged that MCI WorldCom breached the Strategic Alliance Agreement dated
November 13, 1996, between the Company and MCI WorldCom by, inter alia, awarding
various contracts to vendors other than the company and to which the Company was
entitled either exclusive or preferential consideration. In addition to
injunctive relief, the Company sought damages of not less than $10 million, pre-
and post-judgment interest, cost and expenses of litigation, including
attorney's fees. On July 1, 1999 the court entered an order staying all
proceedings pending arbitration. In connection with that order, MCI WorldCom
agreed that it would not issue any requests for information, requests for
proposals or enter into any contracts with respect to the proposals challenged
by the Company. This matter was settled by the parties in April 2000.
A lawsuit was filed on November 1, 1999 by Donald H. Turner, a former officer of
the Company, against the Company, Boland T. Jones and Jeffrey A. Allred in the
Superior Court of Fulton County, Georgia. Against the Company the plaintiff
alleges breach of contract and promissory estoppel relating to the termination
of his employment, and against all defendants the plaintiff alleges fraudulent
inducement relating to his hiring by the Company. The plaintiff seeks
compensatory damages of $875,000, forgiveness of a $100,000 loan, interest,
attorneys' fees and punitive damages in an unspecific amount. The defendants
filed an answer and counterclaim, claiming that the plaintiff owes the Company
the principal amount of the $100,000 loan plus interest as of January 1, 2001,
plus costs and attorneys' fees.
On September 3, 1999, Elizabeth Tendler filed a complaint in the Superior Court
of New Jersey Law Division, Union County, against 17 named defendants including
the company and Xpedite, and various alleged current and former officers,
directors, agents and representatives of Xpedite. Plaintiff alleges that the
defendants engaged in wrongful activities in connection with the management of
the plaintiff's investments, including investments in Xpedite. The allegations
against Xpedite and the Company are limited to plaintiff's investment in
Xpedite. Plaintiff's claims against Xpedite and the Company include breach of
contract, breach of fiduciary duty, unjust enrichment, conversion, fraud,
interference with economic advantage, liability for ultra vires acts, violation
of the New Jersey Consumer Fraud Act and violation of New Jersey RICO. Plaintiff
seeks an accounting of the corporate stock of Xpedite, compensatory damages of
approximately $1.3 million, accrued interest and/or dividends, a constructive
trust on the proceeds of the sale of any Xpedite or PTEK stock, shares of
Xpedite and/or PTEK to satisfy defendants' obligations to plaintiff, attorneys'
fees and costs, punitive and exemplary damages in an unspecified amount, and
treble damages. On February 25, 2000, Xpedite filed its answer, as well as cross
claims and third party claims. This case has been dismissed without prejudice
and compelled to NASD arbitration.
10
<PAGE>
On or about May 19, 2000, the Company was served with a Complaint filed by
Robert Cowan in the Circuit Court of Jackson County, Missouri, alleging claims
for breach of contract, fraudulent misrepresentation, negligent
misrepresentation, breach of duty of good faith and fair dealings, unjust
enrichment, and violation of Georgia and Missouri blue sky laws. Plaintiff's
claims arise out of the Company's acquisition of American Teleconferencing
Services, Ltd. ("ATS") in April 1998. Plaintiff was a shareholder of ATS who
received shares of PTEK stock in the transaction. The Company removed the case
to the United States District Court for the Western District of Missouri, and
filed a Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. Plaintiff has filed a Motion to Remand
the case back to state court. All motions are pending.
On June 9, 2000, the Company and Premiere Communications, Inc. filed a lawsuit
in the United States District Court for the Middle District of Florida, seeking
unspecified damages and equitable, including injunctive, relief against Z-Tel
Technologies, Inc., Z-Tel Communications, Inc. (collectively, "Z-Tel"), David
Gregory Smith, James Kitchen and Eduard Mayer for patent infringement, breach of
contract, unfair competition, conversion, misappropriation of corporate
opportunities, conspiracy to misappropriate corporate opportunities, tortious
interference with contractual relations, tortious interference with actual and
prospective business relations, and misappropriation of trade secrets. On June
29, 2000, Z-Tel filed an answerand counterclaims against the Company and Boland
T. Jones ("Jones") seeking unspecified damages for tortious interference with
actual and prospective business relations, trade defamation, and compelled self-
defamation. Jones and the Company filed a timely motion to dismiss Z-Tel's
counterclaims, which is pending before the court.
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.
10. SEGMENT REPORTING
The Company's reportable segments are strategic business segments that align the
Company into six decentralized areas of focus driven by product offering,
investment strategy and functional cost control. The Company realigned into this
decentralized operating and investing organization (opervesting) in the third
quarter of 1999 from the previous market segment focus of the EES and CES
business segments. The new business segments are called Voicecom (formerly of
both EES and CES), Xpedite(formerly of CES), Premiere Conferencing (formerly of
CES), Retail Calling Card Services (formerly of EES), PTEKVentures and
Corporate. Voicecom focuses on local and 800-based voice messaging services,
Internet enabled communications with its Orchestrate(R) product, interactive
voice response services, and wholesale communications platform outsourcing
solutions. Its customer base ranges from small office/home office to multi-level
marketing organizations to Fortune 1000 corporate accounts. Xpedite offers a
full range of electronic- and fax-based document distribution and data messaging
services through a dedicated IP network, and through its messageREACH/SM/
division offers outsourced Internet based e-mail services. Xpedite's customers
are primarily Fortune 1000 corporate accounts and governments. Premiere
Conferencing is a leading provider of conference call and group communications
services, primarily to Fortune 1000 customers. Retail Calling Card Services is a
business segment that the Company has decided to exit. It consists primarily of
the legacy Premiere WorldLink calling card product which was primarily marketed
through direct advertising and co-branding relationships to single retail users.
Discontinued operations treatment of this business segment is not available as
the Company will continue using the legacy platform for its profitable wholesale
line of business and its corporate calling card bundled within its 800-based
messaging offerings within the Voicecom operating segment. PTEKVentures focuses
on investments in companies in the Internet infrastructure and communications
areas. Corporate focuses on being a holding company, leaving the day to day
operations of running the business at the operating business segments. EBITDA
before gain on legal settlement and restructuring, merger and other special
charges is management's primary measure of segment profit and loss.
