<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1999
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: 0-277780
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 March 15, 2000
-----
Common Stock, $0.01 par value 47,879,846 shares
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Explanatory Note
----------------
This Form 10-Q/A is filed to amend certain portions of our Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999, as filed with the
Commission on November 12, 1999, as amended by Form 10-Q/A filed with the
Commission on January 18, 2000, in response to comments from the Commission
received on February 25, 2000. The accompanying financial statements have been
restated to change our accounting for certain restructuring costs, merger costs
and other special charges. These changes primarily affect certain asset
impairment charges and contractual obligation charges related to the
acquisitions of Voice-Tel and VoiceCom. These changes primarily relate to the
timing of when such costs are recognized in determining net loss and the
reclassification of certain restructuring costs, merger costs and other special
charges to selling, general and administrative costs and depreciation costs.
The principal affects of these items on the accompanying 1998 and 1997
financial statements are presented in Note 2 to the condensed consolidated
financial statements.
The following interim financial statements included in this Form 10-Q/A
have been restated to reflect the changes described above.
. Condensed Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1999;
. Condensed Consolidated Statements of Operations for the Three and Nine
Month periods ended September 30, 1999 and 1998;
. Condensed Consolidated Statements of Cash Flows for the Nine Month
period ended September 30, 1999 and 1998;
. Condensed Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998 (See Note 12);
. Condensed Consolidated Statements of Operations for the Three and Six
Month periods ended June 30, 1999 and 1998 (See Note 12);
. Condensed Consolidated Statements of Cash Flows for the Six Month
periods ended June 30, 1999 and 1998 (See Note 12);
. Condensed Consolidated Balance Sheets as of March 31, 1999 and December
31, 1998 (See Note 12);
. Condensed Consolidated Statements of Operations for the Three Month
periods ended March 31, 1999 and 1998 (See Note 12); and
. Condensed Consolidated Statements of Cash Flows for the Three Month
periods ended March 31, 1999 and 1998 (See Note 12).
You should read the unaudited interim financial statements and notes
thereto included in Item 1 of this Form 10-Q/A and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in Item 2 of
this Form 10-Q/A.
On February 15, 2000 we changed our name to PTEK Holdings, Inc. from
Premiere Technologies, Inc. The financial statements and the related information
herein reflect our name as it was on November 12, 1999 when our Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999 was initially filed.
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q/A
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<C> <S>
<C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 (As Restated)........................................... 3
Condensed Consolidated Statements of Operations
for the Three and Nine months ended September 30, 1999 and 1998 (As Restated).. 4
Condensed Consolidated Statements of Cash Flows
for the Nine months ended September 30, 1999 and 1998 (As Restated)............ 5
Notes to Condensed Consolidated Financial Statements........................... 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................................... 16
SIGNATURES ............................................................................... 26
EXHIBIT INDEX
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(As Restated)
September 30, December 31,
1999 1998
----- ----
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents.................................................................... $ 10,551 $ 19,226
Marketable securities................................................................... 161 20,769
Accounts receivable, net................................................................ 65,189 55,660
Prepaid expenses and other.............................................................. 10,897 7,940
Deferred income taxes, net.............................................................. 20,675 20,626
--------- ---------
Total current assets.................................................................... 107,473 124,221
PROPERTY AND EQUIPMENT, NET ................................................................ 120,736 131,327
OTHER ASSETS
Strategic alliances and investments, net................................................ 28,526 28,510
Intangibles, net........................................................................ 463,988 492,185
Deferred income taxes, net.............................................................. 21,436 -
Other assets............................................................................ 11,072 20,173
--------- ---------
$ 753,231 $ 796,416
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................................ $ 34,061 $ 24,270
Accrued liabilities..................................................................... 52,143 48,817
Accrued taxes........................................................................... 23,713 16,279
Revolving loan.......................................................................... 140,987 118,082
Current maturities of long-term debt and capital lease obligations...................... 3,734 3,370
Accrued restructuring, merger costs and other special charges........................... 10,392 6,645
--------- ---------
Total current liabilities........................................................ 265,030 217,463
--------- ---------
LONG-TERM LIABILITIES
Convertible subordinated notes.......................................................... 172,500 172,500
Long-term debt and capital lease obligations............................................ 3,183 5,721
Other accrued liabilities............................................................... 2,864 1,111
Deferred income taxes, net.............................................................. - 1,828
--------- ---------
Total long-term liabilities...................................................... 178,547 181,160
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value; 150,000,000 shares authorized, 47,934,785
and 46,894,148 shares issued in 1999 and 1998, respectively, and
46,837,785 and 45,797,148 shares
outstanding in 1999 and 1998, respectively............................................ 479 469
Additional paid-in capital.............................................................. 567,123 562,106
Treasury stock, at cost ................................................................ (9,133) (9,133)
Note receivable, shareholder............................................................ (973) (973)
Cumulative translation adjustment....................................................... (889) 1,269
Accumulated deficit..................................................................... (246,953) (155,945)
--------- ----------
Total shareholders' equity....................................................... 309,654 397,793
--------- ----------
$ 753,231 $ 796,416
========= ==========
Accompanying notes are integral to these condensed consolidated financial statements.
</TABLE>
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PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(As Restated) (As Restated)
Three Months Ended Nine months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE....................................................... $116,248 $121,540 $343,502 $327,876
TELECOMMUNICATIONS COSTS ..................................... 33,175 37,346 97,835 101,336
-------- -------- --------- --------
GROSS PROFIT.................................................. 83,073 84,194 245,667 226,540
DIRECT OPERATING COSTS........................................ 18,847 16,521 52,060 38,251
-------- -------- --------- --------
CONTRIBUTION MARGIN........................................... 64,226 67,673 193,607 188,289
-------- -------- --------- --------
OTHER OPERATING EXPENSES
Selling and marketing..................................... 28,521 28,312 83,528 78,871
General and administrative................................ 25,892 18,788 74,383 60,115
Research and development.................................. 3,583 1,605 8,925 3,680
Depreciation and amortization............................. 44,007 29,308 124,170 73,437
Restructuring, merger costs and other special charges..... 8,228 - 8,228 4,535
Acquired research and development......................... - - - 15,500
Accrued settlement cost................................... - - - 1,500
-------- -------- --------- --------
Total other operating expenses....................... 110,231 78,013 299,234 237,638
-------- -------- --------- --------
OPERATING LOSS................................................ (46,005) (10,340) (105,627) (49,349)
-------- -------- --------- --------
OTHER INCOME (EXPENSE)
Interest, net............................................. (6,751) (4,520) (19,065) (9,942)
Other, net................................................ (342) 265 13,137 82
-------- -------- --------- --------
Total other income (expense)......................... (7,093) (4,255) (5,928) (9,860)
-------- -------- --------- --------
LOSS BEFORE INCOME TAXES...................................... (53,098) (14,595) (111,555) (59,209)
INCOME TAX BENEFIT............................................ (11,689) (2,715) (20,547) (11,177)
-------- -------- --------- --------
NET LOSS...................................................... $(41,409) $(11,880) $ (91,008) $(48,032)
======== ======== ========= ========
BASIC NET LOSS PER SHARE...................................... $ (0.89) $ (0.26) $ (1.97) $ (1.10)
======== ======== ========= ========
DILUTED NET LOSS PER SHARE.................................... $ (0.89) $ (0.26) $ (1.97) $ (1.10)
======== ======== ========= ========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC..................................................... 46,546 45,942 46,238 43,836
======== ======== ========= ========
DILUTED................................................... 46,546 45,942 46,238 43,836
======== ======== ========= ========
Accompanying notes are integral to these condensed consolidated financial statements.
</TABLE>
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PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
(As Restated)
September 30, September 30,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................................................... $(91,008) $(48,032)
-------- --------
Adjustments to reconcile net loss to cash flows
from operating activities:
Depreciation and amortization.................................................. 124,170 73,437
Loss on disposal of property and equipment..................................... - (258)
Deferred income taxes.......................................................... (22,064) (25,608)
Restructuring, merger costs and other special charges.......................... 8,228 4,535
Accrued settlement cost ....................................................... - 1,500
Acquired research and development.............................................. - 15,500
Payments for restructuring, merger costs and other special charges............. (4,781) (12,094)
Payments for accrued settlement cost........................................... - (1,291)
Changes in assets and liabilities:
Accounts receivable, net....................................................... (5,343) (538)
Prepaid expenses and other..................................................... (5,473) 3,855
Accounts payable and accrued expenses.......................................... 7,621 5,842
-------- --------
Total adjustments.............................................................. 102,358 64,880
-------- --------
Net cash provided by operating activities...................................... 11,350 16,848
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment................................................. (32,555) (49,973)
Proceeds from disposal of property and equipment .................................. - 570
Redemption of marketable securities, net........................................... 20,614 124,398
Cash paid for acquired companies, net of cash acquired............................. (25,901) (42,946)
Strategic investments.............................................................. (8,089) (8,059)
Other.............................................................................. 7,446 1,869
-------- --------
Net cash (used in) provided by investing activities................................ (38,485) 25,859
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments under) borrowing arrangements, net......................... 17,536 (13,873)
Purchase of common stock for treasury.............................................. - (9,133)
Net funds from exercise of stock options........................................... 1,001 (5,531)
Other.............................................................................. - (354)
-------- --------
Net cash provided by (used in) financing activities............................ 18,537 (28,891)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................................. (77) (272)
-------- --------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS......................................... (8,675) 13,544
CASH AND EQUIVALENTS, beginning of period............................................... 19,226 21,770
-------- --------
CASH AND EQUIVALENTS, end of period..................................................... $ 10,551 $ 35,314
======== ========
Accompanying notes are integral to these condensed consolidated financial statements
</TABLE>
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PREMIERE TECHNOLOGIES, 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 Premiere Technologies, Inc. (the "Company"
or "Premiere") 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/A, for the year ended December 31, 1998, as amended.
2. ACCOUNTING CHANGES
Restatement
In February 1999, Premiere announced that as a result of discussions with the
Office of the Chief Accountant of the Securities and Exchange Commission,
Premiere was required to discontinue accounting for its acquisition of Xpedite
Systems, Inc. ("Xpedite") as a pooling-of-interests and to account for such
acquisition under the purchase method of accounting. Accordingly, Premiere has
restated its unaudited interim financial statements for 1998. The Office of the
Chief Accountant determined that Premiere's post-merger share repurchase
program, completed in September 1998, was not implemented in accordance with
pooling requirements. No questions were raised regarding the propriety of the
original accounting for the merger with Xpedite.
In February 2000, Premiere announced that as a result of discussions with the
Securities and Exchange Commission, Premiere is 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 and VoiceCom. These changes are
primarily to change the timing of when costs are recognized in determining net
loss 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.
