PTEK HOLDINGS INC - 10-K Annual Report

Back to GetFilings.com

===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------
FORM 10-K
---------------

[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2000.

Commission file number: 0-27778

PTEK HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Georgia 59-3074176
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

3399 Peachtree Road, N.E., The Lenox Building, Suite 600, Atlanta, Georgia 30326
(address of principal executive office)

(Registrant's telephone number, including area code): (404) 262-8400

Securities registered pursuant to Section 12(b) of the Act:

None None
(Title of each class) (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $0.01 Per Share
(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of voting stock held by non-affiliates of the
registrant, based upon the closing sale price of common stock on March 26, 2001
as reported by The Nasdaq Stock Market's National Market, was approximately
$123,387,231.

As of March 26, 2001 there were 50,275,353 shares of the registrant's common
stock outstanding.

List hereunder the documents incorporated by reference and the part of the
Form 10-K (e.g., Part I. Part II, etc.) into which the document is incorporated:
Portions of the registrant's Proxy Statement for its 2001 meeting of
shareholders are incorporated by reference in Part III.

================================================================================

INDEX

Page
-----

Part I
Item 1. Business.................................................................................. 3
Item 2. Properties................................................................................ 9
Item 3. Legal Proceedings......................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....................................... 12

Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 13
Item 6. Selected Financial Data................................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................ 46
Item 8. Financial Statements and Supplementary Data............................................... 46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 78

Part III
Item 10. Directors and Executive Officers of the Registrant........................................ 79
Item 11. Executive Compensation.................................................................... 79
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 79
Item 13. Certain Relationships and Related Transactions............................................ 79

Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 80
Signatures.............................................................................................. 88
Exhibits

FORWARD LOOKING STATEMENTS

When used in this Form 10-K and elsewhere by management or PTEK Holdings,
Inc. ("PTEK" or the "Company") from time to time, the words "believes,"
"anticipates," "expects," "will" "may," "should," "intends," "plans,"
"estimates," "predicts," "potential," "continue" and similar expressions are
intended to identify forward-looking statements concerning our operations,
economic performance and financial condition. These include, but are not limited
to, forward-looking statements about our business strategy and means to
implement the strategy, our objectives, the amount of future capital
expenditures, the likelihood of our success in developing and introducing new
products and services and expanding our business, and the timing of the
introduction of new and modified products and services. For those statements, we
claim the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. These statements are
based on a number of assumptions and estimates that are inherently subject to
significant risks and uncertainties, many of which are beyond our control, and
reflect future business decisions which are subject to change. A variety of
factors could cause actual results to differ materially from those anticipated
in PTEK's forward-looking statements, including the following factors:

. Competitive pressures among communications services providers, including
pricing pressures, may increase significantly;

. Our ability to respond to rapid technological change, the development of
alternatives to our products and services and the risk of obsolescence of
our products, services and technology;

. Market acceptance of new products and services;

. Strategic investments in early stage companies, which are subject to
significant risks, may not be successful and returns on such strategic
investments, if any, may not match historical levels;

. The value of our business may fluctuate because the value of some of our
equity investments fluctuates;

. Our ability to manage our growth;

. Costs or difficulties related to the integration of businesses and
technologies, if any, acquired or that may be acquired by us may be greater
than expected;

. Expected cost savings from past or future mergers and acquisitions may not
be fully realized or realized within the expected time frame;

. Revenues following past or future mergers and acquisitions may be lower
than expected;

. Operating costs or customer loss and business disruption following past or
future mergers and acquisitions may be greater than expected;

. The success of our strategic relationships, including the amount of
business generated and the viability of the strategic partners, may not
meet expectations;

. Possible adverse results of pending or future litigation or adverse results
of current or future infringements claims;

. Risks associated with interruption in our services due to failure of the
platforms and network infrastructure utilized in providing our services;

. Risks associated with expansion of our international operations;

. General economic or business conditions, internationally, nationally or in
the local jurisdiction in which we are doing business, may be less
favorable than expected;

1

. Legislative or regulatory changes may adversely affect the business in
which we are engaged;

. Changes in the securities markets may negatively impact us;

. Factors described under the caption "Factors Affecting Future Performance"
in this Form 10-K; and

. Factors described from time to time in our press releases, reports and
other filings made with the Securities and Exchange Commission.

PTEK cautions that these factors are not exclusive. Consequently, all of the
forward-looking statements made in this Form 10-K and in documents incorporated
in this Form 10-K are qualified by these cautionary statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Form 10-K. PTEK takes on no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date of
this Form 10-K, or the date of the statement, if a different date.

2

PART I

Item 1. Business

Overview

PTEK Holdings, Inc. ("PTEK" or the "Company") is a global provider of
communications and data services, including conferencing (audio conference
calling and Web-based collaboration), multimedia messaging (high-volume fax, e-
mail, wireless messaging and voice message delivery), and unified communications
(personal communications management systems that handle voice mail, e-mail and
personal content from the Web or the telephone). The Company's services are
directed primarily at the enterprise marketplace and its current customer base
contains more than 80,000 corporations, including almost 70% of the Fortune 500.
PTEK believes that corporate customers will increasingly rely on outsource
providers for these communications and data services because these tasks are too
complex and/or costly to handle internally and do not represent a core
competency. In messaging communications alone, the Gartner Group projects that
by the end of 2001, 65% of U.S.-based corporations will outsource all or part of
their messaging needs.

In 1997 and 1998, the Company focused on acquiring market leaders in
communications and data service categories, which are now operated as separate
business units. They include Premiere Conferencing, an industry leader for
enhanced, automated and Web conferencing solutions; Xpedite, the global leader
in multimedia messaging; and Voicecom, a leading provider of integrated
messaging and unified communications solutions. The Company also has an
investment arm, PtekVentures, which has ownership interests in various new
technology companies. In 2000, PTEK exited its original business, retail calling
card services.

To better serve PTEK's global corporate customer base, over the last few years
the Company has funded new technology development in each of its business units
to help position them in larger market categories. Premiere Conferencing has
expanded into automated and Web conferencing; Xpedite has developed a suite of
e-mail, wireless and voice-based messaging services; and Voicecom has broadened
its offering to include Web-based voice mail and other personal communications
management tools.

PTEK conducts business worldwide with 76 offices in 18 countries. The
corporate headquarters for PTEK are located at 3399 Peachtree Road, NE, Lenox
Building, Suite 600, Atlanta, GA 30326, and the telephone number is (404) 262-
8400.

Industry Background

Nearly everywhere in the world, the bulk of business communication is done
through e-mail, fax, voice mail and telephone conferencing. This explosion of
communications in various forms has forced more and more companies to outsource
their managed group communications needs. PTEK provides solutions for all of
these communications categories.

Conferencing and Web collaboration is projected to be a $17.7 billion market
by 2003. (Source: Collaborative Strategies.) The multimedia messaging segment,
which combines fax, e-mail and voice and video distribution, is projected to be
a $10.5 billion market within three years. (Source: IDC, Forrester and Internet
Research Group.) The unified communications and voice messaging market is
projected to be $8.95 billion by 2004. (Source: MMTA and IDC.) PTEK has taken a
leadership position in each of these categories, often providing multiple
integrated services. Overall, PTEK services are positioned in markets that
represent close to $40 billion in potential business.