11
<PAGE>
Information concerning the operations in these reportable segments is as follows
(in millions):
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Xpedite $ 59.1 $ 60.6 $121.6 $118.7
Voicecom 29.9 31.9 60.9 62.9
Premiere Conferencing 16.9 12.9 32.7 25.5
Retail Calling Card Services 5.6 9.0 12.0 20.2
---------------------------------------------------------------
$111.5 $114.4 $227.2 $227.3
===============================================================
EBITDA
Xpedite $ 13.6 $ 15.8 $ 31.3 $ 31.7
Voicecom 4.5 1.6 9.0 6.9
Premiere Conferencing 3.2 2.4 5.6 4.1
Retail Calling Card Services 0.6 (2.5) 1.2 (2.3)
Corporate (2.9) (15.2) (9.1) (19.9)
PTEKVentures (0.5) - (1.3) -
---------------------------------------------------------------
$ 18.5 $ 2.1 $ 36.7 $ 20.5
===============================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------------------
<S> <C> <C>
Identifiable assets
Xpedite $102.8 $101.4
Voicecom 64.7 69.5
Premiere Conferencing 34.1 30.0
Retail Calling Card Services 0.5 8.0
PTEKVentures 60.9 100.2
Corporate 415.2 461.4
--------------------------
$678.2 $770.5
==========================
</TABLE>
(1) Intangible assets associated with acquisitions such as goodwill, customer
lists developed technology and assembled workforce are retained as identifiable
assets in the Corporate segment.
A reconciliation of operating loss and EBITDA to income (loss) before income
taxes is as follows (in millions):
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 2000 June 30, 2000 June 30, 2000
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EBITDA $ 18.5 $ 2.1 $ 36.7 $ 20.5
Less depreciation (12.3) (17.0) (22.3) (32.5)
Less amortization (25.7) (24.0) (51.4) (47.7)
Less gain on legal settlement 3.7 - 3.7 -
----------------------------------------------------------------------------------
Operating Loss (15.8) (38.9) (33.3) (59.7)
----------------------------------------------------------------------------------
Less interest expense, net (2.7) (6.4) (5.4) (12.0)
Plus gain on sale of marketable equity
securities 7.0 - 53.1 -
Plus other income (expense), net 0.1 13.7 (0.3) 13.2
----------------------------------------------------------------------------------
Income (loss) before income taxes $(11.4) $(31.6) $ 14.1 $(58.5)
==================================================================================
</TABLE>
11. SUBSEQUENT EVENT
In August of 2000, the Company entered into a binding letter of intent to sell
its Retail Calling Card Services operating segment. The approximate value of the
sale is $8.5 million. Financial terms of the sale are expected to be finalized
with the purchaser during the third quarter of 2000.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
PTEK Holdings, Inc., a Georgia corporation, and its subsidiaries (collectively,
the "Company") began operations in 1991 and the Company completed its initial
public offering in March 1996. The Company provides an array of innovative
solutions which are designed to simplify everyday communications for businesses
and individuals. The Company's services include voice and electronic messaging,
electronic document distribution, conferencing, calling card services and
Internet-based communications services. Through a series of acquisitions from
September 1996 through September 1999, the Company has assembled a suite of
communications services, an international private data network and points-of-
presence in regions covering North America, Asia/Pacific and Europe. The Company
has also invested in Internet companies that have developed their own innovative
service offerings that will enable these companies to become industry leaders.
The Company's reportable segments align the Company into six areas of focus that
are driven by product offering, investment strategy and corporate governance.
These six business segments are called Voicecom, Xpedite, Premiere Conferencing,
Retail Calling Card Services, PTEKVentures and Corporate. Voicecom focuses on
local and 800-based voice messaging services, Internet-enabled communications
with its Orchestrate(R) product, interactive voice response services and
wholesale communications platform outsourcing solutions. Its customer base
ranges from small office/home office to multi-level marketing organizations to
Fortune 1000 corporate accounts. Xpedite offers a full range of electronic- and
fax-based document distribution and data messaging services through a dedicated
IP network, and through its messageREACH/SM/ division offers outsourced Internet
based e-mail services. Xpedite's customers are primarily Fortune 1000 corporate
accounts and governments. Premiere Conferencing is a leading provider of
conference call and group communications services, primarily to Fortune 1000
customers. Retail Calling Card Services is a business segment whose operations
the Company has decided to exit. It consists primarily of the Premiere WorldLink
calling card product, which was primarily marketed through direct response
advertising and co-branding relationships to single retail users. Discontinued
operations accounting treatment of this business segment is not available as the
Company will continue pursuing the wholesale and corporate account distribution
channels of this product, both of which operate with positive EBITDA, as defined
by the Company. PTEKVentures focuses on investments in companies in the Internet
infrastructure and communications areas. Corporate focuses on being a holding
company, leaving the day to day operations of running the business at the
operating business segments. EBITDA before settlement gains and restructuring,
merger and other special charges is management's primary measure of segment
profit and loss.
The Company has pursued its goal of becoming a provider of a suite of
telecommunications and Internet-enabled communications services both
domestically and internationally through various acquisitions from 1996 through
1999. Through these acquisitions, the Company has been able to assemble a
variety of product and service offerings, as described above. In 1996, the
Company acquired TeletT Communications, LLC ("TeleT"), which became the
foundation for the Company's Orchestrate(R) product offering. In 1999 the
Company acquired Intellivoice, a company that was previously a consultant in
developing the next generation Orchestrate(R) product offering, Orchestrate(R)
2000. The Orchestrate(R) product is offered under the Voicecom business segment.
In 1997, the Company acquired the franchise network of Voice-Tel, which provided
local access voice mail and voice messaging. The Company also acquired VoiceCom
Systems in 1997, which provided 800-based corporate voice-mail and calling card
services. Both the Voice-Tel and VoiceCom Systems acquisitions, as well as the
Orchestrate(R) product offering, provide the basis of the Voicecom operating
segment. In 1998, the Company acquired Xpedite, a provider of domestic and
international fax services. Also in 1998, the Company acquired the international
affiliates of Xpedite and other complementary international fax service
providers. These acquisitions, along with the Australian operations of Voice-
Tel, have formed the basis for the Xpedite operating segment. The Company
acquired ATS in 1998, which, along with the conferencing business from the
VoiceCom Systems acquisition, forms the basis of the Premiere Conferencing
operating segment. During 1998, 1999 and the first six months of 2000, the
Company invested in Internet-based companies that it believes will be leaders in
their market niches in the expanding Internet economy. In 1999, the Company
formed the PTEKVenutures segment with dedicated resources to develop and grow
this segment.
The Company's revenues are based on usage in the Xpedite, Premiere Conferencing
and Retail Calling Card Services business segments and a mix of both usage and
monthly fixed fees in the Voicecom business segment.
Telecommunications costs consist primarily of the cost of metered and fixed
telecommunications related costs incurred in providing the Company's services.