The impact of the restatement in February 2000, on the unaudited interim
financial statements for the period ended September 30, 1999, is as follows:
As previously
reported As restated
-------- -----------
(In thousands, except
per share data)
As of December 31, 1998
Total assets............................. $ 802,751 $ 796,416
Accumulated deficit...................... (152,844) (155,945)
Total shareholders' equity............... 400,894 397,793
As of September 30, 1999
Total assets............................. $ 755,107 $ 753,231
Accumulated deficit...................... (245,852) (246,953)
Total shareholders' equity............... 310,755 309,654
For the three months ended September 30, 1998
Loss before income taxes................. $ (13,529) $ (14,595)
Net loss................................. (11,229) (11,880)
Basic net loss per share................. (0.24) (0.26)
Diluted net loss per share............... (0.24) (0.26)
For the three months ended September 30, 1999
Loss before income taxes................. $ (54,232) $ (53,098)
Net loss................................. (42,101) (41,409)
Basic net loss per share................. (0.90) (0.89)
Diluted net loss per share............... (0.90) (0.89)
For the nine months ended September 30, 1998
Loss before income taxes................. $ (54,145) $ (59,209)
Net loss................................. (44,941) (48,032)
Basic net loss per share................. (1.03) (1.10)
Diluted net loss per share............... (1.03) (1.10)
For the nine months ended September 30, 1999
Loss before income taxes................. $ (114,832) $ (111,555)
Net loss................................. (93,008) (91,008)
Basic net loss per share................. (2.01) (1.97)
Diluted net loss per share............... (2.01) (1.97)
See Note 12 "Restatement of Restructuring, Merger Costs and Other Special
Charges" in the Notes to Condensed Consolidated Financial Statements for the
following restated unaudited interim financial statements: (1.) Condensed
Consolidated Balance Sheets as of June 30, 1998, March 31, 1999 and December
31, 1998; (2.) Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 1999 and 1998; (3.) Condensed Consolidated
Statements of Operations for the three and six month periods ended June 30, 1999
and 1998; (4.) Condensed Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1999 and 1998; and (5.) Condensed Consolidated
Statements of Cash Flows for the six month periods ended June 30, 1999 and
1998.
The unaudited interim financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 2 of this Form 10-Q/A should be read in conjunction with
the Company's consolidated financial statements and notes thereto and the
Management's Discussion and Analysis of Financial Condition included in the
Company's Form 10-K/A filed with the Commission on March 15, 2000. Certain
information in this Form 10-Q/A may be superseded by information in the
Company's Form 10-K/A.
Acceleration of Depreciation and Amortization
In the fourth quarter of 1998, the Company accelerated depreciation of certain
assets by shortening their estimated useful lives. These assets consist of
computers and telecommunications equipment associated with certain legacy
technology systems, primarily retail calling cards assets and certain voice-mail
equipment, which management intends to remove from service in the foreseeable
future. Effective in the fourth quarter of 1998, these assets are being
amortized over periods ranging from nine months to one year, the anticipated
remaining service period. Prior to the change, such assets were being amortized
over estimated lives ranging from two to five years.
In addition, the Company accelerated the amortization of all remaining goodwill
and other acquired intangible assets effective in the fourth quarter of 1998.
This action resulted from management's determination that the period over which
it anticipates deriving future cash flows from such assets warrants a shorter
estimated useful life for amortization purposes. Goodwill is now being amortized
over seven years as compared with 10 to 40 years prior to the change. Remaining
acquired intangible assets are being amortized over lives ranging from three to
five years as compared with five to eight years prior to the change.
The Company also shortened the amortization period associated with a strategic
alliance contract intangible asset from 25 years to three years effective in the
fourth quarter of 1998. See "Note 8-Strategic Alliances and Investments" for
further discussion surrounding events causing this change.
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3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" 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.
The Company's required adoption date is January 1, 2001. SFAS No. 133 is not to
be applied retroactively to financial statements of prior periods. The Company
expects no material impact to its results of operations or financial position
upon adoption of SFAS No. 133.
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 nine
month periods ended September 30, 1999 and 1998 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 (loss) represents the change in equity of a business during
a period, except for investments by owners and distributions to owners. Foreign
currency translation adjustments represent the Company's only component of other
comprehensive income (loss) in the nine month periods ended September 30, 1999
and 1998. For the three month periods ended September 30, 1999 and 1998, total
comprehensive loss was approximately $(43.6) million and $(11.2) million,
respectively. For the nine month periods ended September 30, 1999 and 1998,
total comprehensive loss was $(93.2) million and $(47.2) million, respectively.
6. 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. Premiere issued
approximately 573,000 shares of its common stock and paid cash consideration of
approximately $243,000 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 $8.5 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.
AMERICAN TELECONFERENCING SERVICES, LTD. ACQUISITION
In April 1998, the Company purchased all of the issued and outstanding common
stock of American Teleconferencing Services ("ATS"), a provider of full service
conference calling and group communication services. The shareholders of ATS
received an aggregate of approximately 712,000 shares of Premiere common stock
and cash consideration of approximately $22.1 million. Excess purchase price
over fair value of net assets acquired of approximately $47 million has been
recorded as goodwill and is being amortized on a straight-line basis over seven
years. This transaction has been accounted for as a purchase.
XPEDITE SYSTEMS, INC. ACQUISITION
On February 27, 1998, Premiere acquired Xpedite, a worldwide leader in the
electronic document distribution business including, fax, e-mail, telex and
mailgram services. Premiere issued approximately 11.0 million shares of its
common
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stock in connection with this acquisition. This transaction has been accounted
for as a purchase. The purchase price of Xpedite has been allocated as
follows (in thousands):
Operating and other tangible assets.................. $ 90,035
Customer lists....................................... 35,700
Developed technology................................. 34,300
Acquired research and development ................... 15,500
Assembled workforce.................................. 7,500
Goodwill............................................. 384,701
--------
Assets acquired...................................... 567,736
Less liabilities assumed............................. 203,487
--------
$364,249
========
The customer lists, developed technology and acquired research and development
were valued using the income approach, which consisted of estimating the
expected after-tax cash flows to present values through discounting. The
assembled workforce was valued using a cost approach, which estimates the cost
to replace the asset. Acquired research and development represents the value
assigned to research and development projects in the development stage which had
not reached technological feasibility at the date of acquisition or had no
alternative future use. The acquired research and development costs were
expensed at the date of the acquisition.
The acquired research and development related to a project to develop a new job
monitor. This project was 50% complete as of the acquisition date and had not
yet completed a successful beta test. The primary high risk at valuation date
involved identifying and correcting the design flaws that would typically arise
during beta testing. Fair value was determined using an income approach.
Revenues from this new job monitor were anticipated beginning in 1999 and a
discount rate of 25% was used for valuation purposes.
The Company expects to complete beta testing of the job monitor project during
the fourth quarter of 1999 and introduce it into production in the first
quarter of 2000. The job monitor project is approximately 95% complete with less
than $100,000 of anticipated costs left to complete the project.
The developed technology is a software program called the job monitoring system
and related technologies that are primarily related to the Xpedite document
delivery system. This software and the related hardware is the basis for
Xpedite's enhanced facsimile delivery service.
INTERNATIONAL ACQUISITIONS
During the second quarter of 1999, Premiere 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. Premiere 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.
During the second quarter of 1998, the Company acquired two electronic document
distribution companies located in Germany and Singapore. The aggregate purchase
price of these acquisitions approximates $18 million in cash and liabilities
assumed. Both of the acquisitions were accounted for as purchases. Excess
purchase price over fair value of net assets acquired of approximately $13
million has been recorded as goodwill and is being amortized on a straight-line
basis over seven years.
The following unaudited pro forma consolidated results of operations assumes the
acquisitions made by the Company in 1998 and 1999 which were accounted for as
purchases occurred on January 1, 1998. Pro forma adjustments consist of
amortization of intangible assets acquired and interest reflecting cash paid in
the acquisitions (amounts in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues........................... $116,439 $126,991 $355,988 $394,653
Net loss........................... (41,956) (13,433) (95,064) (68,034)
Basic net loss per share........... (0.91) (0.28) (2.05) (1.47)
Diluted net loss per share......... (0.91) (0.28) (2.05) (1.47)
</TABLE>
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7. RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES
In the third quarter of 1999, Premiere recorded a charge of approximately $8.2
million to restructure the administrative overhead of the corporate
headquarters, the sales force of the Emerging Enterprise Solutions ("EES") group
and certain operations of the EES and Corporate Enterprise Solutions ("CES")
groups. Such costs consist of severance associated with workforce reduction and
lease termination and clean-up costs. Severance benefits have been provided for
the termination of approximately 200 employees, primarily related to corporate
administrative functions and direct sales force and operations of
under-performing operating units in the EES and CES groups. Lease termination
and clean-up costs were provided for the exit of one operating site in each of
the EES and CES groups.
In the fourth quarter of 1998, Premiere 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 $4.8 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.
In the first quarter of 1998, Premiere recorded a charge of approximately $4.5
million to restructure the operations of Premiere and Xpedite subsequent to
their merger. Such costs consisted of severance associated with workforce
reduction, lease termination costs, costs to terminate certain contractual
obligations and asset impairments. Severance benefits were provided for
termination of 122 employees. These actions resulted from management's plan to
reduce sales, operations and administrative headcount by exiting duplicative and
underperforming operations. Premiere has also provided for lease termination and
clean-up costs associated with these facilities and operations. Although
certain restructuring actions were being contemplated at the acquisition date,
definitive plans for such actions were not formalized until after such date.
Accordingly, there were no exit costs included in the purchase price allocation
of Xpedite.
Activity in accrued costs for restructuring, merger costs and other special
charges for each charge during the nine month period ended September 30, 1999 is
as follows (amounts in thousands):
<TABLE>
<CAPTION>
Accrued Accrued
Costs Costs
December 31, Costs September 30,
Fourth Quarter 1998 Charge 1998 Incurred 1999
- -------------------------- ---- -------- ----
<S> <C> <C> <C>
Severance.......................................................... $ 4,837 $2,316 $2,521
Asset impairments.................................................. 4,722 300 4,422
Restructure or terminate contractual obligations................... 417 206 211
Other costs, primarily to exit facilities and certain activities... 1,391 873 518
------- ------ ------
$11,367 $3,695 $7,672
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Accrued Third Accrued
Costs Quarter Costs
December 31, 1999 Costs September 30,
Third Quarter 1999 Charge 1998 Charge Incurred 1999
- ------------------------- ----- ------ --------- ----
<S> <C> <C> <C> <C>
Severance.......................................................... - $7,320 $ 586 $6,734
Restructure or terminate contractual obligations................... - 708 500 208
Other costs, primarily to exit facilities and certain activities... - 200 - 200
----- ------ ------ ------
- $8,228 $1,086 $7,142
===== ====== ====== ======
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Accrued Third Accrued
Costs Quarter Costs
December 31, 1999 Costs September 30,
Consolidated Charge 1998 Charge Incurred 1999
- ------------------- ----- ------ --------- ----
<S> <C> <C> <C> <C>
Severance.......................................................... $ 4,837 $7,320 $2,902 $ 9,255
Restructure or terminate contractual obligations................... 417 708 706 419
Other costs, primarily to exit facilities and certain activities... 1,391 200 873 718
------- ------ ------ -------
Accrued restructuring, merger costs and other special charges
in current liabilities......................................... 6,645 8,228 4,481 10,392
Accrued asset impairments reserved in property and equipment....... 4,722 - 300 4,422
------- ------ ------ -------
Total accrued restructuring merger costs and other special charges. $11,367 $8,228 $4,781 $14,814
======= ====== ====== =======
</TABLE>
8. STRATEGIC ALLIANCES AND INVESTMENTS
Assets recorded as strategic alliances and investments at September 30, 1999 and
December 31, 1998 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
MCI WorldCom strategic alliance......................................................... $16,072 $16,072
Less accumulated amortization........................................................... 6,888 3,445
------- -------
9,184 12,627
Equity investments...................................................................... 19,342 15,883
------- -------
$28,526 $28,510
======= =======
</TABLE>
Management periodically reviews assets for impairment and in 1998 determined
that a write-down in the carrying value of the MCI WorldCom strategic alliance
was required based upon management's assessment of revenue levels expected to be
derived from this alliance and uncertainties surrounding the merger of WorldCom
and MCI in 1998. Accordingly, Premiere recorded a write-down in the carrying
value of this investment of approximately $13.9 million in 1998. In addition,
the Company accelerated amortization of this asset effective in the fourth
quarter of 1998 by shortening its amortization period to three years as compared
with 25 years prior to the change. In June 1999, Premiere filed a complaint
against MCI WorldCom alleging breach of the Strategic Alliance Agreement. See
"Note 10 - Commitments and Contingencies." If Premiere is unsuccessful in
attaining revenue levels from this alliance sufficient to recover the carrying
value of this asset, future write-downs of this asset will be required. In
addition, Premiere recorded a write-down of approximately $3.9 million in the
fourth quarter of 1998 in its investment in certain equity securities of DigiTEC
2000. This charge was necessary to reduce the carrying value of this investment
to its fair market value based upon management's assessment that the decline in
value of these securities below their carrying value was not temporary.