Today, PTEK's services, combined with its global infrastructure, are the
primary conduits for literally billions of business communications each year.

3

Service Offerings

PTEK's communications and data service offerings are provided through its
three business units -- Premiere Conferencing, Xpedite and Voicecom, and include
the following:

Premiere Conferencing provides a full range of enhanced, automated and Web
conferencing services for all forms of group communications activities.
Customers use Premiere Conferencing for a wide range of communications from very
large events such as investor relations calls, press conferences and training
seminars with hundreds or thousands of participants, to smaller four-to-six
person conference calls. Premiere Conferencing provides group communications
services for leading companies in a variety of vertical industries, including
technology, healthcare, financial services, public relations and market
research. Premiere Conferencing hosted approximately 750,000 calls using over
283 million minutes in 2000.

Through its own proprietary software technology, Premiere Conferencing
offers ReadyConference/SM/, its automated service that does not require hands-on
involvement from an operator. These automated services allow users to begin and
conduct their conference calls without the assistance of an operator, via a
dedicated dial-in number and passcode available for use anytime. ReadyConference
can be used for a variety of group communications, including any meeting
requiring instant access to a number of participants.

Premiere Conferencing's enhanced services, PremiereCall, include assistance
from an operator to ensure participants are on line, to begin the conference and
conduct a roll call. In addition, complete event management services that
include a dedicated team and professional announcer to work more closely with
the client throughout the event are available. Typical applications include
sales meetings, earnings releases, press conferences, customer seminars and
product rollouts. Premiere Conferencing's client services team understands the
importance of professional, secure communications and works closely with its
customers to ensure a successful conference.

Premiere Conferencing also offers Web-based services called VisionCast(R) that
combine the power of the Internet with its audio conferencing offerings to
provide a real-time, multimedia presentation solution. VisionCast gives
customers the interactivity and collaborative nature of an in-person meeting
while maintaining the cost and time savings of a traditional conference call.
Customers use VisionCast to conduct distance learning, training, seminars,
company meetings, focus groups and media conferences. VisionCast includes
features such as chat, Web tours, polling, white boarding functions, record and
playback capabilities, roll call and live demo options. As part of its Web-based
services, Premiere Conferencing also offers SoundCast(R), an audio streaming
technology that provides live Internet streaming to simulcast a live conference
call or recorded presentation over the Web.

Premiere Conferencing services are available in nine countries with bridging
and sales infrastructure in the United States, Canada, Australia, China,
Singapore, Japan, France, Germany and the United Kingdom, and Premiere
Conferencing plans to actively expand its global presence in 2001.

Xpedite offers a full range of value-added multimedia messaging services that
manage and facilitate the electronic distribution of information to all types of
electronic addresses including fax, e-mail, wireless and voice. Customers use
Xpedite to manage critical information distribution for transaction-based
services such as bank statements, subscription renewals, promotional offers,
purchase orders, newsletters, research reports, rate sheets and pricing/product
announcements. Xpedite provides services to almost half of the global Fortune
500 companies across nearly every business sector, including financial services,
professional associations, travel, hospitality, publishing, technology and
manufacturing. Xpedite processed approximately 1.6 billion messages in 2000
through its worldwide proprietary IP network for electronic information
delivery.

In 2000, Xpedite launched messageREACH/SM/, an outsourced e-mail service that
provides control, tracking, security, personalization and automated
administration for high volume e-mail and e-commerce applications. Late in the
year, Xpedite added several significant service enhancements to messageREACH
including improved HTML message support, transactional message support for
applications such as trade and account balance confirmations, billing and
invoicing, as well as campaign management capabilities for large scale e-
marketing applications. Among the advanced features built into the service are
support for the distribution and collection of forms, multiple layers of
encryption and levels of password protection, anti-spam, "opt-out" protection,
automated personalization of messages with text and graphical inserts and the
hosting of customer databases for campaign management.

4

messageREACH customers can access a proprietary software tool, intelliSEND/SM/
Wizard, to help with the creation of graphically rich HTML documents for e-mail,
and for the insertion of trackable hyperlinks to documents or Web sites. The
proprietary messageREACH delivery engine and infrastructure operate solely for
the support of messageREACH customers and were custom designed by Xpedite's
technical team, incorporating leading Internet technology. Xpedite also provides
Short Message Services (SMS) for wireless users in Europe and South Asia, which
allows text messages to be delivered to GSM phones using existing Xpedite access
methods.

In 2000, Xpedite also launched voiceREACH/SM/, a new automated service that
simultaneously delivers large volumes of prerecorded voice messages to any size
list of phone numbers, voice mailboxes or other answering devices. Typical users
of voiceREACH services include associations, political organizations, securities
firms and trade show operators.

Xpedite supports multiple protocols and can be accessed through a variety of
methods including ftp, TCP/IP, PC-Xpedite software, or Simple Mail Transfer
Protocol (SMTP). Xpedite services are available throughout the world with local
sales and customer support available in 18 countries throughout Europe, Asia,
Australia and North America.

Voicecom offers a suite of integrated communications solutions including
voice messaging, interactive voice response (IVR) services and unified
communications. Voicecom services are used by geographically dispersed companies
to increase communications and to improve productivity and customer care.
Voicecom's services support a variety of applications including customer care,
interpersonal messaging and enterprise communications, in a variety of
industries including financial services, healthcare, marketing and real estate.
Voicecom processed over 40 million messages and handled over 175 million calls
in 2000.

Voicecom's network voice messaging services allow a user to record a voice
message and send it to one voice mailbox or many voice mailboxes on the network.
Users can respond to a network voice message and messages can also be easily
forwarded or copied. Voicecom's network is effectively a "voice intranet."
Voicecom is able to provide its voice messaging service via local numbers in
more than 4,500 cities throughout North America. This network-based solution is
well suited for geographically dispersed companies such as direct selling
organizations, real estate and insurance.

In addition to its local based network voice messaging services, Voicecom
also offers centralized, 800-based corporate voice messaging services. For
certain large corporate customers, Voicecom purchases and installs voice
messaging equipment on the customers' premises. In those cases, Voicecom
provides full facilities management, including equipment maintenance and end-
user service and support. All of Voicecom's central voice messaging services
(800-based, premise-based and pure facilities management) include end-user
support services, such as development and distribution of voice mail
directories, generation and maintenance of large voice mail distribution lists,
administration services (adds, deletes and changes) and customer or end-user
training.

Voicecom's IVR service is a 24/7 automated system that answers all incoming
calls to a location or central phone number and presents callers with a brief
menu of choices to meet their needs. The choices typically include location
hours, directions, account information and emergency services. Voicecom supports
a variety of IVR applications using custom voice prompts and commands from a
caller's telephone keypad to retrieve, process and route certain information or
telephone calls. For instance, financial institutions can use this service to
allow bank customers to access existing account information, open new accounts,
apply for loans, use online financial services and receive directions to banking
and ATM locations. IVR services are primarily designed for financial
institutions, retail outlets and property management companies.