Direct operating costs consist primarily of salaries and wages, travel,
consulting fees and facility costs associated with maintaining and operating the
Company's various revenue generating platforms and telecommunications networks,
regulatory fees and non-telecommunications costs directly associated with
providing services.
13
<PAGE>
Direct sales 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.
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.
General and administrative costs consist primarily of salaries and wages
associated with billing, customer service, order processing, executive
management and administrative functions that support the Company's operations.
Bad debt expense associated with customer accounts is also included in this
caption.
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 the assets, with the exception of leasehold
improvements which are depreciated on a straight-line basis over the shorter of
the term of the lease or the useful life of the assets. Intangible assets being
amortized include goodwill, customer lists, developed technology and assembled
work force.
EBITDA before gain on legal settlement and restructuring, merger and other
special charges is defined as net income before taxes, other income (expense),
depreciation, amortization, legal settlement gains and restructuring, merger
costs and other special charges.
EBITDA before gain on legal settlement and restructuring, merger and other
special charges is considered a key management performance indicator of
financial condition because it excludes the effects of non-cash goodwill and
intangible amortization attributable to acquisitions primarily acquired using
the Company's common stock, the effects of prior years' cash investing and
financing activities and the effects of one time cash or non-cash gains and
losses associated with cash flow before payments for interest and taxes. EBITDA
provides each segment's management team with a consistent measurement tool for
evaluating the operating profit of the business before investing activities and
taxes. EBITDA before gain on legal settlement and restructuring, merger and
other special charges may not be comparable to similarly titled measures
presented by other companies and could be misleading unless all companies and
analysts calculate them in the same manner.
The preparation of financial statements in conformity with generally accepted
accounting principles ("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. The following discussion
and analysis provides information which management believes is relevant to an
assessment and understanding of the Company's consolidated results of operations
and financial condition. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
The following table presents certain financial information about the Company's
operating segments for the periods presented (amounts in millions):
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Xpedite $ 59.1 $ 60.6 $121.6 $118.7
Voicecom 29.9 31.9 60.9 62.9
Premiere Conferencing 16.9 12.9 32.7 25.5
Retail Calling Card Services 5.6 9.0 12.0 20.2
---------------------------------------------------------------------
$111.5 $114.4 $227.2 $227.3
=====================================================================
EBITDA
Xpedite $ 13.6 $ 15.8 $ 31.3 $ 31.7
Voicecom 4.5 1.6 9.0 6.9
Premiere Conferencing 3.2 2.4 5.6 4.1
Retail Calling Card Services 0.6 (2.5) 1.2 (2.3)
Corporate (2.9) (15.2) (9.1) (19.9)
PTEKVentures (0.5) - (1.3) -
---------------------------------------------------------------------
$ 18.5 $ 2.1 $ 36.7 $ 20.5
=====================================================================
</TABLE>
14
<PAGE>
ANALYSIS
The Company's financial statements reflect the results of operations of Xpedite
France, S.A. and Intellivoice from the date of their respective acquisitions.
These acquisitions have been accounted for under the purchase method of
accounting.
Consolidated revenues decreased 2.6% to $111.5 million in the three months
ended June 30, 2000, as compared with the same period in 1999 and decreased to
$227.2 million in the six months ended June 30, 2000 as compared with $227.3
million in the same period in 1999. On a segment basis these changes in revenue
were caused by the following:
. Xpedite experienced a 2.5% decrease to $59.1 million in the three months
ended June 30, 2000 and a 2.4% increase to $121.6 million in the six months
ended June 30, 2000, compared with the same periods in 1999, respectively.
The decrease for the three month period is primarily attributable to
unfavorable foreign currency exchange experience in the second quarter of
2000, and pricing pressure in the market for certain of Xpedite's legacy fax
services. The increase for the six month period is primarily attributable to
the acquisition of Xpedite's affiliate Xpedite France S.A. in May of 1999.
The results of operations for the six months ended June 30, 1999 for this
subsidiary, which was accounted for under the purchase method of accounting,
contained only two months.
. Voicecom experienced a 6.3% decrease to $29.9 million in the three months
ended June 30, 2000 and a 3.2% decrease to $60.9 million in the six months
ended June 30, 2000, compared with the same periods in 1999, respectively.
These decreases are attributable to a change in revenue channel emphasis in
the second quarter of 2000 toward corporate accounts and multi-level
marketing organizations and away from less profitable small office and home
office retail accounts. Due to this change in sales channel revenue has
declined in the retail accounts at a greater rate than the acquisition of new
corporate accounts. Also contributing to this decline is voice mailbox volume
weakness in the non-financial multi-level marketing organizations.
. Premiere Conferencing experienced a 31.0% increase to $16.9 million in the
three months ended June 30, 2000 and a 28.2% increase to $32.7 million in the
six months ended June 30, 2000, compared with the same periods in 1999,
respectively. This growth has been indicative of the quarter over quarter
growth trend that this segment has experienced over the last twelve months
which is driven primarily from its unattended conferencing product offering.
. Retail Calling Card Services experienced a 37.8% decrease to $5.6 million in
the three months ended June 30, 2000 and a 40.6% decrease to $12.0 million in
the six months ended June 30, 2000, compared with the same periods in 1999,
respectively. This decline has been indicative of the quarter over quarter
declines over the previous three quarters as the Company has not actively
acquired customers in this operating segment during that time period. During
August 2000, the Company entered into a binding letter of intent to sell this
segment. For a further discussion, please see footnote 11 - Subsequent Event.
Consolidated gross profit margins were 74.6% and 71.9% for the three months
ended June 30, 2000 and 1999, respectively and 73.7% and 71.5% for the six
months ended June 30, 2000 and 1999, respectively. Consolidated gross profit
margins benefited in 2000 from the discontinuance of the retail calling card
operating segment in the third quarter 1999. This operating segment has
inherently lower gross margins than the other operating segments and as it
continues to be a smaller percentage of the Company's operating revenues, gross
margins have benefited. In general, the Company has experienced favorable trends
in per unit telecommunications costs in each of its operating segments by
aggressively negotiating lower telecommunications costs with various providers.
The Company also has experienced favorable telecommunications costs by
benefiting from the general industry trend of decreased costs from increased
capacity among the various long distance and local exchange carriers.
Consolidated direct costs of operations increased to 15.5% of revenues in the
three months ended June 30, 2000, as compared with 15.3% for the same period of
1999 and increased to 15.1% of revenues in the six months ended June 30, 2000,
as compared with 14.6% for the same period of 1999. The increase in these costs
is attributable primarily to increased regulatory costs associated with the 800-
Based telephony offerings in the Voicecom operating segment and network support
costs in developing Orchestrate(R) 2000.