Management continually reviews these and other assets for impairment. In the
event management determines an asset impairment has occurred, write-downs in the
carrying value of such assets may be required.
Equity investments classified as strategic alliances and investments consist of
initiatives funded by the Company to further its strategic plan. These
investments and alliances involve emerging technologies, such as the Internet,
as well as marketing alliances and outsourcing programs designed to reduce costs
and develop new markets and distribution channels for the Company's products.
Premiere's investments, most of which are held in a wholly-owned subsidiary,
PTEKVentures.com, Inc., include minority equity interests in Healtheon/WebMD
Corporation, (formerly Healtheon Corporation), a provider of Internet-
-10-
<PAGE>
based services to the healthcare industry; USA.NET, a provider of outsourced
e-mail services; S-1 Corp. (formerly Securities First Technologies Corporation),
which develops integrated, brandable, Internet applications that enable
financial services companies to create their own financial portals; Webforia, a
provider of Web services, tools and communities that assist individuals in
presenting high quality information from the Internet; and Derivion, a provider
of electronic bill presentment and payment solutions. Premiere's investment in
Healtheon/WebMD, which is a publicly traded company, resulted from the merger in
November 1999 of WebMD, in which Premiere was a shareholder, and Healtheon
Corporation; and Premiere's investment in S-1, which is a publicly traded
company, resulted from the merger in November 1999 of VerticalOne Corporation,
in which Premiere was a shareholder, and Securities First Technologies.
Management intends to make such investments in the future in complementary
businesses and other initiatives that further its strategic business plan. All
equity investments held by the Company in other organizations represent a less
than 20 percent ownership interest and are being accounted for under the cost
method.
9. STOCK-BASED COMPENSATION PLANS
The Company has three stock based compensation plans, the 1994 Stock Option
Plan, the 1995 Stock Plan and the 1998 Stock Plan, which provide for the
issuance of restricted stock, stock options, warrants or stock appreciation
rights to employees, directors, non-employee consultants and advisors of the
Company. In addition, the Company has implemented an Associate Stock Purchase
Plan, which allows employees to purchase common stock through payroll
deductions. These plans are administered by committees consisting of members of
the Board of Directors of the Company or their designees.
Options for all 960,000 shares of common stock available under the 1994 Stock
Option Plan have been granted. Generally, all such options are non-qualified,
provide for an exercise price equal to fair market value at date of grant, vest
ratably over three years and expire eight years from date of grant.
The 1995 Stock Plan provides for the issuance of stock options, stock
appreciation rights and restricted stock to employees. A total of 8,000,000
shares of common stock have been reserved in connection with this plan. Options
issued under this plan may be either incentive stock options, which permit
income tax deferral upon exercise of options, or non-qualified options not
entitled to such deferral.
On July 22, 1998, the Board of Directors approved the 1998 Stock Plan (the "1998
Plan"), which essentially mirrors the terms of the Company's existing 1995 Stock
Plan, except that it is not intended to be used for executive officers or
directors. In addition, the 1998 Plan, because it was not approved by the
shareholders, does not provide for the grant of incentive stock options. Under
the 1998 Plan, 6,000,000 shares of common stock are reserved for the grant of
non-qualified stock options and other incentive awards to employees and
consultants of the Company.
Sharp declines in the market price of the Company's common stock during 1998
resulted in many outstanding employee stock options being exercisable at prices
that exceeded the current market price of the Company's common stock, thereby
substantially impairing the effectiveness of such options as performance
incentives. Consistent with the Company's philosophy of using equity incentives
to motivate and retain management and employees, the Board of Directors
determined it to be in the best interests of the Company and its shareholders to
restore the performance incentives intended to be provided by employee stock
options by repricing such options. Consequently, on July 22, 1998 the Board of
Directors of the Company determined to reprice or regrant all employee stock
options which had exercise prices in excess of the closing price on such date
(other than those of Chief Executive Officer Boland T. Jones) to $10.25, which
was the closing price of Premiere's common stock on such date.
On December 14, 1998, the Board of Directors determined to reprice or regrant at
an exercise price of $5.50, all employee stock options which had an exercise
price in excess of $5.50, which was above the closing price of Premiere's common
stock on such date. The vesting schedules remained the same and the repriced or
regranted options are generally subject to a twelve-month black-out period
during which the option may not be exercised. If the optionee's
-11-
<PAGE>
employment is terminated during the black-out period, generally he or she will
forfeit any repriced or regranted options that first vested during the
twelve-month period preceding his or her termination of employment. By imposing
the black-out and forfeiture provisions on the repriced and regranted options,
the Board of Directors intends to provide added incentive for the optionees to
continue service with the Company.
Effective June 1, 1999, the Company adopted an Associate Stock Purchase Plan to
provide all employees who regularly work at least 20 hours each week and at
least five months each calendar year and who have two months of consecutive
service an opportunity to purchase shares of its common stock through payroll
deductions. The purchase price of the stock is equal to 85% of the fair market
value of the common stock on either the first or last day of each six month
subscription period, whichever is lower. Purchases under the plan are limited to
20% of an associate's base salary and a maximum of a calendar year aggregate
fair market value of $25,000. In connection with this Plan, 1,000,000 shares of
common stock are reserved for future issuance.
During the second quarter of 1999, the Company made restricted stock grants to
certain executives of a limited number of Company-owned shares held in certain
strategic equity investments. These Company-owned shares included 168,000 shares
of WebMD Series E Common Stock and 6,461 shares of WebMD Series F Preferred
Stock, and 70,692 shares of USA.NET Series C Preferred Stock. The vesting
periods for these shares ranged from immediately upon grant to three years,
contingent on the executive being employed by the Company. Excluding the shares
subject to these restricted stock grants, the Company owned an aggregate of
1,932,000 shares of WebMD Series E Common Stock and 74,305 shares of WebMD
Series F Preferred Stock, which represent and will be exchanged for 4,804,384
shares of common stock of Healtheon/WebMD, and 812,960 shares of USA.NET Series
C Preferred Stock. In connection with this action, for the nine months ended
September 30, 1999, the Company recorded a $13.9 million noncash gain resulting
from the write-up to fair market value of these investments and an $11.6 million
non-cash expense related to the partial vesting of these grants. The gain
reflects the difference between the Company's cost basis and fair market value
at date of grant of these investments. The fair value of these investments was
determined through an assessment of market value of comparable public companies,
proposed initial public offering price ranges, and a contemplated cash tender
offer from an unrelated investor. The Company will be required to record
additional noncash charges of $1.5 million in the fourth quarter of 1999, and
$1.6 million thereafter reflecting the remaining vesting period associated with
these grants.
10. 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 who purchased or otherwise acquired the
Company's common stock from as early as February 11, 1997 through June 10, 1998.
Class members allegedly include those who purchased the Company's common stock
as well as those who acquired stock through the Company's acquisition of
VoiceTel Enterprises, Inc. ("Voice-Tel"), Voice-Tel's franchisees and Xpedite.
Plaintiffs allege the defendants made positive public statements concerning the
Company's growth and acquisitions. In particular, plaintiffs allege the
defendants spoke positively about the Company's acquisitions of Voice-Tel,
Xpedite, American Teleconferencing Services, TeleT Telecommunications, LLC
("TeleT") and VoiceCom Holdings, Inc. ("VoiceCom"), as well as its venture with
UniDial Communications, its investment in USA.NET and the commercial release of
Orchestrate(R). Plaintiffs allege these public statements were fraudulent
because the defendants knowingly failed to disclose that the Company allegedly
was not successfully consolidating and integrating these acquisitions. Alleged
evidence of scienter include sales by certain individual defendants during the
class period and the desire to keep the common stock price high so that future
acquisitions could be made using the
-12-
<PAGE>
Company's common stock. Plaintiffs allege the truth was purportedly revealed on
June 10, 1998, when the Company announced it would not meet analysts' estimates
of second quarter 1998 earnings because, in part, of the financial difficulties
experienced by a customer and by a strategic partner with respect to the
Company's Enhanced Calling Services, revenue shortfalls from its Voice and Data
Messaging services, as well as other unanticipated costs and charges totaling
approximately $17.1 million on a pretax basis. 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 violation of Sections 10(b),
14(a) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12 and
15 of the Securities Act of 1933. The Company filed a motion to dismiss this
complaint in April 1999, which is pending.
A lawsuit was filed on November 4, 1998 against the Company, as well as
individual defendants Boland T. Jones, Patrick G. Jones, George W. Baker, Sr.,
Eduard J. Mayer and Raymond H. Pirtle, Jr. in the Southern District of New York.
Plaintiffs were shareholders of Xpedite who acquired 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. Based on these factual allegations, 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 ("Securities Act"), and against the individual Defendants for violation
of Section 15 of the Securities Act. Plaintiffs seek undisclosed damages
together with pre- and post-judgment interest, recission or recissory damages as
to violation of Section 12(a)(2) of the Securities Act, punitive damages, costs
and attorneys' fees. Defendants' motion to transfer venue to Georgia has been
granted and the defendants' motion to dismiss is pending.
On November 26, 1997, Wael Al-Khatib ("Al-Khatib"), the sole shareholder and
former president of Communications Network Corporation ("CNC"), and his company,
Platinum NetworkCorp. ("Platinum"), filed a complaint against Premiere
Communications, Inc. ("PCI"), WorldCom Network Services, Inc. f/k/a WilTel, Inc,
("WorldCom"), Bernard J. Ebbers, David F. Meyers, Robert Vetera, Joseph Cusick,
William Trower, Don Wilmouth, Digital Communications of America, Inc., Boland
Jones, Patrick Jones, and John Does I-XX in the United States District Court for
the Eastern District of New York. Plaintiffs contend that PCI, certain officers
of PCI and the other defendants engaged in a fraudulent scheme to restrain trade
in the debit card market nationally and in the New York debit card sub-market
and made misrepresentations of fact in connection with the scheme. The
plaintiffs are seeking at least $250 million in compensatory damages and $500
million in punitive damages from PCI and the other defendants. This matter has
been settled, pending payment of $250,000 by Khatib to WorldCom. The settlement
does not require PCI or Premiere to make any payments.