In September 2000, Voicecom launched Orchestrate/R/ 2000, which is a personal
communications and content portal that combines unified communications and Web
content delivery functions. Orchestrate 2000 combines desktop personal
information systems like Microsoft/R/ Outlook/R/, and content services for news
and stocks like My Yahoo!/R/, and long-distance and other telecom services like
WorldCom, into one convenient communications system. Orchestrate subscribers are
able to access their voice, fax and e-mail messages, communications tools
including conference calling, and personalized information such as stock quotes,
weather reports, and leading news stories, at a single Web page or via any
touch-tone telephone.

5

Voicecom services are available in North America, Australia, Taiwan, New
Zealand and the United Kingdom.

Customer Base

PTEK customers represent nearly every major industry, serving almost 70% of
the Fortune 500. Millions of business people worldwide depend on PTEK services
everyday.

Premiere Conferencing has approximately 4,200 domestic and international
corporate accounts, supporting almost 50,000 moderators. The business unit has
successfully penetrated key accounts in various industries including technology,
healthcare, investor relations, financial services, public relations and market
research. Premiere Conferencing has long-term customer relationships with well-
respected companies and organizations such as IBM Corporation, HCA The
Healthcare Company, Novell, SGI, Hewlett Packard, Merck, Charles Schwab & Co.,
Merrill Lynch, PaineWebber, the NCAA and the National Institutes of Health.

Xpedite has more than 78,000 domestic and international corporate accounts,
representing 173,000 users. Xpedite serves almost half of the Fortune 500
companies. The business unit has successfully targeted industries such as
securities, banking, mortgage, publishing, healthcare, associations, investor
relations, public relations, travel and hospitality. Xpedite's diverse customer
base includes globally recognized companies such as Boeing, Bank One, Marriott,
Merck, Xerox, Chase Manhattan, Nippon Life Insurance, Sam's Club, Bertelesmann,
Dell Computer, United Airlines, British Airways, Bank of America, McGraw Hill,
Toyota, Federal Express and Salomon Smith Barney.

Voicecom has approximately 1,200 corporate accounts and nearly 500,000 users.
The business unit initially was successful in penetrating direct selling
organizations such as Amway, Mary Kay, Primerica, Avon and others. Voicecom now
targets key vertical markets such as financial services with existing customers
including Bank of America, Key Bank and PNC Bank; telecom providers with
existing customers including Sprint PCS, Verizon and Talk.com; real estate with
existing customers such as Prudential Northwest; and healthcare with existing
customers including WebMD and Abbott Labs.

Sales and Marketing

Each of PTEK's business units markets its services through direct sales
employing a regional reporting structure and a centrally managed national and
global accounts program. The Company's sales force targets large and mid-size
enterprises. The centrally managed national and global accounts program focuses
on multi-location businesses that are better served by dedicated representatives
with responsibility across different geographic regions. The direct sales force
is organized by services and by industry on a global scale. The company employs
740 sales professionals in 76 offices in 18 countries.

In addition to direct sales, the Company has a significant network of third-
party distributors and implements indirect marketing programs for various
services via affiliate and co-branded relationships. Indirect sales activities
are used with various companies to resell PTEK's services through their sales
force, Web site or as part of their product offerings.

As a service organization, PTEK's customer service teams play a major role
in managing customer relationships, as well as selling additional value-added
services to existing accounts. PTEK employs more than 800 customer service
professionals.

6

Platforms and Network Infrastructure

The Company, through its three business units, operates global Internet and
telecom-based networks that allow customers access to the Company's various
services through the Internet and through local and/or 800 telephone numbers.

Premiere Conferencing services are provided from full-service operations
centers in Colorado Springs, Colorado and Lenexa, Kansas and automated bridging
nodes in Canada, Australia, China, Singapore, Japan, France, Germany and the
United Kingdom Complex, operator-assisted calls are supported on various
commercially available bridging platforms. Internally developed conference
bridges are used to support automated conferencing services. Customers access
the conferencing platform through direct inward dialing, 800 numbers, the
Internet and virtual network access.

Xpedite services are provided primarily through an electronic messaging
platform that uses servers to perform all primary processing and switching
functions. This platform supports multiple input methods including, but not
limited to, fax-to-fax, priority PC-based software, e-mail gateways and high
speed IP based interconnects. Outgoing fax- and voice-based messages are
delivered through line group controllers, which are deployed in a decentralized
fashion to exploit local delivery costs. The remote line group controllers are
connected to the servers over a wide area network via either private lines or
Xpedite's global TCP/IP based network. Messages are transported in bulk from one
location domain to another using MCP to MCP protocol. The current domains
include Australia, Hong Kong, Japan, Korea, Singapore, Switzerland, United
Kingdom, United States, Germany and France. Remote nodes on the network are
located in Belgium, Canada, Denmark, Italy, Malaysia, Netherlands, New Zealand
and Taiwan.

Voicecom offers advanced network-based voice messaging services through most
of our 200 platforms located in the United States, Canada, Taiwan, Australia and
the United Kingdom. The telephony service platforms are interconnected via
Voicecom's highly available data network infrastructure. This network transports
the subscriber messages between the distributed systems. Voicecom is conducting
a network consolidation project with the objective of reducing to just three the
number of data centers in the United States. The local numbers will be routed
back from the local markets to these three hubs over leased fixed facilities.
Voicecom also offers outsourced voice messaging services to large corporate
clients via toll-free access to voice messaging platforms located in Atlanta,
Georgia; Reno, Nevada; Arlington, Virginia; and Oakbrook, Illinois. In addition,
certain corporate voice messaging services are provided using equipment that is
installed on the customers' premises. Voicecom's Orchestrate 2000 service is
provided on a highly available and highly scaleable platform that includes
servers and third-party software integrated and enhanced with Voicecom's unified
communications middleware. The primary Orchestrate 2000 service hubs are located
in Atlanta, Georgia and Dallas, Texas. Voicecom's IVR services are provided on a
variety of platforms. The platform utilized for any particular application is
determined by the specific requirements for that application.

Research and Development

PTEK's ability to design, develop, test and support new software technology
for product enhancements in a timely manner is an important ingredient to its
future success. Next generation services such as VisionCast, messageREACH and
Orchestrate are critical additions to the suite of communications and data
services PTEK provides to its customers, not only to position the operating
units in larger market segments, but more importantly to meet changing customer
needs and respond to the overall technological changes in the marketplace.

Each PTEK operating unit includes research, development and engineering
personnel who are responsible for designing, developing, testing and supporting
proprietary software applications, as well as creating and improving enhanced
system features and services. The Company's research and development strategy is
to focus its efforts on enhancing its proprietary software and integrating it
with readily available industry standard software and hardware when feasible.
Research, development and engineering personnel also engage in joint development
efforts with the Company's strategic partners and vendors.

7

PTEK employs 120 research and development professionals and plans to spend $16
million on research and development in 2001.