Consolidated selling and marketing costs decreased to 22.2% of revenues in the
three months ended June 30, 2000, from 27.0% of revenues in the same period in
1999 and decreased to 21.3% of revenues in the six months ended June 30, 2000,
from 24.2% of revenues in the same period in 1999. This decrease is driven by
decreased direct sales force costs in the Voicecom operating segment from the
headcount reductions of 114 employees as part of the third quarter 1999
restructuring efforts by the Company. In addition, reduced marketing costs were
experienced in 2000 versus 1999 as a result of marketing costs related to the
commercial roll out of the first version of Orchestrate in the second quarter of
1999 that are not present in the first six months of 2000.
15
<PAGE>
Research and development costs increased to 3.1% of revenues for the three
months ended June 30, 2000, compared with 2.4% of revenues for the same period
in 1999 and increased to 3.1% of revenues in the six months ended June 30, 2000,
from 2.4% of revenues in the same period in 1999. The increase in these costs as
a percentage of revenue is primarily from increased development efforts
associated with the Voicecom operating segment's Orchestrate(R) 2000 development
product.
General and administrative costs were 17.3% of revenues for the three months
ended June 30, 2000, compared with 25.4% of revenues for the same period in 1999
and were 18.1% of revenues for the six months ended June 30, 2000, compared with
21.4% of revenues in the same period in 1999. Excluding costs associated with
restricted stock grants to certain executives in the second quarter of 1999
general and administrative costs were 17.0% of revenues for the three months
ended June 30, 2000, compared with 17.9% of revenues for the same period in 1999
and were 17.8% of revenues for the six months ended June 30,2000 compared with
17.9% of revenues in the same period in 1999. The overall decrease in general
and administrative costs, primarily in the second quarter of 2000 is related to
reduced corporate overhead costs from the Company's continued cost reductions in
administrative overhead stemming from its third quarter 1999 restructuring
initiative. For the six month comparative period, the decrease as a percentage
of revenue was not as large as the quarter to quarter comparison due to
additional costs associated with reducing overhead at the Corporate segment not
contemplated as part of the third quarter 1999 restructuring plan. In addition,
over the past six months, the Company's Voicecom segment has provided for
additional bad debt reserves of approximately $3.5 million associated with a
deterioration in its accounts receivable aging primarily associated with a
transition from a third party billing system of various non-financial multi-
level marketing customers to the Company's own billing systems. At June 30,
2000, the Company had not written off these receivables as collection efforts
continue.
Depreciation was 11.1% of revenues for the three months ended June 30, 2000,
compared with 14.9% of revenues for the same period in 1999 and was 9.8% of
revenues for the six months ended June 30, 2000, compared with 14.3% of revenues
for the same period in 1999. The decrease in these costs as a percentage of
revenues is attributable to decreases in depreciation expense associated with
the assets in the Company's enhanced calling card platform, local voice
messaging network and legacy fax delivery network. Portions of these assets'
depreciable lives were decreased in the fourth quarter of 1998 to fifteen months
from five to seven years and were fully depreciated by the end of 1999. The
shortening of these assets' lives was caused by management's decision to
replace these assets by the end of 1999 with more recent versions of technology
either for Year 2000 or service delivery reasons. Management had taken these
assets out of operation by the end of 1999 according to plan.
Amortization was 23.0% of revenues for the three months ended June 30, 2000,
compared with 20.9% for the same period in 1999 and 22.6% of revenues for the
six months ended June 30, 2000, compared with 21.0% of revenues for the same
period in 1999. The increase in these costs as a percentage of revenues is
attributable to goodwill, customer lists and developed technology intangibles
from the acquisition of Xpedite France, S.A. and Intellivoice in the second
quarter and third quarter 1999, respectively. The lives assigned to these
intangibles ranged from three to seven years.
The gain on legal settlement of $3.7 million for the three months ended June 30,
2000 is attributable to the Company's favorable settlement of a contractual
dispute with MCI Worldcom. As part of the settlement, the Company received $12
million in cash for terminating the strategic alliance contract with MCI
Worldcom. The Company received this cash in the first quarter of 2000 as a
refundable deposit on the pending settlement that was not finalized until the
second quarter of 2000. Accordingly, the Company expensed the net book value of
this contract of approximately $7 million against the initial gain of $12
million during the second quarter of 2000. In addition, the Company has expensed
approximately $1.3 million in legal costs associated with this settlement which
were incurred in the second quarter of 2000.
EBITDA was $18.5 million or 16.6% of revenues for the three months ended June
30, 2000, compared with $2.1 million or 1.9% of revenues for the same period in
1999 and $36.7 million or 16.2% of revenues for the six months ended June 30,
2000, compared with $20.5 or 9.0% of revenues for the same period in 1999. On a
segment basis this change was caused by the following:
. Xpedite's EBITDA was $13.6 million or 23.0% of segment revenues for the three
months ended June 30, 2000, compared with $15.8 million or 26.1% of segment
revenues for the same period in 1999 and $31.3 million or 25.7% of segment
revenues for the six months ended June 30, 2000, compared with $31.7 million
or 26.7% of segment revenues for the same period in 1999. These decreases in
EBITDA are primarily a result of increased pricing pressure in the market for
certain of Xpedite's legacy fax services and increased sales and marketing
costs associated with the launch of messageREACH/SM/.
. Voicecom's EBITDA was $4.5 million or 15.1% of segment revenues for the three
months ended June 30, 2000, compared with $1.6 million or 5% of segment
revenues for the same period in 1999 and $9.0 million or 14.8% of segment
revenues for the six months ended June 30, 2000, compared with $6.9 million
or 11.0% of segment revenues for the same period in 1999. The improvement in
EBITDA is primarily attributable to one time advertising costs in the second
quarter of 1999 attributable to the commercial launch of the first version of
Orchestrate(R). Additional gains in EBITDA have also been experienced from
reduced costs in the direct sales force from the restructuring in the third
quarter of 1999 and improved telecommunications
16
<PAGE>
costs. Offsetting some of these gains are increased costs in developing and
supporting Orchestrate(R) 2000 which will supersede previous versions of this
product.
. Premiere Conferencing's EBITDA was $3.2 million or 18.9% of segment revenues
for the three months ended June 30, 2000, compared with $2.4 million or 18.6%
of segment revenues for the same period in 1999 and $5.6 million or 17.1% of
segment revenues for the six months ended June 30, 2000, compared with $4.1
million or 16.1% of segment revenues for the same period in 1999. This
increase is primarily attributable to growth in unattended conferencing
products and improved telecommunications costs.