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
-13-
<PAGE>
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. On November 16, 1998 the court entered an order transferring all
disputes between plaintiffs and certain defendants to arbitration and dismissing
without prejudice plaintiff's complaint against those defendants. On or about
December 23, 1998, Xpedite filed a motion to stay the action pending the
resolution of the arbitration or in the alternative to compel plaintiffs to
provide discovery. On January 22, 1999, the court granted Xpedite's motion to
stay further proceedings pending the arbitration. On March 11, 1999, plaintiffs
filed a motion for reconsideration of the court's decision. On April 1, 1999,
the court vacated the January 22, 1999 order and directed that the action be
referred to the active case list. Xpedite filed a motion for leave to amend
answer and assert cross-claims, which was granted. Those third-parties have
filed motions to dismiss, which are presently pending. The plaintiffs have also
filed a motion requesting leave to amend their complaint to add Premiere as a
defendant, which the court has granted. However, the plaintiffs have not filed
such an amendment.
In March 1999, Aspect Telecommunications, Inc. ("Aspect"), the purported current
owner of certain patents, filed suit against Premiere and PCI alleging that they
had violated certain patent rights owned by Aspect and requesting damages and
injunctive relief. The suit asserts that Premiere is offering certain "calling
card and related enhanced services," "single number service" and "call
connecting services" covered by such rights. Premiere has reviewed the subject
patents and, based on that review, believes that its products and services
currently being marketed do not infringe them. In addition, Premiere believes
that certain licenses it has from third-party vendors may insulate it from some
or all of any damages. On March 29, 1999, the Company filed an answer denying
the allegations and a counterclaim seeking to invalidate the patents. This
lawsuit is currently in discovery, with a court mandated arbitration hearing
presently being scheduled for later this year.
On June 11, 1999, Premiere filed a complaint against MCI WorldCom, Inc. ("MCI
WorldCom") in the Superior Court of Fulton County, Georgia. Premiere
subsequently filed an amended complaint on June 18, 1999. The amended complaint
alleges that MCI WorldCom breached the Strategic Alliance Agreement, dated
November 13, 1996 between Premiere and MCI WorldCom by, inter alia, awarding
various contracts to vendors other than Premiere and to which Premiere was
entitled either exclusive or preferential consideration. In addition to
injunctive relief, Premiere seeks damages of not less than $10 million, pre- and
post-judgment interest, costs and expenses of litigation, including attorneys'
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 Premiere.
Premiere is preparing to commence arbitration proceedings against MCI WorldCom
in the near future.
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. The Plaintiff alleges breach of
contract and promissory estoppel relating to the termination of his employment
against the Company, and fraudulent inducement relating to his hiring by the
Company against all defendants. The Plaintiff seeks compensatory damages of
$875,000, forgiveness of a $100,000 transition loan, interest, attorneys' fees
and punitive damages in an unspecified amount. The Company intends to file an
answer denying the allegations in the complaint and asserting various
affirmative defenses.
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.
11. SEGMENT REPORTING
The Company's reportable segments are strategic business groups that align the
Company in two distinct market segments focused on the customers each serves:
large businesses (CES) and small office/home businesses and individuals (EES).
CES caters to large businesses, such as Fortune 1000 companies. Its services
include those most complementary
-14-
<PAGE>
with large organizations including electronic document distribution, corporate
messaging services, 800-based and local access voice messaging, interactive
voice response and calling card programs and conference calling. EES focuses in
the small office/home office and individual subscriber segment. Its services
include Orchestrate (R), a suite of Internet-based communication services, local
access voice and data messaging and enhanced calling services, including long
distance and enhanced 800-based services. EBITDA before accrued settlement
costs, acquired research and development costs and restructuring, merger and
other special charges is management's primary measure of segment profit and
loss.
Information concerning the operations in these reportable segments for the three
and nine months ended September 30, 1999 and 1998 is as follows (in millions):
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES:
Corporate Enterprise Solutions....................... $ 86.1 $ 82.3 $251.8 $197.4
Emerging Enterprise Solutions........................ 30.2 39.3 91.9 130.6
Corporate and eliminations (1)....................... (.1) (.1) (.2) (.1)
------ ------ ------ ------
Totals............................................... $116.2 $121.5 $343.5 $327.9
====== ====== ====== ======
EBITDA:
Corporate Enterprise Solutions....................... $ 19.7 $ 22.0 $ 60.1 $ 53.0
Emerging Enterprise Solutions........................ (2.2) 0.5 1.2 6.7
Corporate and eliminations (1)....................... (11.3) (3.5) (34.6) (14.1)
------ ------ ------ ------
Subtotal............................................. 6.2 19.0 26.7 45.6
Restructuring, merger costs and other special charges (8.2) - (8.2) (4.5)
Acquired research and development.................... - - - (15.5)
Accrued settlement cost.............................. - - - (1.5)
- - - -
------ ------ ------ ------
Totals............................................... $ (2.0) $ 19.0 $ 18.5 $ 24.1
====== ====== ====== ======
</TABLE>
__________________
(1) Corporate and eliminations is primarily comprised of general and
administrative costs associated with the corporate headquarters management
infrastructure and revenue eliminations of business transacted between Corporate
Enterprise Solutions and Emerging Enterprise Solutions.
12. RESTATEMENT OF RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES
In February 2000, Premiere announced that as a result of discussions with the
Securities and Exchange Commission, Premiere is required to change its
accounting for certain costs incurred as part of its restructuring, merger
costs and other special charges. These charges primarily affect certain asset
impairment charges and contractual obligation charges taken as part of the
restructuring charges related to Voice-Tel and VoiceCom. These changes are
primarily to change the timing of when costs are recognized in determining net
loss 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 in 1998 and 1999. The following statements reflect restatements for
the above discussion: (1.) Condensed Consolidated Balance Sheets as of June 30,
1999, March 31, 1999 and December 31, 1998; (2.) Condensed Consolidated
Statements of Operations for the three month periods ended March 31, 1999 and
1998, three month periods ended June 30, 1999 and 1998 and six month periods
ended June 30, 1999 and 1998; and (3.) Condensed Consolidated Statements of Cash
Flows for the three month periods ended March 31, 1999 and 1998 and six month
periods ended June 30, 1999 and 1998.
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(As Restated)
March 31, December 31,
1999 1998
--------- ---------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and equivalents ................................ $ 15,673 $ 19,226
Marketable securities ............................... 2,919 20,769
Accounts receivable, net ............................ 57,573 55,660
Prepaid expenses and other .......................... 10,398 7,940
Deferred income taxes, net .......................... 25,025 20,626
--------- ---------
Total current assets ............................ 111,588 124,221
PROPERTY AND EQUIPMENT, NET .......................... 121,421 131,327
OTHER ASSETS
Strategic alliances and investments, net ............ 28,364 28,510
Intangibles, net .................................... 469,150 492,185
Other assets ........................................ 20,246 20,173
--------- ---------
$ 750,769 $ 796,416
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .................................... $ 24,466 $ 24,270
Accrued liabilities ................................. 44,398 48,817
Accrued taxes ....................................... 20,894 16,279
Revolving loan....................................... 102,630 118,082
Current maturities of long-term debt and
capital lease obligations ......................... 1,875 3,370
Accrued restructuring, merger costs
and other special charges ......................... 6,234 6,645
--------- ---------
Total current liabilities ....................... 200,497 217,463
--------- ---------
LONG-TERM LIABILITIES
Convertible subordinated notes ...................... 172,500 172,500
Long-term debt and capital lease obligations ........ 2,967 5,721
Other accrued liabilities ........................... 1,008 1,111
Deferred income taxes, net .......................... 1,856 1,828
--------- ---------
Total long-term liabilities ..................... 178,331 181,160
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value; 150,000,000 shares
authorized, 47,166,147 and 46,894,148 shares
issued in 1999 and 1998, respectively, and
46,069,147 and 45,797,148 shares outstanding in
1999 and 1998, respectively ....................... 472 469
Additional paid-in capital .......................... 562,473 562,106
Treasury stock, at cost ............................. (9,133) (9,133)
Note receivable, shareholder ........................ (973) (973)
Cumulative translation adjustment ................... (541) 1,269
Accumulated deficit ................................. (180,357) (155,945)
--------- ---------
Total shareholders' equity ...................... 371,941 397,793
--------- ---------
$ 750,769 $ 796,416
========= =========
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(As Restated)
1999 1998
---- ----
(Unaudited)
REVENUES ....................................... $112,809 $ 84,901
TELECOMMUNICATIONS COSTS ....................... 32,456 26,370
-------- --------
GROSS PROFIT ................................... 80,353 58,531
DIRECT OPERATING COSTS ......................... 15,742 5,942
-------- --------
CONTRIBUTION MARGIN ............................ 64,611 52,589
-------- --------
OTHER OPERATING EXPENSES
Selling and Marketing ......................... 24,124 21,149
General and administrative .................... 22,110 9,033
Depreciation and amortization ................. 39,167 14,911
Restructuring, merger costs and
other special charges ....................... -- 4,535
Acquired research and development ............. -- 15,500
Accrued settlement cost ....................... -- 1,500
-------- --------
Total other operating expenses ............ 85,401 66,628
-------- --------
OPERATING LOSS ................................. (20,790) (14,039)
-------- --------
OTHER INCOME (EXPENSE)
Interest, net ................................. (5,596) (1,480)
Other, net .................................... (445) (112)
-------- --------
Total other income (expense) .............. (6,041) (1,592)
-------- --------
LOSS BEFORE INCOME TAXES ....................... (26,831) (15,631)
INCOME TAX BENEFIT ............................. (2,419) (2,713)
-------- --------
NET LOSS ....................................... $(24,412) $(12,918)
======== ========
BASIC NET LOSS PER SHARE ....................... $ (0.53) $ (0.33)
======== ========
DILUTED NET LOSS PER SHARE ..................... $ (0.53) $ (0.33)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC ......................................... 45,998 39,493
======== ========
DILUTED ....................................... 45,998 39,493
======== ========
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)
(As Restated)
1999 1998
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................... $(24,412) $(12,918)
Adjustments to reconcile net loss to cash
flows from operating activities:
Depreciation and amortization ................... 39,167 14,911
Deferred income taxes ........................... (3,022) (7,884)
Restructuring, merger costs and other
special charges ............................... -- 4,535
Accrued settlement cost ......................... -- 1,500
Acquired research and development ............... -- 15,500
Payments for restructuring, merger costs
and other special charges ..................... (412) (7,644)
Changes in assets and liabilities:
Accounts receivable, net ........................ (2,024) (5,236)
Prepaid expenses and other ...................... (363) (241)
Accounts payable and accrued expenses ........... (351) 5,697
-------- --------
Total adjustments ........................ 32,995 21,138
-------- --------
Net cash provided by operating activities. 8,583 8,220
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ................ (10,623) (13,644)
Proceeds from disposal of property
and equipment ................................... -- 107
Redemption of marketable securities, net .......... 17,850 29,846
Cash paid for acquired companies, net
of cash acquired ................................ (182) (883)
Strategic investments ............................. (1,000) (3,000)
Other ............................................. (1,527) --
-------- --------
Net cash provided by investing activities. 4,518 12,426
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments under borrowing arrangements ............. (16,717) (4,458)
Debt issue costs .................................. -- (35)
Net funds from exercise of stock options .......... 273 (8,551)
Other ............................................. -- (319)
-------- --------
Net cash used in financing activities .... (16,444) (13,363)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............ (210) --
-------- --------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS .... (3,553) 7,283
CASH AND EQUIVALENTS, beginning of period .......... 19,226 21,770