Competition

PTEK competes with major communications service providers around the world
such as AT&T, WorldCom, Sprint, and the international PTTs. The Company also
competes with smaller companies in each of its service categories, including
Intercall, Evoke, ACT Teleconferencing, WebEx and Genesys in conferencing;
Mail.com, AVT, Critical Path, MessageMedia and Responsys in multimedia
messaging; and J2 Global Communications, Webley, General Magic and Net2Phone in
unified communications. In all cases, PTEK's strategy is to gain a competitive
advantage in winning and keeping customers by enabling its business units to
deliver leading technology-driven solutions to its customers and support them
with superior customer service.

The markets for the Company's services are intensely competitive, quickly
evolving and subject to rapid technological change. The Company expects
competition to increase in the future. Many of the Company's current and
potential competitors have longer operating histories, greater name recognition,
larger customer bases and substantially greater financial, personnel, marketing,
engineering, technical and other resources than the Company. The Company
believes that existing competitors are likely to expand their product and
service offerings and that new competitors are likely to enter the Company's
markets. Such competition could materially adversely affect the Company's
business, financial condition and results of operations.

Financial Information About Reportable Segments and Geographic Areas

For financial information about the Company's reportable segments and
geographic areas for the years ended December 31, 2000, 1999 and 1998, see Note
21 to the Consolidated Financial Statements.

Government Regulation

Premiere Communications, Inc. ("PCI"), which is part of the Company's Voicecom
business unit, provides both telecommunications and information services.
Consequently, PCI is, and certain other PTEK subsidiaries may be, subject to
federal, state and local regulation in the United States. Various international
authorities may also seek to regulate the services provided by PCI and possibly
other PTEK subsidiaries.

The FCC classifies PCI as a non-dominant carrier for its domestic interstate
and international common carrier telecommunications services. Generally, common
carriers that provide domestic interstate and international telecommunications
services must maintain tariffs on file with the FCC, describing rates, terms and
conditions of service, must comply with federal regulatory programs such as
universal service, telecommunications relay service, and payphone compensation,
and must comply with decisions and policies adopted or enforced by the FCC.
Currently, PCI has filed tariffs with the FCC to provide domestic interstate and
international telecommunications services, and PCI exercises reasonable efforts
to comply with the various FCC decisions, policies and regulatory programs. Most
state public utility commissions ("PUCs") also subject carriers such as PCI that
provide intrastate, common carrier telecommunications services to various
compliance and approval requirements, such as those in connection with entry
certification, tariff filings, transfers of control, mergers or other
acquisitions, issuance of debt instruments, periodic reporting and payment of
regulatory fees, as well as others. PCI either has applied for and received, or
is in the process of applying for and receiving, the necessary certificates or
authorizations to provide intrastate, long distance services. FCC or state PUC
authorizations can generally be conditioned, modified or revoked for failure to
comply with applicable laws, rules, regulations or regulatory policies. Fines or
other penalties also may be imposed for such violations. There can be no
assurance that PCI is currently in compliance with, or remitting all necessary
fees in connection with, all applicable FCC or state PUC requirements, or that
the FCC, state PUCs or third parties will not raise issues in the future with
regard to PCI's compliance with applicable laws or regulations.

8

A number of states have adopted laws restricting the distribution of
unsolicited commercial e-mails, or spam. The Company monitors such legislation
and regulatory development to minimize the risk of its participation in
activities that violate anti-spam legislation. In addition, a number of
legislative and regulatory proposals are under consideration by federal and
state lawmakers and regulatory bodies and may be adopted with respect to the
Internet. Some of the issues that such laws or regulations may cover include
user privacy, obscenity, fraud, pricing and characteristics and quality of
products and services. The adoption of any such laws or regulations may decrease
the growth of the Internet, which could in turn decrease the projected demand
for the Company's products and services or increase its cost of doing business.
Moreover, the applicability to the Internet of existing U.S. and international
laws governing issues such as property ownership, copyright, trade secret,
libel, taxation and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on the Company's business, financial
condition and results of operations.

In conducting its business, the Company is subject to various laws and
regulations relating to commercial transactions generally, such as the Uniform
Commercial Code and is also subject to the electronic funds transfer rules
embodied in Regulation E promulgated by the Federal Reserve. It is possible that
Congress, the states or various government agencies could impose new or
additional requirements on the electronic commerce market or entities operating
therein. If enacted, such laws, rules and regulations could be imposed on the
Company's business and industry and could have a material adverse effect on the
Company's business, financial condition or results of operations. The Company's
proposed international activities also will be subject to regulation by various
international authorities and the inherent risk of unexpected changes in such
regulation.

Proprietary Rights and Technology

The Company's ability to compete is dependent in part upon its proprietary
technology. The Company relies primarily on a combination of intellectual
property laws and contractual provisions to protect its proprietary rights and
technology. These laws and contractual provisions provide only limited
protection of the Company's proprietary rights and technology. The Company's
proprietary rights and technology include confidential information and trade
secrets which the Company attempts to protect through confidentiality and
nondisclosure provisions in its agreements. The Company typically attempts to
protect its confidential information and trade secrets through these contractual
provisions for the terms of the applicable agreement and, to the extent
permitted by applicable law, for some negotiated period of time following
termination of the agreement. PTEK currently has seven patents, ten patent
applications pending, numerous worldwide registrations of trademarks and service
marks, and numerous worldwide trademark and service mark registrations pending.
Despite the Company's efforts to protect its proprietary rights and technology,
there can be no assurance that others will not be able to copy or otherwise
obtain and use the Company's proprietary technology without authorization, or
independently develop technologies that are similar or superior to the Company's
technology. However, the Company believes that, due to the rapid pace of
technological change in communications and data services, factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements and the timeliness and quality of support services
are of equal or greater importance to establishing and maintaining a competitive
advantage in the industry.

Employees

As of December 31, 2000, PTEK employed 2,480 people. PTEK employees are not
represented by a labor union or covered by any collective bargaining agreements.

Item 2. Properties

PTEK Holdings' corporate headquarters occupy approximately 21,000 square feet
of office space in Atlanta, Georgia under a lease expiring August 31, 2007. The
headquarters of the Company's Voicecom business unit occupies approximately
74,000 square feet of office space in the same building under leases expiring
August 31, 2007 and August 31, 2006 plus approximately 19,000 square feet in a
nearby building whose lease expires

9

December 31, 2003. Xpedite occupies approximately 61,500 square feet of office
space in Eatontown, New Jersey under three separate leases expiring on June 15,
2001, October 31, 2001 and December 31, 2001, respectively. Xpedite has signed a
10-year lease for approximately 90,000 square feet of office space in Tinton
Falls, New Jersey and expects to move into these premises on or about June 1,
2001. Premiere Conferencing occupies approximately 105,000 square feet of office
space in Colorado Springs, Colorado under a lease expiring August 31, 2006, and
approximately 46,000 square feet of office space in Lenexa, Kansas under a lease
expiring August 31, 2009.

The Company also has data and switching centers and sales offices within and
outside the United States. The Company believes that its current facilities and
office space are sufficient to meet its present needs and does not anticipate
any difficulty securing additional space, as needed, on terms acceptable to the
Company.