. Retail Calling Card Services' EBITDA was $0.6 million or 10.7% of segment
revenues for the three months ended June 30, 2000, compared with $(2.5)
million or (27.8)% of segment revenues for the same period in 1999 and $1.2
million or 10.0% of segment revenues for the six months ended June 30, 2000,
compared with $(2.3) million or (11.4%) of segment revenues for the same
period in 1999. This increase is primarily attributable to reduction in
headcount costs through attrition and the absence of direct advertising costs
to acquire new customers. Management discontinued actively acquiring
customers in the latter part of the third quarter of 1999. The Company has
entered into a binding letter of intent to sell this segment. For a further
discussion, please see footnote 11 - Subsequent Event.
. PTEKVentures' EBITDA was $(0.5) and $(1.3) million for the three and six
months ended June 30, 2000. Costs associated with this segment are personnel
costs, professional and legal costs and travel costs associated with
acquiring new investments or exploring strategic initiatives.
. Corporate EBITDA was $(2.9) million for the three months ended June 30, 2000,
compared to $(15.2) million for the same period in 1999 and $(9.1) million
for the six months ended June 30, 2000, compared to $(19.9) million for the
same period in 1999. Excluding costs associated with restricted stock grants
to certain executives in the second quarter of 1999, EBITDA was $(2.3)
million for the three months ended June 30, 2000, compared to $(6.3) million
for the same period in 1999 and $(8.5) million for the six months ended June
30, 2000, compared to $(11.0) million for the same period in 1999. The
increase in EBITDA for the three and six month comparative periods is
primarily related to reduced administrative overhead costs associated with
the decentralization strategy implemented in the third quarter of 1999. This
strategy consisted of reducing all non-strategic overhead costs at Corporate
and to push down administrative duties to each operating segment where they
could be managed more efficiently.
Net interest expense decreased to $2.7 million for the three months ended June
30, 2000, as compared with $6.4 million for the same period in 1999 and
decreased to $5.4 million for the six months ended June 30, 2000, as compared
with $12.0 million for the same period in 1999. Net interest expense decreased
in 2000 due to the absence of the Company's credit facility with the Bank of New
York that was paid off in the fourth quarter of 1999 from the proceeds of the
Company's partial sale of its holdings in Healtheon/WebMD common stock. Average
borrowings in the first six months of 1999 on this credit facility were
approximately $122.1 million. Interest expense, net in the first six months of
2000 is primarily comprised of interest on the Company's convertible
subordinated notes of $172.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $3.6 million in the six month period ended June
30, 2000, as compared with net cash provided of $12.6 million for the same
period in 1999. Excluding payments made for restructuring, merger costs and
other special charges, net cash used in operations in the six month period ended
June 30, 2000 was $0.4 million as compared with cash provided of $14.2 million
for the same period in 1999. Operating cash flow declined in the first six
months of 2000 primarily as a result of increased use of cash for operating
assets and liabilities driven primarily by a decrease in the number of days
outstanding in payables from December 31, 1999 and an increase in the days sales
outstanding in accounts receivable. Also contributing to the decrease in
operating cash flows was the payment of approximately $15.4 million in income
taxes associated primarily with the gain on the sale of Healtheon/WebMD stock
owned by the Company in the fourth quarter of 1999 and first six months of 2000
and gain on sale of S1 Corporation stock owned by the Company in the first six
months of 2000. The sale of these investments utilized substantially all of the
Company's domestic net operating loss carryforwards causing the Company to be
subject to income taxes for the fiscal year ended December 31, 1999 and the six
months ended June 30, 2000. These taxes were paid in the first and second
quarters of 2000. The Company anticipates future tax liabilities on subsequent
gains from the sale of its marketable securities. The Company also received $12
million in cash for the settlement of the lawsuit against MCI WorldCom.
Investing activities provided cash of approximately $14.8 million in the six
month period ended June 30, 2000 compared to cash used of $24.9 million in the
same period of 1999. The principal source of cash from investing activities in
the six month period ended June 30, 2000, was the sale of Healtheon/WebMD and S1
Corporation stock owned by the Company. The proceeds of $55.6 million were used
primarily to invest in Internet based companies in the PTEKVentures portfolio,
pay income taxes from sales of Healtheon/WebMD and S1 Corporation, to pay semi-
annual interest due on the Company's convertible subordinated
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notes and to fund capital expenditures. See note 6- "Marketable Securities
Available For Sale" for a further discussion of this investment activity.
Capital expenditures in the first six months of 2000 were primarily to upgrade
the Voicecom segment's local based voice messaging network, increase capacity on
Premiere Conferencing's conference calling network, to develop the
Orchestrate(R) 2000 platform, to improve Xpedite's fax delivery platform and to
develop Xpedite's MessageREACH/SM/ Internet-based product offering. Proceeds
from the disposal of property and equipment of $1.9 million relate to the sale
of switching equipment associated with the retail calling card segment. Proceeds
were approximately equal to net book value. Investments in the first six months
of 2000 of approximately $26.9 million related to activity at PTEKVentures.
These cash outlays were primarily additional investments in companies that
existed in the PTEKVentures investment portfolio at December 31, 1999 and
investments in eleven new Internet based companies. The principal source of cash
from investing activities in the first six months of 1999 was primarily the sale
of municipal bond obligations and mutual funds. These redemptions were used in
part to provide capital for improvements to Xpedite's fax delivery platform and
Voicecom's local based voice messaging network.
Cash provided by financing activities in the six month period ended June 30,
2000, was primarily from proceeds from employee stock option exercises. Cash
used in financing activities in the six month period ended June 30, 2000 is
primarily debt repayments on capital lease and note obligations associated with
the Voice-Tel acquisition and debt assumed from the Xpedite France, S.A.
acquisition. In addition the Company repurchased approximately 50,000 shares of
its common stock for approximately $197,000 under its share repurchase program
announced on June 6, 2000, under which the board of directors of the Company
authorized share repurchases up to 4,807,393 shares. Significant cash inflows
for financing activities in the six month period ended June 30, 1999, included a
net increase in borrowings under the Company's revolving loan facility, of
approximately $6.3 million. This increase was primarily used to acquire Xpedite
France, S.A. This loan facility was subsequently paid off in the fourth quarter
of 1999 with proceeds from the partial sale of the Company's investment in
Healtheon/WebMD.