-------- --------
CASH AND EQUIVALENTS, end of period ................ $ 15,673 $ 29,053
======== ========
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(As Restated)
June 30, December 31,
1999 1998
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents................................... $ 14,141 $ 19,226
Marketable securities.................................. 162 20,769
Accounts receivable, net............................... 62,307 55,660
Prepaid expenses and other............................. 13,015 7,940
Deferred income taxes, net............................. 20,675 20,626
--------- ----------
Total current assets............................... 110,300 124,221
PROPERTY AND EQUIPMENT, NET............................. 123,409 131,327
OTHER ASSETS
Strategic alliances and investments, net.............. 31,720 28,510
Intangibles, net...................................... 476,387 492,185
Deferred income taxes, net............................ 9,444 -
Other assets.......................................... 12,478 20,173
--------- ----------
$ 763,738 $ 796,416
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable...................................... $ 27,359 $ 24,270
Accrued liabilities................................... 53,073 48,817
Accrued taxes......................................... 22,906 16,279
Revolving loan........................................ 126,064 118,082
Current maturities of long-term debt and
capital lease obligations......................... 1,418 3,370
Accrued restructuring, merger costs
and other special charges......................... 5,324 6,645
--------- ----------
Total current liabilities......................... 236,144 217,463
--------- ----------
LONG-TERM LIABILITIES
Convertible subordinated notes........................ 172,500 172,500
Long-term debt and capital lease obligations.......... 5,521 5,721
Other accrued liabilities............................. 877 1,111
Deferred income taxes, net ........................... - 1,828
--------- ----------
Total long-term liabilities....................... 178,898 181,160
--------- ----------
COMMITMENTS AND CONTINGENCIES (Note 10) - -
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value; 150,000,000 shares
authorized, 47,351,337 and 46,894,148 shares
issued in 1999 and 1998, respectively, and
46,254,337 and 45,797,148 shares
outstanding in 1999 and 1998, respectively........ 474 469
Additional paid-in capital............................ 562,653 562,106
Treasury stock, at cost .............................. (9,133) (9,133)
Note receivable, shareholder ......................... (973) (973)
Cumulative translation adjustment..................... 1,221 1,269
Accumulated deficit................................... (205,546) (155,945)
--------- ----------
Total shareholders' equity........................ 348,696 397,793
--------- ----------
$ 763,738 $ 796,416
========= ==========
</TABLE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(As Restated) (As Restated)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------- -------- -------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE.................................................. $114,444 $121,435 $227,253 $206,336
TELECOMMUNICATIONS COSTS ................................ 32,204 35,778 64,660 62,148
--------- -------- -------- --------
GROSS PROFIT............................................. 82,240 85,657 162,593 144,188
DIRECT OPERATING COSTS................................... 17,472 15,062 33,214 21,049
--------- -------- -------- --------
CONTRIBUTION MARGIN...................................... 64,768 70,595 129,379 123,139
--------- -------- -------- --------
OTHER OPERATING EXPENSES
Selling and Marketing.................................. 30,882 30,098 55,006 51,246
General and administrative............................. 31,762 36,210 53,872 45,198
Depreciation and amortization.......................... 40,996 29,257 80,163 44,169
Restructuring, merger costs and other special charges.. - - - 4,535
Acquired research and development...................... - - - 15,500
Accrued settlement cost................................ - - - 1,500
--------- -------- -------- --------
Total other operating expenses...................... 103,640 95,565 189,041 162,148
--------- -------- -------- --------
OPERATING LOSS........................................... (38,872) (24,970) (59,662) (39,009)
--------- -------- -------- --------
OTHER INCOME (EXPENSE)...................................
Interest, net.......................................... (6,420) (3,942) (12,016) (5,422)
Other, net............................................. 13,664 (71) 13,219 (183)
--------- -------- -------- --------
Total other income (expense)........................ 7,244 (4,013) 1,203 (5,605)
--------- -------- -------- --------
LOSS BEFORE INCOME TAXES................................. (31,628) (28,983) (58,459) (44,614)
INCOME TAX BENEFIT....................................... (6,439) (5,749) (8,858) (8,462)
--------- -------- -------- --------
NET LOSS................................................. $(25,189) $(23,234) $(49,601) $(36,152)
========= ======== ======== ========
BASIC NET LOSS PER SHARE................................. $ (0.55) $ (0.50) $ (1.08) $ (0.85)
========= ======== ======== ========
DILUTED NET LOSS PER SHARE............................... $ (0.55) $ (0.50) $ (1.08) $ (0.85)
========= ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC.................................................. 46,168 46,074 46,083 42,784
========= ======== ======== ========
DILUTED................................................ 46,168 46,074 46,083 42,784
========= ======== ======== ========
</TABLE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
(As Restated)
June 30, June 30,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................... $(49,601) $(36,152)
Adjustments to reconcile net loss to cash flows
from operating activities:
Depreciation and amortization........................... 80,163 44,169
Deferred income taxes................................... (9,941) (18,056)
Restructuring, merger costs and other special
charges................................................ 4,535
Accrued settlement cost ................................ - 1,500
Acquired research and development....................... - 15,500
Payments for restructuring, merger costs and
other special charges.................................. (1,622) (9,574)
Changes in assets and liabilities:
Accounts receivable, net................................ (2,269) 899
Prepaid expenses and other.............................. (8,479) 2,536
Accounts payable and accrued expenses................... 4,299 8,910
-------- --------
Total adjustments.................................. 62,151 50,419
-------- --------
Net cash provided by operating activities.......... 12,550 14,267
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment......................... (20,791) (31,688)
Proceeds from disposal of property and equipment .......... - 107
Redemption of marketable securities, net................... 20,613 102,581
Cash paid for acquired companies, net of cash
acquired.................................................. (24,047) (39,900)
Strategic investments...................................... (8,089) (8,019)
Other...................................................... 7,407 105
-------- --------
Net cash (used in) provided by investing
activities....................................... (24,907) 23,186
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments under) borrowing
arrangements, net......................................... 6,307 (6,741)
Purchase of common stock for treasury...................... - (2,619)
Net funds from exercise of stock options................... 970 (2,150)
Other...................................................... - (354)
-------- --------
Net cash provided by (used in) financing activities. 7,277 (11,864)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH...................... (5) (350)
-------- --------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS.............. (5,085) 25,239
CASH AND EQUIVALENTS, beginning of period.................... 19,226 21,770
-------- --------
CASH AND EQUIVALENTS, end of period.......................... $ 14,141 $ 47,009
======== ========
</TABLE>
13. SUBSEQUENT EVENT
On October 28, 1999, Premiere announced that it was developing plans to sell its
enhanced calling card business and segregate its Web-based assets in stand-alone
entities for which Premiere would seek strategic partnerships and other
strategic alliances. Premiere currently has no specific plans, agreements or
commitments with respect to the sale of its enhanced calling card business, the
segregation of its Web-based assets, or any strategic partnerships or alliances
with respect to its Web-based assets. Moreover, Premiere cannot provide any
assurances that suitable buyers for its enhanced calling card business will be
identified, that suitable strategic partners or alliances with respect to its
Web-based assets will be identified, or that any sale or other strategic
transaction with respect to its enhanced calling card business or Web-based
assets will be negotiated or consummated.
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Premiere is a leading provider of enhanced communications services designed to
simplify everyday communications of both businesses and individuals. Premiere
provides its innovative solutions for simplifying communications through two
strategic business groups: Corporate Enterprise Solutions (CES), which targets
Fortune 1000 and other large companies; and Emerging Enterprise Solutions (EES),
which targets smaller fast-track companies and individuals. CES's services
include: Premiere Document Distribution, which provides enhanced electronic
document distribution services; Premiere Corporate Messaging, which provides
local access and 800-based voice messaging services; Premiere WorldLink
Corporate Card, an 800-based enhanced calling card service; Premiere Interactive
Voice Response, which provides various IVR applications; and Premiere
Conferencing, which provides a full range of conferencing services. EES's
services include: Premiere Internet-Based Communications Services, featuring
Orchestrate(R) by Premiere, which integrates the Company's service offerings by
allowing customers to access such services through a computer or telephone;
Premiere Voice and Data Messaging, which provides customers access to one of the
largest "voice intranets" in the world; and Premiere Enhanced Calling Services,
which provides long distance and enhanced 800-based services.
Premiere's revenues are generally based on usage. In addition to usage fees,
local access Voice and Data Messaging services, certain of Premiere's Enhanced
Calling Services and the Orchestrate(R) suite of products contain fixed monthly
fees.
Telecommunications costs consist primarily of the cost of long distance
transmission and other telecommunications related charges incurred in providing
Premiere's services.
Direct operating costs consist primarily of rent and facility expense associated
with operations centers, salaries and wages of operations, engineering and
support personnel and other operating costs incurred in service delivery
activities.
Research and development costs consist primarily of salaries and wages and
facility expenses associated with development of product enhancements and new
product development.
Selling and marketing costs consist primarily of advertising and promotion
costs, employee and non-employee commissions and salary and wages and other
operating expenses associated with selling and marketing activities.
General and administrative expenses include salaries and wages associated with
customer service, bad debt expense, professional and consulting fees, property
taxes and other operating expenses incurred in customer service and
administrative activities.
Depreciation and amortization includes depreciation of computer and
telecommunications equipment, office equipment and 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 estimated
useful life of the assets. Intangible assets being amortized include capitalized
software development costs, goodwill, customer lists, assembled work force, and
the MCI WorldCom strategic alliance.
EBITDA before accrued settlement costs, acquired research and development
costs and restructuring, merger and other special charges is defined as net
income before taxes, other income (expense), interest income (expense),
depreciation and amortization, accrued settlement costs, acquired research and
development costs and restructuring, merger costs and other special charges.
EBITDA before accrued settlement costs, acquired research and development costs
and restructuring, merger and other special charges is considered a key
management performance indicator of financial condition because it excludes the
effects of 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 that affect current period profitability
and the affect of one time cash or non-cash charges associated with acquisitions
and internal exit activities. EBITDA, as defined by the Company, is used as an
indicator of operating cash flow before payments for interest and taxes. EBITDA
before accrued settlement costs, acquired research and development costs 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.
-16-
<PAGE>
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 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
unaudited consolidated condensed financial statements and notes thereto included
in this Form 10-Q/A.
In February 1999, Premiere announced that as a result of discussions with the
Office of the Chief Accountant of the Securities and Exchange Commission,
Premiere was required to discontinue accounting for its acquisition of Xpedite
as a pooling-of-interests and to account for such acquisition under the purchase
method of accounting. Accordingly, Premiere has restated its unaudited interim
financial statements for 1998. The Office of the Chief Accountant determined
that Premiere's post merger share repurchase program, completed in September
1998, was not implemented in accordance with pooling requirements. No questions
were raised regarding the propriety of the original accounting for the merger
with Xpedite.