Item 3. Legal Proceedings

The Company has several litigation matters pending, as described below, which
it is pursuing or defending vigorously. Due to the inherent uncertainties of the
litigation process and the judicial system, the Company is unable to predict the
outcome of such litigation matters. If the outcome of one or more of such
matters is adverse to the Company, it could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company and certain of its officers and directors have been named as
defendants in multiple shareholder class action lawsuits filed in the United
States District Court for the Northern District of Georgia. Plaintiffs seek to
represent a class of individuals (including a subclass of former Voice-Tel
franchisees and a subclass of former Xpedite Systems, Inc. ("Xpedite")
shareholders) who purchased or otherwise acquired the Company's common stock
from as early as February 11, 1997 through June 10, 1998. Plaintiffs allege the
Company admitted it had experienced difficulty in achieving its anticipated
revenue and earnings from voice messaging services due to difficulties in
consolidating and integrating its sales function. Plaintiffs allege, among other
things, violation of Sections 10(b), 14(a) and 20(a) of the Securities Exchange
Act of 1934 and Sections 11, 12 and 15 of the Securities Act of 1933. We filed a
motion to dismiss this complaint on April 14, 1999. On December 14, 1999, the
court issued an order that dismissed the claims under Sections 10(b) and 20 of
the Exchange Act without prejudice, and dismissed the claims under Section
12(a)(1) of the Securities Act with prejudice. The effect of this order was to
dismiss from this lawsuit all open-market purchases by the plaintiffs. The
plaintiffs filed an amended complaint on February 29, 2000. The defendants filed
a motion to dismiss on April 14, 2000, which was granted in part and denied in
part on December 8, 2000. The defendants filed an answer on January 8, 2001.

A lawsuit was filed on November 4, 1998 against the Company and certain of its
officers and directors in the Southern District of New York. Plaintiffs are
shareholders of Xpedite who acquired common stock of the Company as a result of
the merger between the Company and Xpedite in February 1998. Plaintiffs'
allegations are based on the representations and warranties made by the Company
in the prospectus and the registration statement related to the merger, the
merger agreement and other documents incorporated by reference, regarding the
Company's acquisitions of Voice-Tel and VoiceCom Systems, the Company's roll-out
of Orchestrate, the Company's relationship with customers Amway Corporation and
DigiTEC, 2000, and the Company's 800-based calling card service. Plaintiffs
allege causes of action against the Company for breach of contract, against all
defendants for negligent misrepresentation, violations of Sections 11 and
12(a)(2) of the Securities Act of 1933 and against the individual defendants for
violation of Section 15 of the Securities Act. Plaintiffs seek undisclosed
damages together with pre- and post-judgment interest, recission or recissory
damages as to violation of Section 12(a)(2) of the Securities Act, punitive
damages, costs and attorneys' fees. The defendants' motion to transfer venue to
Georgia has been granted. The defendants' motion to dismiss has been granted in
part and denied in part. The defendants filed an answer on March 30, 2000.

On 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

10

defendants include Equitable and certain of its current or former
representatives. The allegations in the complaint against Xpedite are limited to
plaintiffs' investment in Xpedite. The plaintiffs have alleged that two of the
named defendants, allegedly acting as officers, directors, agents or
representatives of Xpedite, induced the plaintiffs to make certain investments
in Xpedite but that the plaintiffs failed to receive the benefits that they were
promised. Plaintiffs allege that Xpedite knew or should have known of alleged
wrongdoing on the part of other defendants. Plaintiffs seek an accounting of the
corporate stock in Xpedite, compensatory damages of approximately $4.85 million,
plus $200,000 in "lost investments," interest and/or dividends that have accrued
and have not been paid, punitive damages in an unspecified amount, and for
certain equitable relief, including a request for Xpedite to issue 139,430
shares of common stock in the plaintiffs' names, attorneys' fees and costs and
such other and further relief as the court deems just and equitable. This case
has been dismissed without prejudice and compelled to NASD arbitration, which
has commenced. In August 2000, the plaintiffs filed a statement of claim with
the NASD against 12 named respondents, including Xpedite (the "Nobis
Respondents"). The claimants allege that the 12 named respondents engaged in
wrongful activities in connection with the management of the claimants'
investments with Equitable. More specifically, the statement of claim asserts
wrongdoing in connection with the claimants' investment in securities of Xpedite
and in unrelated investments involving insurance-related products. The
allegations in the statement of claim against Xpedite are limited to claimants'
investment in Xpedite. Claimants seek, among other things, an accounting of the
corporate stock in Xpedite, compensatory damages of not less than $415,000, a
fair conversion rate on stock options, losses on the investments, plus interest
and all dividends, attorneys' fees and costs.

A lawsuit was filed on November 1, 1999 by Donald H. Turner, a former officer
of the Company, against the Company, Boland T. Jones and Jeffrey A. Allred in
the Superior Court of Fulton County, Georgia. Against the Company the plaintiff
alleges breach of contract and promissory estoppel relating to the termination
of his employment, and against all defendants the plaintiff alleges fraudulent
inducement relating to his hiring by the Company. The plaintiff seeks
compensatory damages of $875,000, forgiveness of a $100,000 loan, interest,
attorneys' fees and punitive damages in an unspecific amount. The defendants
filed an answer and counterclaim, claiming that the plaintiff owes the Company
the principal amount of the $100,000 loan plus interest as of January 1, 2001,
plus costs and attorneys' fees, and that the plaintiff defrauded the Company and
owes the Company approximately $400,000 in fraudulently attained pay and
benefits, including the $100,000 loan. In March 2001, the parties entered into a
settlement agreement and general release, which settled and disposed of all
claims in this litigation. This settlement will not have an material adverse
effect on the Company's business, financial condition or results of operations.

On September 3, 1999, Elizabeth Tendler filed a complaint in the Superior
Court of New Jersey Law Division, Union County, against 17 named defendants
including the company and Xpedite, and various alleged current and former
officers, directors, agents and representatives of Xpedite. Plaintiff alleges
that the defendants engaged in wrongful activities in connection with the
management of the plaintiff's investments, including investments in Xpedite. The
allegations against Xpedite and the Company are limited to plaintiff's
investment in Xpedite. Plaintiff's claims against Xpedite and the Company
include breach of contract, breach of fiduciary duty, unjust enrichment,
conversion, fraud, interference with economic advantage, liability for ultra
vires acts, violation of the New Jersey Consumer Fraud Act and violation of New
Jersey RICO. Plaintiff seeks an accounting of the corporate stock of Xpedite,
compensatory damages of approximately $1.3 million, accrued interest and/or
dividends, a constructive trust on the proceeds of the sale of any Xpedite or
PTEK stock, shares of Xpedite and/or PTEK to satisfy defendants' obligations to
plaintiff, attorneys' fees and costs, punitive and exemplary damages in an
unspecified amount, and treble damages. On February 25, 2000, Xpedite filed its
answer, as well as cross claims and third party claims. This case has been
dismissed without prejudice and compelled to NASD arbitration, which has
commenced. In August 2000, a statement of claim was also filed with the NASD
against all but one of the Nobis Respondents making virtually the same
allegations on behalf of claimant Elizabeth Tendler. Claimant seeks, among other
things, an accounting of the corporate stock in Xpedite, compensatory damages of
not less than $265,000, a fair conversion rate on stock options, losses on other
investments, interest and/or unpaid dividends, attorneys fees and costs.