At June 30, 2000, the Company's principal commitments involve minimum purchase
requirements under supply agreements with telecommunications providers,
severance payments to former executive management under the Company's various
restructuring plans, commitments under its strategic alliances with
Healtheon/WebMD and Sun Microsystems capital lease obligations and semi-annual
interest on the Company's convertible subordinated debt. The Company is in
compliance with all such agreements at this date. The Company maintains a margin
loan account with a certain investment bank where it can borrow up to 45% and
50% of the Company's holdings in Healtheon/WebMD and S-1 Corporation,
respectively. Interest rates on borrowings under this margin loan arrangement
are based on the broker call rate. At June 30, 2000, the Company had no
borrowings outstanding on the margin loan arrangement.
Management believes that cash and marketable securities and cash flows from
operations should be sufficient to fund the Company's non-investing operating
cash flow needs in the short term. At June 30, 2000, approximately $12.8
million of cash and equivalents resided outside of the United States compared to
$10.3 million at December 31, 1999. 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 parent 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. Foreign
exchange gains or losses on intercompany loans deemed temporary in nature are
recorded in the determination of net income. Management regularly reviews the
Company's capital structure and evaluates potential alternatives in light of
current conditions in the capital markets. Depending upon conditions in these
markets, the cash flows from the operating segments and other factors, the
Company may engage in other capital transactions to fund the investing needs of
PTEKVentures and capital expenditures in the various operating segments. These
capital transactions include but are not limited to debt or equity issuances or
credit facilities with banking institutions.
RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES
Decentralization of Company
In the third quarter of 1999, the Company recorded a charge of approximately
$8.2 million to restructure the administrative overhead of the corporate
headquarters, the sales force of the former EES group and certain operations of
the former EES and CES groups. The $8.2 million charge was comprised of $7.3
million of severance and exit costs, $0.7 million of lease termination costs and
$0.2 million of facility exit costs. Severance benefits have been provided for
the termination of 203 employees, primarily related to corporate administrative
functions and direct sales force and operations of under-performing operating
segments in the former EES and CES groups. 114 employees were severed from the
Voicecom operating segment, 61 employees were severed from the Xpedite operating
segment and 28 employees were severed from the Corporate headquarters. As of
December 31, 1999 all 203 employees were terminated. Anticipated annual savings
of approximately $13.1 million are expected from these terminations. Lease
termination and clean-up costs were provided for the exit of one operating site
in the Retail Calling Card Services operating segment.
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The balance at December 31, 1999 and June 30, 2000 for severance represents the
remaining severance reserve for former corporate executive management and
various management in the former CES group that were terminated in 1999. In the
six month period ended June 30, 2000, cash severance payments made were $2.4
million. The company expects to continue payments over the next three months.
Lease termination and clean-up costs of $82,000 were paid in the first quarter
of 2000 for the exit of one operating site in the Retail Calling Card Services
operating segment. No further payments are expected by management.
Reorganization of Company into EES and CES Business Segments
In the fourth quarter of 1998, the Company recorded a charge of $11.4 million to
reorganize the Company into two business segments that focus on specific groups
of customers. These segments were named Emerging Enterprise Solutions ("EES")
and Corporate Enterprise Solutions ("CES"). EES focused on small office/home
office and multi-level marketing organizations, and CES focused on large
corporate accounts. This charge was comprised of $4.9 million of severance, $4.7
million of asset impairments, $0.4 million of contractual obligation costs and
$1.4 million of other costs, primarily to exit facilities and certain
activities.
As part of this reorganization, the Company identified 59 employees to
terminate. These employees included administrative personnel from the Company's
Cleveland headquarters for the previous Voice-Tel and VoiceCom entities,
personnel from customer service centers from eight locations and executive
management from the acquired companies that were not part of previous
restructuring plans. As of December 31, 1998, all 59 employees were terminated.
The balances at December 31, 1999 and June 30, 2000, represent the remaining
severance reserve for former executive management. In the six month period ended
June 30, 2000, cash severance payments made to eight former executives was $
0.8million. The company expects to pay the remaining $0.9 million balance of
severance over the next nineteen months.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (the "FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1988,
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of the FASB Statement No. 133," in June 1999 and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133," in June 2000. SFAS No. 133
establishes accounting and reporting standards for derivatives and hedging. It
requires that all derivatives be recognized as either assets or liabilities at
fair value and establishes specific criteria for the use of hedge accounting.
SFAS No. 137 defers the effective date of SFAS No. 133 by one year to fiscal
years beginning after June 15, 2000. SFAS No. 138 amends the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
certain hedging activities. The Company's required adoption date is January 1,
2001. Upon adoption of the three statements, the Company expects no material
impact to its results of operations or financial position.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q and elsewhere by management or PTEK from time to
time, the words "believes," "anticipates," "expects," "will" "may" "should"
"intends" "plans" "estimates" "predicts" "potential" "continue" and similar
expressions are intended to identify forward-looking statements concerning our
operations, economic performance and financial condition. These include, but are
not limited to, forward-looking statements about our business strategy and means
to implement the strategy, our objectives, the amount of future capital
expenditures, the likelihood of our success in developing and introducing new
products and services and expanding our business, and the timing of the
introduction of new and modified products and services. For those statements, we
claim the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. These statements are
based on a number of assumptions and estimates which are inherently subject to
significant risks and uncertainties, many of which are beyond our control, and
reflect future business decisions which are subject to change. A variety of
factors could cause actual results to differ materially from those anticipated
in our forward-looking statements, including the following factors:
. Factors described from time to time in the Company's press releases,
reports and other filings made with the Securities and Exchange
Commission, including but not limited to our report on Form 10-K;
. Competitive pressures among communications services providers,
including pricing pressures, may increase significantly;
. Our ability to respond to rapid technological change, the development
of alternatives to our products and services and risk of obsolescence
of its products, services and technology;
. Market acceptance of new products and services, including
Orchestrate(R);
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. Strategic investments in early stage companies, which are subject to
significant risks, may not be successful and returns on such strategic
investments, if any, may not match historical levels;
. The value of our business may fluctuate because the value of some of
our strategic equity investments fluctuates;
. Our ability to obtain future financing sufficient to fund operations
and expansion;
. Our ability to obtain future financing sufficient to fund operations
and expansion;
. Our ability to manage our growth;
. Costs or difficulties related to the integration of businesses and
technologies, if any, acquired or that may be acquired by us may be
greater than expected;
. Expected cost savings from past or future mergers and acquisitions may
not be fully realized or realized within the expected time frame;
. Revenues following past or future mergers and acquisitions may be lower
than expected;
. Operating costs or customer loss and business disruption following past
or future mergers and acquisitions may be greater than expected;
. The success of our strategic relationships, including the amount of
business generated and the viability of the strategic partners, may not
meet expectations;
. Possible adverse results of pending or future litigation or adverse
results of current or future infringement claims;
. Risks associated with interruption in our services due to the failure
of the platforms and network infrastructure utilized in providing our
services;
. Risks associated with expansion and operation of our international
operations;
. General economic or business conditions, internationally, nationally or
in the local jurisdiction in which we are doing business, may be less
favorable than expected;
. Legislative or regulatory changes may adversely affect the business in
which we are engaged; and
. Changes in the securities markets may negatively impact us.