In February 2000, Premiere announced that as a result of discussions with the
Securities and Exchange Commission, Premiere is required to change its
accounting for certain costs incurred as part of its restructuring, merger costs
and other special charges. Theses charges primarily affect certain asset
impairment charges and contractual obligation charges taken as part of the
restructuring charges related to Voice-Tel and VoiceCom. These charges are
primarily to change the timing of when costs are recognized in determining net
loss 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 in 1998 and 1999 as outlined in Note 12 "Restatement of
Restructuring, merger and other special Charges" in the notes to the Condensed
Consolidated Financial Statements.
The unaudited interim financial statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 2 of this Form 10-Q/A should be read in conjunction with the
Company's consolidated financial statements and notes thereto and the
Management's Discussion and Analysis of Financial Condition included in the
Company's Form 10-K/A filed with the Commission on March 15, 2000. Certain
information in this Form 10-Q/A may be superseded by information in the
Company's Form 10-K/A.
ANALYSIS OF OPERATING RESULTS
Overview
The following table presents certain financial information about the Company's
strategic business groups for the three and nine months ended September 30
(amounts in millions):
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES:
Corporate Enterprise Solutions....................... $ 86.1 $ 82.3 $251.8 $197.4
Emerging Enterprise Solutions........................ 30.2 39.3 91.9 130.6
Corporate and eliminations........................... (.1) (.1) (.2) (.1)
------ ------ ------ ------
Totals............................................... $116.2 $121.5 $343.5 $327.9
====== ====== ====== ======
EBITDA:
Corporate Enterprise Solutions....................... $ 19.7 $ 22.0 $ 60.1 $ 53.0
Emerging Enterprise Solutions........................ (2.2) 0.5 1.2 6.7
Corporate and eliminations........................... (11.3) (3.5) (34.6) (14.1)
------ ------ ------- ------
Subtotal............................................. 6.2 19.0 26.7 45.6
Restructuring, merger costs and other special charges (8.2) - (8.2) (4.5)
Acquired research and development.................... - - - (15.5)
Accrued settlement cost.............................. - - - (1.5)
------ ------ ------- ------
Totals............................................... $(2.0) $19.0 $18.5 $24.1
====== ===== ===== ======
</TABLE>
Analysis
Premiere's financial statements reflect the results of operations of Xpedite,
acquired in February 1998, and ATS, acquired in April 1998, from the date of
their respective acquisitions. These acquisitions have been accounted for under
the purchase method of accounting. The following discussion and analysis is
prepared on that basis.
Consolidated revenues declined 4.4% to $116.2 million in the three months ended
September 30, 1999, as compared with the same period in 1998, and increased 4.8%
comparing the nine month periods ended September 30, 1999 and 1998. CES revenues
increased 4.6% in the third quarter of 1999, as compared with the same period in
1998. Conference calling, Bank of America IVR program and increased
international document distribution volumes drove revenue growth in this group.
Additionally, the acquisition of the remaining ownership interests in an
affiliated document distribution
-17-
<PAGE>
company located in France contributed incremental revenue in the third quarter
of 1999. Revenue growth of 27.6% in the first nine months of 1999 in the CES
group, as compared with the same 1998 period, was due mainly to the acquisition
of Xpedite in February 1998, ATS in April 1998 and the Bank of America IVR
program. EES Group revenues declined in the three and nine month periods ended
September 30, 1999, as compared with the same periods in 1998, due to revenue
losses in 1998 from two EES Group customers which declared bankruptcy in the
second quarter of 1998, management's decision to discontinue certain
unprofitable prepaid calling card programs, and expiration of minimum revenue
commitments provided under the Company's strategic alliance agreement with MCI
Worldcom.
Consolidated gross profit margins were 71.5% and 69.3% for the three months
ended September 30, 1999 and 1998, respectively, and 71.5% and 69.1% for the
nine month periods ended September 30, 1999 and 1998, respectively. Consolidated
gross profit margins benefited in 1999 from the discontinuance of unprofitable
prepaid calling card programs in the first half of 1998. In general, Premiere
has experienced favorable trends in per unit telecommunications costs in each of
its strategic business groups by aggressively leveraging increasing minute
volumes to negotiate quantity discounts with telecommunications carriers. Such
costs have also been favorably affected by general industry trends in which long
distance transport and the cost of local access services have decreased as a
result of increased capacity and competition among long distance and local
exchange carriers.
Direct costs of operations increased to 16.2% of revenues in the three months
ended September 30, 1999, as compared with 13.6% for the same period of 1998,
and increased to 15.2% of revenues in the nine months ended September 30, 1999,
as compared with 11.7% for the same period of 1998. Factors contributing to the
increase in these costs as a percent of revenues in the first nine months of
1999 were revenue losses in the EES group, as previously mentioned, without the
loss of fixed operating costs and the acquisition of ATS (Premiere
Conferencing), which has a higher labor cost related to service delivery than
other Premiere business lines.
Selling and marketing costs increased to $28.5 million or 24.5% of revenues in
the three months ended September 30, 1999 as compared with $28.3 million or
23.3% of revenues in the same period of 1998, and increased to $83.5 million or
24.3% of revenues in the nine months ended September 30, 1999, as compared with
$78.9 million or 24.1% of revenues in the same period of 1998. Increased selling
and marketing costs in the third quarter of 1999 as compared with the same
period in 1998 result largely from the continuation of Orchestrate(R) branding
initiatives which began in the second quarter of 1999 in which Premiere
introduced its suite of Unified Messaging services in selected markets.
Increases in selling and marketing costs for the nine months ended September 30,
1999 as compared with the year ago period were driven primarily by the inclusion
of Xpedite and ATS in the Company's consolidated financial statements subsequent
to their acquisition in 1998 and the Orchestrate(R) branding initiatives.
Research and development costs increased to $3.6 million or 3.1% of revenues in
the three months ended September 30, 1999, as compared with $1.6 million or 1.3%
of revenues in the same period of 1998, and increased to $8.9 million or 2.6% of
revenues in the nine months ended September 30, 1999, as compared with $3.7
million or 1.1% of revenues in the same period of 1998. Increased research and
development costs in the third quarter of 1999 as compared with the same period
in 1999 resulted from development costs associated with Web-based communications
services. Increases in research and development costs for the nine months ended
September 30, 1999, as compared with the year ago period, were driven primarily
by the inclusion of Xpedite and ATS in the Company's consolidated financial
statements subsequent to their acquisition in 1998 and development costs
associated with Web-based communications services.
General and administrative costs were 22.3% of revenues for the three months
ended September 30, 1999, as compared with 15.5% of revenues for the same period
in 1998, and 21.7% of revenues for the nine months ended September 30, 1999,
compared with 18.3% of revenues for the same period in 1998. During the second
quarter of 1999, the Company made restricted stock grants to certain executives
of a limited number of Company-owned shares held in certain strategic equity
investments. In connection with these grants, the Company recorded non-cash
expenses of $8.9 million in the second quarter of 1999 and $2.7 million in the
third quarter of 1999 related to the partial vesting of these grants. The
Company will be required to record additional non-cash charges of $1.5 million
in the fourth quarter of 1999 and $1.6
-18-
<PAGE>
million thereafter reflecting the vesting period associated with these grants.
In the second quarter of 1998, the Company recorded $16.1 million of
non-recurring costs, reflecting approximately $8.4 million of charges associated
with uncollectible accounts receivable related primarily to two financially
distressed customers, $2.3 million of start-up costs, primarily executive
compensation, incurred in the start-up of its Orchestrate.com, Inc. subsidiary,
$1.5 million related to stay bonuses earned in connection with the post-merger
period of the Xpedite acquisition and $3.9 million of asset impairment and other
costs. Excluding the costs set forth above, general and administrative costs
increased to $23.1 million or 20% of revenues in the third quarter of 1999, as
compared with $18.8 million or 15.5% of revenues in the same period of 1998, and
increased to $62.8 million or 18.3% of revenues in the nine months ended
September 30, 1999, as compared with $44.0 million or 13.4% of revenues in the
same period of 1998. Contributing to the increase in these costs as a percent of
revenues, was the Company's aggressive expansion of its management
infrastructure in 1998 to more effectively support anticipated growth in its
business. These actions included hiring additional senior level managers and
expanding its corporate headquarters facilities throughout 1998. On a
year-to-date basis, the acquisition of Xpedite in February 1998 and ATS in April
1998 added incremental general and administrative costs in comparing 1999 with
1998.
Depreciation and amortization was $44.0 million for three month period ended
September 30, 1999, as compared with $29.3 million for the same period in 1998
and $124.2 million for the nine month period ended September 30, 1999, as
compared with $73.4 million for the same period in 1998. Depreciation and
amortization increased in 1999 mainly due to changes in depreciable lives for
certain assets and goodwill. Amortization and depreciation of certain operating
and intangible assets were accelerated, effective in the fourth quarter of 1998,
following a reduction in the estimated useful lives of such assets. This action
was based on a reassessment of the utility of such assets by Premiere's
management. The affected assets consist of goodwill and other intangible assets
and computer and telecommunications equipment associated with certain legacy
technology systems, the use of which is expected to be discontinued in the
foreseeable future. Such assets are being amortized over lives ranging from one
to seven years, effective in the fourth quarter of 1998, as compared with lives
ranging from five to 40 years prior to the change.
Net interest expense increased to $6.7 million for the three months ended
September 30, 1999, as compared with $4.5 million for the same period in 1998,
and $19.1 million for the nine months ended September 30, 1999, as compared with
$9.9 million for the same period in 1998. Net interest expense increased in 1999
primarily as a result of reduced interest income and increased borrowings on the
revolving loan caused by lower cash and short-term investment balances in 1999.
Such investments were used to fund 1998 and 1999 capital expenditures, strategic
investments and operating activities.
RESTRUCTURING, MERGER COSTS AND OTHER SPECIAL CHARGES
In the first quarter of 1998, Premiere recorded a charge of approximately $4.5
million to restructure the operations of Premiere and Xpedite subsequent to
their merger. Such costs consist of severance associated with workforce
reduction, lease termination costs, costs to terminate certain contractual
obligations and asset impairments. Severance benefits have been provided for
termination of 122 employees. These actions resulted from management's plans to
reduce sales, operations and administrative headcount by exiting duplicative and
underperforming operations. Premiere has also provided for lease termination and
clean-up costs associated with these facilities and operations. In addition, the
Company provided for costs associated with commitments under certain advertising
contracts from which the Company was generating no incremental revenue and for
costs to terminate certain unfavorable reseller agreements. Although certain
restructuring actions were being contemplated at the acquisition date,
definitive plans for such actions were not formalized until after such date.
Accordingly, there were no exit costs included in the purchase price allocation
of Xpedite. As of December 31, 1998, all 122 employees had been terminated.
Premiere expensed approximately $15.5 million in the first quarter of 1998
reflecting costs associated with a research and development project acquired in
the Xpedite acquisition. These costs were valued based upon an independent
appraisal. The acquired research and development related to a project to develop
a new job monitor. This project was 50% complete as of the acquisition date and
had not yet completed a successful beta test. The primary high risk at valuation
date involved identifying and correcting the design flaws that would typically
arise during beta testing. Fair value was determined using an income approach.
Revenues from this new job monitor are anticipated beginning in 1999
-19-
<PAGE>
and a discount rate of 25% was used for valuation purposes.