On or about May 19, 2000, the Company was served with a Complaint filed by
Robert Cowan in the Circuit Court of Jackson County, Missouri, alleging claims
for breach of contract, fraudulent misrepresentation, negligent
misrepresentation, breach of duty of good faith and fair dealings, unjust
enrichment, and violation of Georgia and Missouri blue sky laws. Plaintiff's
claims arise out of the Company's acquisition of American Teleconferencing
Services, Ltd. ("ATS") in April 1998. Plaintiff was a shareholder of ATS who
received shares of PTEK stock in the transaction. The Company removed the case
to the United States District Court for the Western District of Missouri,

11

and filed a Motion to Compel Arbitration, or Alternatively to Transfer Venue, or
Alternatively to Dismiss the Complaint. Plaintiff has filed a Motion to Remand
the case back to state court. By order dated March 28, 2001, the court granted
plaintiff's Motion to Remand and dismissed as moot the Company's Motion to
Compel Arbitration, or Alternatively to Transfer Venue, or Alternatively to
Dismiss the Complaint.

On June 9, 2000, the Company and Premiere Communications, Inc. filed a lawsuit
in the United States District Court for the Middle District of Florida, seeking
unspecified damages and equitable, including injunctive, relief against Z-Tel
Technologies, Inc., Z-Tel Communications, Inc. (collectively, "Z-Tel"), David
Gregory Smith, James Kitchen and Eduard Mayer for patent infringement, breach of
contract, unfair competition, conversion, misappropriation of corporate
opportunities, conspiracy to misappropriate corporate opportunities, tortious
interference with contractual relations, tortious interference with actual and
prospective business relations, and misappropriation of trade secrets. On June
29, 2000, Z-Tel filed an answer and counterclaims against the Company and Boland
T. Jones ("Jones") seeking unspecified damages for tortious interference with
actual and prospective business relations, trade defamation, and compelled self-
defamation. Jones and the Company filed a timely motion to dismiss Z-Tel's
counterclaims, which is pending before the court. On November 14, 2000, the
parties to the lawsuit agreed to resolve in full all claims asserted by each
party against the other. In connection with the settlement, Z-Tel agreed to
issue a warrant to PTEK to purchase 175,000 shares of Z-Tel's common stock at a
exercise price of $12.00, which price is subject to certain adjustments.

The Company is also involved in various other legal proceedings that the
Company does not believe will have a material adverse effect upon the Company's
business, financial condition or results of operations, although no assurance
can be given as to the ultimate outcome of any such proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.

12

Part II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock, $.01 par value per share (the "Common Stock"), has
traded on the Nasdaq National Market under the symbol "PTEK" since its initial
public offering on March 5, 1996. The following table sets forth the high and
low sales prices of the Common Stock as reported on the Nasdaq National Market
for the periods indicated. Such prices are based on inter-dealer bid and asked
prices without markup, markdown, commissions or adjustments and may not
represent actual transactions.

2000 High Low
---- ------- ------
First Quarter............................. $11.438 $6.000
Second Quarter............................ 7.125 3.125
Third Quarter............................. 4.188 2.625
Fourth Quarter............................ 3.438 0.906

1999 High Low
---- --------- ----------
First Quarter ............................ $13.000 $6.000
Second Quarter............................ 20.875 11.000
Third Quarter............................. 11.875 5.688
Fourth Quarter............................ 8.625 4.375

The closing price of the Common Stock as reported on the Nasdaq National
Market on March 26, 2001 was $2.6875. As of March 26, 2001 there were
approximately 491 record holders of the Company's Common Stock.

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

During the year ended December 31, 2000, certain current and former employees,
directors and investors exercised options to purchase an aggregate of 50,909
shares of Common Stock at prices ranging from $0.52 to $1.61 per share in
transactions exempt from registration pursuant to Section 4(2) and Rule 701 of
the Securities Act.

Item 6. Selected Financial Data

The following selected consolidated balance sheet and statement of operations
data as of and for the years ended December 31, 2000, 1999, 1998, 1997 and 1996,
and the consolidated balance sheet data as of December 31, 2000, 1999, 1998,
1997 and 1996 have been derived from the audited consolidated financial
statements of the Company, which give retroactive effect to the acquisitions of
Voice-Tel and VoiceCom Systems, both of which were accounted for as poolings-of-
interests, and are qualified by reference to such consolidated financial
statements including the related notes thereto. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto.

"Adjusted EBITDA" is defined by the Company as operating income or loss before
depreciation, amortization, net legal settlements, acquired research and
development costs, and restructuring, merger costs and other special charges.
The Company in its earnings releases discloses Adjusted EBITDA before stock-
based compensation expense that is included in general and administrative
expenses. See Note 17--"Related Party Transactions" of the Notes to the
Consolidated Financial Statements for additional information concerning the
stock-based compensation.

13

Adjusted EBITDA 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 effects of sales of
marketable securities, the write-down of investments, and special cash or
noncash charges associated with acquisitions and internal exit activities.
Adjusted EBITDA is used as an indicator of operating cash flow before payments
for interest and taxes, and 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.

Year Ended December 31
--------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- --------- -------- --------- --------
(in thousands, except per share data)

Statement of Operations Data:
Revenues........................................... $436,935 $ 458,448 $444,818 $ 229,352 $197,474
Gross profit....................................... 321,495 328,757 309,782 165,378 141,873
Operating income (loss)(1)......................... (76,357) (138,081) (91,053) (16,714) 6,806
Net income (loss).................................. (58,866) (33,491) (84,254) (18,428) 3,458
Net income (loss) attributable to common and
common equivalent shares for shareholders for:
--basic net income (loss) per share............... $(58,866) $ (33,491) $(84,254) $ (18,428) $ 3,429
--diluted net income (loss) per share............. (58,866) (33,491) (84,254) (18,428) 3,429
Net income (loss) per common and common
equivalent shares for:
--basic(2)........................................ $(1.22) $(0.72) $(1.90) $(0.57) $0.12
--diluted(2)...................................... $(1.22) $(0.72) $(1.90) $(0.57) $0.11
Shares used in computing net income (loss) per
common and common equivalent shares for
--basic........................................... 48,106 46,411 44,325 32,443 27,670
--diluted......................................... 48,106 46,411 44,325 32,443 31,288

Balance Sheet Data (at period end):
Cash, cash equivalents and marketable securities... $ 29,716 $ 101,981 $ 40,609 $ 176,339 $ 83,836
Working capital.................................... 15,949 34,746 (92,628) 132,906 45,377
Total assets....................................... 630,933 770,481 796,416 379,593 201,541
Total debt......................................... 178,762 179,625 299,673 181,698 47,975
Total shareholders' equity......................... 313,406 422,220 397,793 107,761 104,533

Statement of Cash Flow Data:
Cash provided by operating activities.............. 17,929 9,927 22,248 27,159 36,889
Cash (used in) provided by investing activities.... (6,466) 107,216 21,292 (160,055) (96,112)
Cash (used in) provided by financing activities.... (2,394) (120,924) (46,115) 138,730 66,196

- ---------------
(1) Adjusted EBITDA would have been $66.6 million in 2000, $38.8 million in
1999, $61.8 million in 1998, $60.1 million in 1997 and $33.3 million in
1996.