The Company cautions that these factors are not exclusive. Consequently, all of
the forward-looking statements made in this Form 10-Q and in documents
incorporated in this Form 10-Q are qualified by these cautionary statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Form 10-Q. The Company takes
on no obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date of this Form 10-Q, or the date of the statement, if a different
date.
All statements made herein regarding the Company's state of readiness with
respect to the Year 2000 issue constitute "Year 2000 readiness disclosures" made
pursuant to the Year 2000 Information and Readiness Disclosure Act, Public Law
No. 105-271.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates. The Company manages its exposure to these market risks
through its regular operating and financing activities. Derivative instruments
are not currently used and, if utilized, are employed as risk management tools
and not for trading purposes.
At June 30, 2000, no derivative financial instruments were outstanding to hedge
interest rate risk. A hypothetical immediate 10% increase in interest rates
would decrease the fair value of the Company's fixed rate convertible
subordinated notes outstanding at June 30, 2000, by $6.5 million.
Approximately 28.3% of the Company's sales and 17.3% of its operating costs and
expenses were transacted in foreign currencies for the six month period ended
June 30, 2000. As a result, fluctuations in exchange rates impact the amount of
the Company's reported sales and operating income. A hypothetical positive or
negative change of 10% in foreign currency exchange rates would positively or
negatively change revenue for the six month period ended June 30, 2000 by
approximately $6.4 million and
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operating expenses for the six month period ended June 30, 2000, by
approximately $2.9 million. Historically, the Company's principal exposure has
been related to local currency operating costs and expenses in the United
Kingdom and local currency sales in Europe (principally the United Kingdom and
Germany). The Company has not used derivatives to manage foreign currency
exchange risk and no foreign currency exchange derivatives were outstanding at
June 30, 2000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has several litigation matters pending, as described below, which it
is defending vigorously. Due to the inherent uncertainties of the litigation
process and the judicial system, the Company is unable to predict the outcome of
such litigation matters. If the outcome of one or more of such matters is
adverse to the Company, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company and certain of its officers and directors have been named as
defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals (including a subclass of former Voice-Tel
franchisees and a subclass of former Xpedite shareholders) who purchased or
otherwise acquired the Company's common stock from as early as February 11, 1997
through June 10, 1998. Plaintiffs allege the Company admitted it had experienced
difficulty in achieving its anticipated revenue and earnings from voice
messaging services due to difficulties in consolidating and integrating its
sales function. Plaintiffs allege, among other things, violation of Sections
10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and Sections 11,
12 and 15 of the Securities Act of 1933. We filed a motion to dismiss this
complaint on April 14, 1999. On December 14, 1999, the court issued an order
that dismissed the claims under Sections 10(b) and 20 of the Exchange Act
without prejudice, and dismissed the claims under Section 12(a)(1) of the
Securities Act with prejudice. The effect of this order was to dismiss from this
lawsuit all open-market purchases by the plaintiffs. The plaintiffs filed an
amended complaint on February 29, 2000. The defendants filed a motion to dismiss
on April 14, 2000, which is pending.
A lawsuit was filed on November 4, 1998 against the Company and certain of its
officers and directors in the Southern District of New York. Plaintiffs are
shareholders of Xpedite who acquired common stock of the Company as a result of
the merger between the Company and Xpedite in February 1998. Plaintiffs'
allegations are based on the representations and warranties made by the Company
in the prospectus and the registration statement related to the merger, the
merger agreement and other documents incorporated by reference, regarding the
Company's acquisitions of Voice-Tel and VoiceCom, the Company's roll-out of
Orchestrate(R), the Company's relationship with customers Amway Corporation and
DigiTEC, 2000, Inc., and the Company's 800-based calling card service.
Plaintiffs allege causes of action against the Company for breach of contract,
against all defendants for negligent misrepresentation, violations of Sections
11 and 12(a)(2) of the Securities Act of 1933 and against the individual
defendants for violation of Section 15 of the Securities Act. Plaintiffs seek
undisclosed damages together with pre- and post-judgment interest, recission or
recissory damages as to violation of Section 12(a)(2) of the Securities Act,
punitive damages, costs and attorneys' fees. The defendants' motion to transfer
venue to Georgia has been granted. The defendants' motion to dismiss has been
granted in part and denied in part. The defendants filed an answer on March 30,
2000.
On February 23, 1998, Rudolf R. Nobis and Constance Nobis filed a complaint in
the Superior Court of Union County, New Jersey against 15 named defendants
including Xpedite and certain of its alleged current and former officers,
directors, agents and representatives. The plaintiffs allege that the 15 named
defendants and certain unidentified "John Doe defendants" engaged in wrongful
activities in connection with the management of the plaintiffs' investments with
Equitable Life Assurance Society of the United States and/or Equico Securities,
Inc. (collectively "Equitable"). More specifically, the complaint asserts
wrongdoing in connection with the plaintiffs' investment in securities of
Xpedite and in unrelated investments involving insurance-related products. The
defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited to
plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of the
named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they were
promised. Plaintiffs allege that Xpedite knew or should have known of alleged
wrongdoing on the part of other defendants. Plaintiffs seek an accounting of the
corporate stock in Xpedite, compensatory damages of approximately $4.85 million,
plus $200,000 in "lost investments," interest and/or dividends that have accrued
and have not been paid, punitive damages in an unspecified amount, and for
certain equitable relief, including a request for Xpedite to issue 139,430
shares of common stock in the plaintiffs' names, attorneys' fees and costs and
such other and further relief as the court deems just and equitable. This case
has been dismissed without prejudice and compelled to NASD arbitration.
In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the purported current
owner of certain patents, filed suit against the Company and Premiere
Communications, Inc. ("PCI") alleging that they had violated claims in these
patents and requesting damages and injunctive relief. In the fourth quarter of
1999, the Company and PCI entered into a settlement agreement with
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Aspect, which settled and disposed of Aspect's claims in this litigation. This
settlement will not have a material adverse effect on the Company's business,
financial condition or results of operations.