The Company recorded a $13.9 million nonrecurring gain as other income in the
second quarter of 1999 resulting from the write-up to fair market value of a
limited number of shares owned by the Company in certain strategic investments,
which were granted into an executive incentive pool. The gain reflects the
difference between the Company's cost basis and fair market value at date of
grant of these investments as determined by an independent appraisal.
In the fourth quarter of 1998, Premiere 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 $4.8 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, Premiere 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 the original restructuring plans or
their termination was delayed. As of September 30, 1999, all 59 employees have
been terminated, and the remaining severance reserve established relates to
severance to be paid in installments over the next 31 months to former members
of executive management.
Asset impairments primarily relate to two switches that were purchased by the
Company in the second quarter of 1998 but were never placed into service. They
remained idle due to the bankruptcy of two license customers that had
significant volumes of business with the Company. During the third quarter of
1998, management looked for alternative uses for this equipment, including the
use in potential prepaid calling card business and international calling card
programs. During the fourth quarter of 1998, management reorganized the Company
into two business units, CES and EES. The new management of these units decided
at that time that forecasted volume for the type of business used for these
switches over the switches' useful lives would not justify the additional
capacity that these switches brought to the Company's network. Either potential
buyers would be sought or the switches would be used for spare parts on other
like switches in the Company's network. The Company anticipates that any offer
would not exceed spare parts value. Therefore, the Company charged a valuation
reserve in the fourth quarter of 1998 to reduce the asset carrying value to its
estimated scrap value. As of September 30, 1999, the Company is still talking to
potential buyers; however, due to Year 2000 non compliance issues and the advent
of more technologically sophisticated switches on the market, the Company has
not yet received an offer. A decision to convert to spare parts or sell will be
made by the Company in the fourth quarter of 1999.
Contractual obligations consist of lease termination costs related to a
switching site associated with one of the above mentioned switches and the
termination of the lease obligation of the Cleveland headquarters. Management
has incurred costs to date in terminating the lease obligation of its Cleveland
headquarters and is currently in negotiations that will be finalized in the
fourth quarter of 1999 to terminate its lease obligations with its idle
switching site. The Company may be able to reduce the expected lease termination
impact if a successful negotiation occurs.
Other exit costs are primarily to exit the facilities of the customer service
sites, Cleveland headquarters, various international and domestic sites of
Xpedite, disposition of predecessor pension plans, sales and use tax matters for
years prior to the acquisitions of Voice-Tel and VoiceCom, and income tax
matters for years prior to the acquisitions of Voice-Tel and VoiceCom. As of
September 30, 1999, the Company expects to complete all facility exit matters,
pension plan matters and escrow disputes by the end of 1999. Sales and use tax
and income tax matters are not expected to be resolved until the end of 2000.
In the third quarter of 1999, Premiere recorded a charge of approximately $8.2
million to restructure the administrative overhead of the corporate
headquarters, the sales force of the EES group and certain operations of the EES
and CES groups. Such costs consisted of severance associated with workforce
reduction and lease termination and clean-up costs. Severance benefits have been
provided for the termination of 200 employees, primarily related to corporate
administrative functions and direct sales force and operations of under-
performing operating units in the EES and CES groups. Lease termination and
clean-up costs were provided for the exit of one operating site in each of the
EES and CES groups.
Management has substantially completed the third quarter 1999 restructuring
plan and expects that all costs remaining for non-executive management, lease
obligations and facility exit costs to be completed in the fourth quarter of
1999 and for executive management costs to be completed by the third quarter of
2000.
All employee terminations under this third quarter 1999 restructuring plan were
completed in the third and fourth quarters of 1999. Executive management
severance will be paid out in installments over six to twelve months, to
be concluded by the third quarter of 2000, and direct sales force and operations
severance will be paid out in the fourth quarter of 1999, with a portion
occurring in the third quarter of 1999.
In 1999 and 1998, the Company's effective income tax rate varied from the
statutory rate primarily as a result of non-deductible goodwill amortization
associated with Premiere's acquisitions which have been accounted for under the
purchase method of accounting. Additionally, in 1999 non-deductible executive
compensation contributed to this variance.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $11.4 million for the nine month period
ended September 30, 1999, as compared with $16.8 million in 1998. Operating cash
flow declined in 1999 primarily as a result of revenue losses in Premiere's EES
group, advertising and promotion costs associated with Orchestrate(R) branding
initiatives, increased interest costs on the Company's revolving loan, increased
investment in research and development and the investment in 1998 by the Company
to expand its management infrastructure.
Investing activities used cash of approximately $38.5 million in the nine months
ended September 30, 1999 and provided $25.9 million in the same period in 1998.
In 1999, the Company's investing activities included two individually
insignificant international acquisitions, capital expenditures of $32.6 million,
primarily associated with expanding the Company's service delivery platforms,
and strategic equity investments of $8.1 million, including $5.0 million in
Derivion, $2.1 million in VerticalOne and $1.0 million in WebForia. The
principal source of cash from investing activities in 1998 was the liquidation
of approximately $124.4 million of short-term investments in marketable
securities. Significant uses of cash for investing activities in 1998 included
the acquisition of ATS and two document distribution companies located in
Germany and Singapore, capital expenditures of $50.0 million and strategic
equity investments of $8.0 million. Management anticipates that capital
expenditure levels in the fourth quarter will be lower than prior quarters in
1999.
Financing activities provided net cash of $18.5 million in 1999, mainly from
borrowings under the Company's revolving loan facility. Effective December 16,
1998, Premiere amended and restated the revolving loan facility it assumed in
connection with the Xpedite acquisition for a period of one year. This
arrangement provides for borrowings of up to $150 million and contains certain
covenants which require the Company to maintain minimum earnings and interest
coverage ratios, in addition to other covenants. Effective June 4, 1999, the
Company entered into an amendment to its revolving loan facility to, among other
things, eliminate certain financial covenants, provide for the pledge of
additional collateral (including its WebMD stock) and establish a loan to value
ratio with respect to the stock to be received by the Company in connection with
the merger between WebMD and Healtheon. The Company was in compliance with its
revolving loan facility at September 30, 1999 and had unused borrowing capacity
of approximately $9.0 million thereunder. The Company entered into additional
technical amendments to its loan facility, one dated August 27, 1999 and one
dated September 3, 1999. Among other things, the amendments permitted the
transfer of the Company's Internet investments
-20-
<PAGE>
into PTEKVentures.com, the Company's Internet investment vehicle.
Management believes that cash and marketable securities on-hand of approximately
$10.7 million, cash generated by operating activities, borrowing capacity under
the Company's revolving loan facility and the monitization of certain strategic
investments will be adequate to fund growth in the Company's existing
businesses. Premiere's revolving loan facility matures on December 16, 1999 and
the Company will be required to repay or refinance this indebtedness at that
time. Management is in negotiations with its current lenders to refinance this
indebtedness. The Company is considering a variety of other alternatives to
refinance or repay this indebtedness, including the sale of a portion of its
strategic equity investments. Any refinancing of this indebtedness could result
in higher interest costs to the Company and more restrictive loan covenants than
those currently in effect. 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 and other
factors, the Company may, from time to time, engage in capital transactions,
including debt or equity issuances or sell a portion or all of its strategic
equity investments in order to increase the Company's financial flexibility and
meet other capital needs.
THE YEAR 2000 ISSUE
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the Year 2000 is
approached
-21-
<PAGE>
and reached. These problems generally arise from the fact that much of the
world's computer hardware and software have historically used only two digits to
identify the year in a date, often meaning that the computer may fail to
distinguish dates in the "2000s" from dates in the "1900s." These problems may
also arise from other sources as well, such as the use of special codes and
conventions in software that make use of the date field.
The Company's Year 2000 Readiness Process: The Company has formed a Year 2000
Executive Committee comprised of members of senior management and a Year 2000
Task Force comprised of project leaders for each of the Company's operating
subsidiaries and key corporate functional areas. The Year 2000 Executive
Committee and the Task Force are charged with evaluating the Company's Year 2000
issue and taking appropriate actions so that the Company will incur minimal
disruption from the Year 2000 issue ("Year 2000 Ready"). The Year 2000 Task
Force defined a comprehensive initiative (the "Initiative") to make the
Company's necessary software applications and/or systems ("Software
Applications") and hardware platforms ("Hardware Platforms") Year 2000 Ready.
The Initiative covered the following seven phases: (i) inventory of all
appropriate Software Applications and Hardware Platforms, (ii) assessment of
appropriate repair requirements, (iii) repair or replacement of Software
Applications and Hardware Platforms, where appropriate, (iv) researching and/or
testing of appropriate individual Software Applications and Hardware Platforms
to determine correct manipulation of dates and date-related data regarding the
Year 2000 issue, (v) certification by users or testers within the Company that
such Software Applications and Hardware Platforms appropriately handle dates and
date-related data regarding the Year 2000 issue, (vi) appropriate system
integration testing of multiple Software Applications and Hardware Platforms to
determine correct manipulation of dates and date-related data regarding the Year
2000 issue, and (vii) creation of commercially reasonable contingency plans in
the event certain Year 2000 readiness efforts fail. The Company is aware that
some of its Hardware Platforms contain embedded microprocessors and it has
included the repair or replacement of such embedded microprocessors as part of
the Initiative.
The Company retained a nationally recognized independent consultant
("Consultant") to assist in assessing and recommending revisions to the
Initiative, and such recommendations have been taken into consideration
throughout the initiative. Internal reviews ("audits") have been conducted in
each Business Unit and at Corporate Headquarters to evaluate progress toward
being Year 2000 Ready and the quality and completeness of the test results.
Another external Consultant assisted with many of these audits. The Company will
continue to review its progress with respect to the Initiative as the Year 2000
is approached and reached. This periodic review by the Company will include
additional adjustments to the Initiative, as required.
The Company's State of Readiness: The Company has materially completed the
Initiative for its Software Applications and Hardware Platforms and believes it
is prepared for the move into the Year 2000 in all of its Business Units,
although customer conversions onto Year 2000 Ready systems will continue through
the fourth quarter.
In the process of assessing the Year 2000 readiness of Software Applications and
Hardware Platforms as required by phase (ii) of the Initiative, the Company has
communicated with its suppliers to determine (1) whether the Software
Applications and Hardware Platforms provided to the Company will correctly
manipulate dates and date-related data as the Year 2000 is approached and
reached, and (2) whether the suppliers will solve their Year 2000 problems in
order to continue providing the Company products and services as the Year 2000
is approached and reached. The Company has received verification that the
majority of suppliers' Software Applications and Hardware Platforms, with
appropriate "version modification," will correctly manipulate dates and
date-related data as the Year 2000 is approached and reached. If a supplier
informs the Company that it will not appropriately rectify its Year 2000 issues,
then the Company will use that information to develop appropriate contingency
plans as required by phase (vii) of the Initiative. As a general matter, the
Company may be vulnerable to a supplier's inability to remedy its own Year 2000
issues. Other than the Company's own remediation and integration testing
efforts, there can be no assurance that the Software Applications and Hardware
Platforms supplied by third parties on which the Company's business relies will
correctly manipulate dates and date-related data as the Year 2000 is approached
and reached. Such failures could have a material adverse effect on the Company's
financial condition and results of operations.