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

14

number of shares of common stock and dilutive common stock equivalents
outstanding during the period from convertible preferred stock, convertible
subordinated notes (using the if-converted method) and from stock options
(using the treasury stock method).

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Overview

PTEK Holdings, Inc., a Georgia corporation, and its subsidiaries (collectively
the "Company" or "PTEK") is a global provider of communications and data
services, including conferencing (audio conference calling and Web-based
collaboration), multimedia messaging (high-volume fax, e-mail, wireless
messaging and voice message delivery), and unified communications (personal
communications management systems that handle voice mail, e-mail and personal
content from the Web or the telephone). The Company's reportable segments align
the Company into two areas of focus that are driven by product offering and
corporate services. These segments are Xpedite, Voicecom, Premiere Conferencing,
Retail Calling Card Services and Corporate. Xpedite offers a full range of
value-added multimedia messaging services through its worldwide proprietary IP
network for electronic information delivery. Xpedite's customers are primarily
global Fortune 1000 companies. Voicecom offers a suite of integrated
communications solutions including voice messaging, interactive voice response
("IVR") services and unified communications. Voicecom's initial customers came
from direct selling organizations, but Voicecom now targets key vertical markets
such as financial services, telecom providers, real estate and healthcare.
Premiere Conferencing offers a full range of enhanced, automated and Web
conferencing services for all forms of group communications activities,
primarily to Fortune 1000 customers. Retail Calling Card Services is a business
segment that the Company exited through the sale of its revenue base effective
August 1, 2000. It primarily consisted of the Premiere WorldLink calling card
product, which was marketed primarily through direct response advertising and
co-branding relationships to individual retail users. Corporate focuses on being
a holding company with minimal headcount leaving the day-to-day management of
the businesses at the three operating business units. In addition, Corporate
includes PtekVentures, the Company's Internet investment arm. Adjusted EBITDA is
management's primary measure of segment profit and loss.

The Company has grown organically and through various acquisitions that have
expanded the company's service offerings, customer base, geographic reach and
technology. In 1996, The Company acquired TeleT Communications, LLC, which
became the foundation for the Company's Orchestrate product offering. In 1997,
PTEK acquired the franchise network of Voice-Tel, which provided local access
voice mail and voice messaging. The Company also acquired VoiceCom Systems in
1997, which provided 800-based corporate voice mail and calling card services.
Both the Voice-Tel and VoiceCom Systems acquisitions, as well as the Orchestrate
product offering, provide the basis of the Voicecom business unit. In 1998, PTEK
acquired Xpedite, a provider of domestic and international fax services. Also in
1998, the Company acquired the international affiliates of Xpedite and other
complementary international fax service providers. The Company acquired ATS in
1998, which, along with the conferencing business from the VoiceCom Systems
acquisition, forms the basis of the Premiere Conferencing business unit. In 1999
the Company acquired Intellivoice, a company that was previously a consultant in
developing the next generation Orchestrate product offering, Orchestrate 2000,
which is marketed by the Voicecom business unit. During 1998, 1999 and 2000,
the Company invested in Internet-based companies, and the Company has formed
PtekVentures with dedicated resources to manage its portfolio of investments.

The Company's revenues are based on usage in the Xpedite, Premiere
Conferencing and Retail Calling Card Services business segments and a mix of
both usage and monthly fixed fees in the Voicecom business segment.

Telecommunications costs consist primarily of the cost of metered and fixed
telecommunications related costs incurred in providing the Company's services.

Direct operating costs consist primarily of salaries and wages, travel,
consulting fees and facility costs associated with maintaining and operating the
Company's various revenue generating platforms and telecommunications networks,
regulatory fees and non-telecommunications costs directly associated with
providing services.

15

Selling and marketing costs consist primarily of salaries and wages, travel
and entertainment, advertising, commissions and facility costs associated with
the functions of selling or marketing the Company's services.

Research and development costs consist primarily of salaries and wages,
travel, consulting fees and facilities costs associated with developing product
enhancements and new product development.

General and administrative costs consist primarily of salaries and wages
associated with billing, customer service, order processing, executive
management and administrative functions that support the Company's operations.
Bad debt expense associated with customer accounts is also included in this
caption.

Depreciation and amortization includes depreciation of computer and
telecommunications equipment, furniture and fixtures, office equipment,
leasehold improvements and amortization of intangible assets. The Company
provides for depreciation using the straight-line method of depreciation over
the estimated useful lives of property and equipment, generally two to five
years, with the exception of leasehold improvements which are depreciated on a
straight-line basis over the shorter of the term of the lease or the useful life
of the assets. Intangible assets being amortized include goodwill, customer
lists, developed technology and assembled work force. Intangible assets are
amortized over periods generally ranging from three to seven years.

"Adjusted EBITDA" is defined by the Company as operating income or loss before
depreciation, amortization, net legal settlements, acquired research and
development costs, and restructuring, merger costs and other special charges.
The Company in its earnings releases discloses Adjusted before stock-based
compensation expense that is included in general and administrative expenses.
See Note 17--"Related Party Transactions" of the Notes to the Consolidated
Financial Statements for additional information concerning the stock-based
compensation.

Adjusted EBITDA is considered a key financial management performance indicator
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 effects of sales of marketable
securities, the write-down of investments, and special cash or noncash charges
associated with acquisitions and internal exit activities. Adjusted EBITDA
provides each segment's management team with a consistent measurement tool for
evaluating the operating profit of the business before investing activities,
taxes and special charges. Adjusted EBITDA may not be comparable to similarly
titled measures presented by other companies and could be misleading unless all
companies and analysts calculate them in the same manner.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from the estimates. The
following discussion and analysis provides information which management believes
is relevant to an assessment and understanding of the Company's consolidated
results of operations and financial condition. This discussion should be read in
conjunction with the condensed consolidated financial statements and notes
thereto.