On June 11, 1999, the Company filed a complaint against MCI WorldCom in the
Superior Court of Fulton County for the State of Georgia. The Company
subsequently filed an amended complaint on June 18, 1999. The amended complaint
alleged that MCI WorldCom breached the Strategic Alliance Agreement dated
November 13, 1996, between the Company and MCI WorldCom by, inter alia, awarding
various contracts to vendors other than the company and to which the Company was
entitled either exclusive or preferential consideration. In addition to
injunctive relief, the Company sought damages of not less than $10 million, per-
and post-judgment interest, cost and expenses of litigation, including
attorney's fees. On July 1, 1999 the court entered an order staying all
proceedings pending arbitration. In connection with that order, MCI WorldCom
agreed that it would not issue any requests for information, requests for
proposals or enter into any contracts with respect to the proposals challenged
by the Company. This matter was settled by the parties in April 2000.
A lawsuit was filed on November 1, 1999 by Donald H. Turner, a former officer of
the Company, against the Company, Boland T. Jones and Jeffrey A. Allred in the
Superior Court of Fulton County, Georgia. Against the Company the plaintiff
alleges breach of contract and promissory estoppel relating to the termination
of his employment, and against all defendants the plaintiff alleges fraudulent
inducement relating to his hiring by the Company. The plaintiff seeks
compensatory damages of $875,000, forgiveness of a $100,000 loan, interest,
attorneys' fees and punitive damages in an unspecific amount. The defendants
filed an answer and counterclaim, claiming that the plaintiff owes the Company
the principal amount of the $100,000 loan plus interest as of January 1, 2001,
plus costs and attorneys' fees.
On September 3, 1999, Elizabeth Tendler filed a complaint in the Superior Court
of New Jersey Law Division: Union County, against 17 named defendants including
the company and Xpedite, and various alleged current and former officers,
directors, agents and representatives of Xpedite. Plaintiff alleges that the
defendants engaged in wrongful activities in connection with the management of
the plaintiff's investments, including investments in Xpedite. The allegations
against Xpedite and the Company are limited to plaintiff's investment in
Xpedite. Plaintiff's claims against Xpedite and the Company include breach of
contract, breach of fiduciary duty, unjust enrichment, conversion, fraud,
interference with economic advantage, liability for ultra vires acts, violation
of the New Jersey Consumer Fraud Act and violation of New Jersey RICO. Plaintiff
seeks an accounting of the corporate stock of Xpedite, compensatory damages of
approximately $1.3 million, accrued interest and/or dividends, a constructive
trust on the proceeds of the sale of any Xpedite or PTEK stock, shares of
Xpedite and/or PTEK to satisfy defendants' obligations to plaintiff, attorneys'
fees and costs, punitive and exemplary damages in an unspecified amount, and
treble damages. On February 25, 2000, Xpedite filed its answer, as well as cross
claims and third party claims. This case has been dismissed without prejudice
and compelled to NASD arbitration.
On or about May 19, 2000, the Company was served with a Complaint filed by
Robert Cowan in the Circuit Court of Jackson County, Missouri, alleging claims
for breach of contract, fraudulent misrepresentation, negligent
misrepresentation, breach of duty of good faith and fair dealings, unjust
enrichment, and violation of Georgia and Missouri blue sky laws. Plaintiff's
claims arise out of the Company's acquisition of American Teleconferencing
Services, Ltd. ("ATS") in April 1998. Plaintiff was a shareholder of ATS who
received shares of PTEK stock in the transaction. The Company removed the case
to the United States District Court for the Western District of Missouri, and
filed a Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. Plaintiff has filed a Motion to Remand
the case back to state court. All motions are pending.
On June 9, 2000, the Company and Premiere Communications, Inc. filed a lawsuit
in the United States District Court for the Middle District of Florida, seeking
unspecified damages and equitable, including injunctive, relief against Z-Tel
Technologies, Inc., Z-Tel Communications, Inc. (collectively, "Z-Tel"), David
Gregory Smith, James Kitchen and Eduard Mayer for patent infringement, breach of
contract, unfair competition, conversion, misappropriation of corporate
opportunities, conspiracy to misappropriate corporate opportunities, tortious
interference with contractual relations, tortious interference with actual and
prospective business relations, and misappropriation of trade secrets. On June
29, 2000, Z-Tel filed an answer and counterclaims against the Company and Boland
T. Jones ("Jones") seeking unspecified damages for tortious interference with
actual and prospective business relations, trade defamation, and compelled self-
defamation. Jones and the Company filed a timely motion to dismiss Z-Tel's
counterclaims, which is pending before the court.
The Company is also involved in various other legal proceedings which the
Company does not believe will have a material adverse effect upon the Company's
business, financial condition or results of operations, although no assurance
can be given as to the ultimate outcome of any such proceedings.
Item 2. Changes in Securities and Use of Proceeds
None.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Exhibit Description
10.1 Settlement Agreement dated April 7, 2000 by and between the
Company and MCI WorldCom, Inc.*
10.2 Amendment No. 1 dated as of January 1, 2000 to
Telecommunications Service Agreement dated October 29, 1999 by
and between the Company and MCI WorldCom, Inc.
10.3 Addendum A dated as of January 1, 2000 to Carrier Digital
Services Agreement dated October 29, 1999 by and between the
Company and MCI WorldCom, Inc.
27.1 Financial Data Schedule for the Three Month and Six Month
Period Ended June 30, 2000.
(b) Reports on Form 8-K:
None.
----------
* Portions of exhibit omitted pursuant to a request for confidential treatment
and filed separately with the Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 14, 2000 PTEK HOLDINGS, INC.
Date
/s/ PATRICK G. JONES
--------------------
Patrick G. Jones
Executive Vice President and Chief
Financial Officer
(principal Financial and Accounting
Officer and duly authorized signatory
of the Registrant) and Chief Legal
Officer
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EXHIBIT INDEX
Exhibit Number Exhibit Description
10.1 Settlement Agreement dated April 7, 2000 by and between the
Company and MCI WorldCom, Inc.*
10.2 Amendment No. 1 dated as of January 1, 2000 to
Telecommunications Service Agreement dated October 29, 1999 by
and between the Company and MCI WorldCom, Inc.
10.3 Addendum A dated as of January 1, 2000 to Carrier Digital
Services Agreement dated October 29, 1999 by and between the
Company and MCI WorldCom, Inc.
27.1 Financial Data Schedule for the Three Month and Six Month
Period Ended June 30, 2000.
--------
* Portions of exhibit omitted pursuant to a request for confidential treatment
and filed separately with the Commission.
25