-22-
<PAGE>
To operate its business, the Company relies upon providers of telecommunication
services, government agencies, utility companies, and other third party service
providers ("External Providers"), over which it can assert little control. In
particular, the Company is heavily dependent upon telecommunications carriers to
conduct its business. If the inability of any of these entities to correct their
Year 2000 issues results in a failure to provide the Company services, the
Company's operations may be materially adversely impacted and may result in a
material adverse effect on the Company's business, financial condition and
results of operations.
A significant portion of the Company's business is conducted outside of the
United States. External Providers located outside of the United States may face
significantly more severe Year 2000 issues than similar entities located in the
United States. If such External Providers located outside the United States are
unable to rectify their Year 2000 issues, the Company may be unable to
effectively conduct a portion of its international business, which could result
in a material adverse effect on the Company's business, financial condition and
results of operations.
Costs to Address the Company's Year 2000 Issues: The majority of the work on the
Initiative has been performed by the Company's employees and subcontractors,
which has limited its cost. The Company estimates that the total historical and
future costs of implementing the Initiative will be approximately $7 million,
the majority as capital expenditures. The Company funded these costs of
implementing the Initiative from cash flows. The Company has not deferred any
specific information technology project as a result of the implementation of the
Initiative. The Company does not expect that the opportunity cost of
implementation of the Initiative will have a material effect on the financial
condition of the Company or its results of operations.
Risks Presented by Year 2000 Issues: With system integration testing
substantially complete, the Company anticipates that it has found effective
solutions to the Year 2000 issue for its appropriate, necessary systems. If,
however, there is an unanticipated disruptions to a major business activity, it
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, as noted above, the Company's
business critical External Providers may not appropriately address their Year
2000 issues, the result of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's Contingency Plans: The Initiative includes the development of
commercially reasonable contingency plans for business activities that are
susceptible to a substantial risk of a disruption resulting from a Year 2000
related event. Successful systems integration testing has substantially reduced
the number of business functions requiring contingency plans. The Company
continues to update detailed testing and contingency plans specific to Year 2000
events.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS" No. 133"). 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. The Company's required
adoption date is January 1, 2001. SFAS No. 133 is not to be applied
retroactively to financial statements of prior periods. The Company expects no
material adverse effect to its financial position upon adoption of SFAS No. 133.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q/A and elsewhere by management or Premiere from
time to time, the words "believes," "anticipates," "expects," "will" and similar
expressions are intended to identify forward-looking statements concerning
Premiere's operations, economic performance and financial condition. These
include, but are not limited to, forward-looking statements about Premiere's
business strategy and means to implement the strategy, Premiere's objectives,
the amount of future capital expenditures, the likelihood of Premiere's success
in developing and introducing new products
-23-
<PAGE>
and services and expanding its business, and the timing of the introduction of
new and modified products and services. For those statements, Premiere claims
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 the control of
Premiere, 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 Premiere's 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;
. Premiere's ability to comply with the financial covenants and
other conditions of its revolving credit facility, as amended, and
its ability to repay, refinance or extend the revolving credit
facility in December 1999;
. Premiere's ability to manage its growth and to respond to rapid
technological change and risk of obsolescence of its products,
services and technology;
. Market acceptance of new products and services, including
Orchestrate(R);
. Development of effective marketing, pricing and distribution;
. Strategies for new products and services, including Orchestrate(R);
. Competitive pressures among communications services providers may
increase significantly;
. Costs or difficulties related to the integration of businesses, if
any, acquired or that may be acquired by Premiere 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 Premiere's strategic relationships, including the
amount of business generated and the viability of the strategic
partners, may not meet expectations;
. The ability to identify and establish strategic partnerships and
private investment opportunities utilizing Web-related assets and
a potential decrease in the valuation of Web-related companies;
. Possible adverse results of pending or future litigation;
. Risks associated with interruption in Premiere's services due to the
failure of the platforms and network infrastructure
utilized in providing its services;
. Risks associated with the Year 2000 issue, including Year 2000
problems that may arise on the part of third parties which may effect
Premiere's operations;
-24-
<PAGE>
. Risks associated with expansion of Premiere's international
operations;
. General economic or business conditions, internationally,
nationally or in the local jurisdiction in which Premiere is doing
business, may be less favorable than expected;
. Legislative or regulatory changes may adversely affect the business in
which Premiere is engaged; and
. Changes in the securities markets may negatively impact Premiere.
Premiere cautions that these factors are not exclusive. Consequently, all of the
forward-looking statements made in this Form 10-Q/A and in documents
incorporated in this Form 10-Q/A 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/A. Premiere 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/A, 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.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description
- -------------- -----------
27.1 Restated Financial Data Schedule for the Three and
Nine Month Periods Ended September 30, 1999.
27.2 Restated Financial Data Schedule for the Three and Six
Month Periods Ended June 30, 1999.
27.3 Restated Financial Data Schedule for the Three Month Period
Ended March 31, 1999.
27.4 Restated Financial Data Schedule for the Three and Nine
Month Periods Ended September 30, 1998.
27.5 Restated Financial Data Schedule for the Three and Six
Month Periods Ended June 30, 1998.
27.6 Restated Financial Data Schedule for the Three Month Period
Ended March 31, 1998.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter for
which this report is filed.
-25-
<PAGE>
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.
March 16, 2000 PTEK HOLDINGS, INC.
/s/ Patrick G. Jones
------------------------------------------------
Patrick G. Jones
Executive Vice President, Chief Legal
Officer and Chief Financial Officer
(Principal Financial and Accounting Officer
and duly authorized signatory of the Registrant)
-26-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27.1 Restated Financial Data Schedule for the Three and Nine
Month Periods Ended September 30, 1999.
27.2 Restated Financial Data Schedule for the Three and Six
Month Periods Ended June 30, 1999.
27.3 Restated Financial Data Schedule for the Three Month Period
Ended March 31, 1999.
27.4 Restated Financial Data Schedule for the Three and Nine
Month Periods Ended September 30, 1998.
27.5 Restated Financial Data Schedule for the Three and Six
Month Periods Ended June 30, 1998.
27.6 Restated Financial Data Schedule for the Three Month Period
Ended March 31, 1998.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Premiere
Technologies and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 0 10,551
<SECURITIES> 0 161
<RECEIVABLES> 0 76,387
<ALLOWANCES> 0 (11,198)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 107,473
<PP&E> 0 282,909
<DEPRECIATION> 0 (162,173)
<TOTAL-ASSETS> 0 753,231
<CURRENT-LIABILITIES> 0 265,030
<BONDS> 0 172,500
0 0
0 0
<COMMON> 0 479
<OTHER-SE> 0 309,175
<TOTAL-LIABILITY-AND-EQUITY> 0 753,231
<SALES> 116,248 343,502
<TOTAL-REVENUES> 116,248 343,502
<CGS> 33,175 97,835
<TOTAL-COSTS> 143,406 397,069
<OTHER-EXPENSES> 342 (13,137)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,751 19,065
<INCOME-PRETAX> (53,098) (111,555)
<INCOME-TAX> (11,689) (20,547)
<INCOME-CONTINUING> (41,409) (91,008)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (41,409) (91,008)
<EPS-BASIC> (0.89) (1.97)
<EPS-DILUTED> (0.89) (1.97)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Premiere
Technologies and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 0 14,141
<SECURITIES> 0 162
<RECEIVABLES> 0 62,307
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 110,300
<PP&E> 0 123,409
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 763,738
<CURRENT-LIABILITIES> 0 236,144
<BONDS> 0 172,500
0 0
0 0
<COMMON> 0 474
<OTHER-SE> 0 348,222
<TOTAL-LIABILITY-AND-EQUITY> 0 763,738
<SALES> 114,444 227,253
<TOTAL-REVENUES> 114,444 227,253
<CGS> 32,204 64,660
<TOTAL-COSTS> 153,316 286,915
<OTHER-EXPENSES> (13,664) (13,219)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,420 12,016
<INCOME-PRETAX> (31,628) (58,459)
<INCOME-TAX> (6,439) (8,858)
<INCOME-CONTINUING> (25,189) (49,601)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (25,189) (49,601)
<EPS-BASIC> (0.55) (1.08)
<EPS-DILUTED> (0.55) (1.08)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Premiere
Technologies and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,673
<SECURITIES> 2,919
<RECEIVABLES> 57,573
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111,588
<PP&E> 121,421
<DEPRECIATION> 0
<TOTAL-ASSETS> 750,769
<CURRENT-LIABILITIES> 200,497
<BONDS> 172,500
0
0
<COMMON> 472
<OTHER-SE> 371,469
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 112,809
<TOTAL-REVENUES> 112,809
<CGS> 32,456
<TOTAL-COSTS> 133,599
<OTHER-EXPENSES> 445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,596
<INCOME-PRETAX> (26,831)
<INCOME-TAX> (2,419)
<INCOME-CONTINUING> (24,412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,412)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Premiere
Technologies and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 0 35,314
<SECURITIES> 0 30,171
<RECEIVABLES> 0 61,317
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 188,379
<PP&E> 0 133,011
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 909,387
<CURRENT-LIABILITIES> 0 257,368
<BONDS> 0 172,500
0 0
0 0
<COMMON> 0 469
<OTHER-SE> 0 426,686
<TOTAL-LIABILITY-AND-EQUITY> 0 909,387
<SALES> 121,540 327,876
<TOTAL-REVENUES> 121,540 327,876
<CGS> 37,346 101,336
<TOTAL-COSTS> 131,880 377,225
<OTHER-EXPENSES> (265) (82)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (4,250) (9,942)
<INCOME-PRETAX> (14,595) (59,209)
<INCOME-TAX> (2,715) (11,177)
<INCOME-CONTINUING> (11,880) (48,032)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (11,880) (48,032)
<NET-INCOME> (11,880) (48,032)
<EPS-BASIC> (0.26) (1.10)
<EPS-DILUTED> (0.26) (1.10)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Premiere
Technologies, Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 0 47,009
<SECURITIES> 0 51,988
<RECEIVABLES> 0 59,306
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 214,535
<PP&E> 0 123,163
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 936,854
<CURRENT-LIABILITIES> 0 267,673
<BONDS> 0 172,500
0 0
0 0
<COMMON> 0 465
<OTHER-SE> 0 443,656
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 121,435 206,336
<TOTAL-REVENUES> 121,435 206,336
<CGS> 35,778 62,148
<TOTAL-COSTS> 146,405 245,345
<OTHER-EXPENSES> 71 183
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,942 5,422
<INCOME-PRETAX> (28,983) (44,614)
<INCOME-TAX> (5,749) (8,462)
<INCOME-CONTINUING> (23,234) (36,152)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (23,234) (36,152)
<EPS-BASIC> (0.50) (0.85)
<EPS-DILUTED> (0.50) (0.85)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Premiere
Technologies, Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 29,053
<SECURITIES> 124,723
<RECEIVABLES> 59,790
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 256,657
<PP&E> 107,069
<DEPRECIATION> 0
<TOTAL-ASSETS> 916,206
<CURRENT-LIABILITIES> 265,280
<BONDS> 172,500
0
0
<COMMON> 453
<OTHER-SE> 440,094
<TOTAL-LIABILITY-AND-EQUITY> 916,206
<SALES> 84,901
<TOTAL-REVENUES> 84,901
<CGS> 26,370
<TOTAL-COSTS> 98,940
<OTHER-EXPENSES> 112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,480
<INCOME-PRETAX> (15,631)
<INCOME-TAX> (2,713)
<INCOME-CONTINUING> (12,918)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,918)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