16

Results Of Operations

The following table presents the percentage relationship of certain statements
of operations items to total revenues for the Company's consolidated operating
results for the periods indicated:

Year Ended December 31,
--------------------------------
2000 1999 1998
------ ----- ------

REVENUES..................................................................... 100.0% 100.0% 100.0%
TELECOMMUNICATIONS COSTS..................................................... 26.4 28.3 30.4
------ ----- ------
GROSS PROFIT................................................................. 73.6 71.7 69.6
------ ----- ------
Direct operating costs...................................................... 15.6 15.1 12.1
------ ----- ------
CONTRIBUTION MARGIN.......................................................... 58.0 56.6 57.5
------ ----- ------

OPERATING EXPENSES
Selling and marketing....................................................... 21.5 23.5 24.6
General and administrative.................................................. 18.1 21.9 17.8
Research and development.................................................... 3.2 2.6 1.2
Depreciation................................................................ 9.2 15.3 10.4
Amortization................................................................ 23.6 21.6 14.7
Restructuring, merger costs and other special charges....................... 0.2 1.7 5.4
Acquired research and development........................................... -- -- 3.5
Legal settlements, net...................................................... (0.3) -- 0.3
------ ----- ------
Total operating expenses................................................... 75.5 86.6 77.9
------ ----- ------

OPERATING LOSS............................................................... (17.5) (30.0) (20.4)
------ ----- ------

OTHER INCOME (EXPENSE)
Interest, net............................................................... (2.4) (5.4) (3.3)
Gain on sale of marketable securities....................................... 13.6 33.2 --
Asset impairment - investments.............................................. (3.4) -- --
Amortization of goodwill - equity investments............................... (1.1) -- --
Other, net.................................................................. (0.1) 2.7 0.1
------ ----- ------
Total other income (expense)............................................... 6.6 30.5 (3.2)
------ ----- ------

INCOME (LOSS) BEFORE INCOME TAXES............................................ (10.9) 0.5 (23.6)
INCOME TAX PROVISION (BENEFIT)............................................... 2.6 7.7 (4.8)
------ ----- ------
NET LOSS..................................................................... (13.5)% (7.2)% (18.8)%
====== ===== ======

17

The following table presents certain financial information about the Company's
operating segments for the periods presented (amounts in millions), with
amortization expense allocated to the appropriate operating segment:

Year Ended December 31,
-------------------------------
2000 1999 1998
------ ------- ------

REVENUES:
Xpedite....................................................................... $233.9 $ 242.0 $197.0
Voicecom...................................................................... 117.9 125.7 152.9
Premiere Conferencing......................................................... 71.6 53.8 36.9
Retail Calling Card Services.................................................. 13.7 37.2 58.0
Eliminations.................................................................. (0.2) (0.3) --
------ ------- ------
Totals........................................................................ $436.9 $ 458.4 $444.8
====== ======= ======
OPERATING PROFIT (LOSS):
Xpedite..................................................................... $(37.7) $ (30.4) $(19.7)
Voicecom.................................................................... (16.5) (9.8) 23.7
Premiere Conferencing....................................................... (0.4) (3.8) 1.8
Retail Calling Card Services................................................ (1.0) (43.8) (27.3)
Corporate................................................................... (21.3) (42.4) (28.5)
Eliminations................................................................ (0.2) (0.3) --
Restructuring, merger costs and other special charges....................... (0.7) (7.6) (24.1)
Acquired research and development........................................... -- -- (15.5)
Legal settlements, net...................................................... 1.4 -- (1.5)
------ ------- ------
Totals...................................................................... $(76.4) $(138.1) $(91.1)
====== ======= ======
ADJUSTED EBITDA:
Xpedite..................................................................... $ 55.0 $ 61.2 $ 54.1
Voicecom.................................................................... 13.1 13.9 51.0
Premiere Conferencing....................................................... 14.7 9.0 7.0
Retail Calling Card Services................................................ 1.6 (5.8) (22.1)
Corporate................................................................... (17.6) (39.2) (28.2)
Eliminations................................................................ (0.2) (0.3) --
------ ------- ------
Totals...................................................................... $ 66.6 $ 38.8 $ 61.8
====== ======= ======

Analysis

The Company's financial statements reflect the results of operations of
Xpedite, Xpedite international affiliates, ATS and Intellivoice from the date of
their respective acquisition. These acquisitions have been accounted for under
the purchase method of accounting.

Revenues

Consolidated revenues decreased 4.7% to $436.9 million in 2000 from $458.4
million in 1999, and increased 3.1% in 1999 when compared to consolidated
revenues of $444.8 million in 1998. Revenues in the Company's operating segments
increased as follows:

. Xpedite revenues decreased 3.3% to $233.9 million in 2000 versus $242.0
million in 1999, and increased 22.8% in 1999 compared to $197.0 million in
1998. The decrease in 2000 was primarily attributable to the strength of
the U.S. dollar relative to other global currencies, revenue declines in
Xpedite's real-time product offering in the Asia/Pacific region, as well as
continued pricing pressure in the market for certain of Xpedite's legacy
fax services. The reduction in the Asia/Pacific region is directly related
to the deregulation of telecommunications services in that region. Xpedite
began the exit from the real-time fax

18

and telex business in certain Asian markets during the fourth quarter of
2000. The revenue decrease in 2000 was partially offset by growth in
Xpedite's new service offerings. The increase in 1999 was attributable to
(1) twelve months of revenue in 1999 versus ten months in 1998 from Xpedite
Systems which was acquired in 1998 and accounted for under the purchase
method of accounting, (2) growth in this unit's Asia/Pacific region and (3)
acquisitions made in this segment's European region during the second
quarter of 1999.

. Voicecom revenues decreased 6.2% to $117.9 million in 2000 and decreased
17.8% to $125.7 million in 1999. The decrease in 2000 was due to declines
in the voice messaging product line. Declines in this product line were
attributable to the exit of selling into the small office/home office
market and weakness in Voicecom's largest multilevel marketing customer.
These declines were offset in part by the post-sale management services
agreement associated with the retail calling card customer base. See
footnote 6 for a further discussion of this sale. The decrease in 1999 was
attributable to the expiration of revenue commitments under the strategic
alliance agreement with WorldCom in September 1998, the bankruptcy of two
wholesale calling card customers in the second quarter of 1998, weakness in
Voicecom's largest multilevel marketing customer and customer attrition in
Voicecom's corporate voice messaging revenue channel. These decreases were
partially offset by increases in revenue from Voicecom's IVR services.

. Premiere Conferencing revenues increased 33.1% to $71.6 million in 2000 and
increased 45.8% to $53.8 million in 1999. The increase in 2000 is primarily
attributable to growth in Premiere Conferencing's automated conferencing
service, Ready Conference, which allows unscheduled and unattended
conferences calls 24 hours a day, 7 days a week. The increase in 1999 is
attributed to (1) twelve months of revenue in 1999 versus nine months in
1998 for ATS, which was acquired in the second quarter of 1998 and
accounted for under the purchase method of accounting, and (2) increases
from its unattended conferencing product.

. Retail Calling Card Services revenues decreased 63.2% to $13.7 million in
2000 and decreased 35.9% to $37.2 million in 1999. The decrease in 2000 is
primarily due to the sale of the customer base related to this segment in
August 2000. The Company had been seeking a sale since the third quarter of
1999 when it decided to discontinue actively acquiring new customers. See
footnote 6 for a further discussion of this sale. The decrease in 1999 was
attributable to (1) the exiting of unprofitable prepaid calling card
programs in the third quarter of 1998, (2) management's decision in the
first quarter of 1998 to discontinue its unprofitable direct response
advertising in in-flight magazines for its Premiere Worldlink calling card
and (3) management's decision in 1999 to discontinue unprofitable direct
response advertising of its Premiere Worldlink calling card program with
its co-branding partners.

Gross Margins

Consolidated gross profit margins were 73.6%, 71.7% and 69.6% in 2000, 1999,
and 1998, respectively. Gross margins in the Company's operating segments were
as follows:

Xpedite gross profit margins were 70.0%, 68.3%, and 64.9% in 2000, 1999, and
1998, respectively. Gross margins increased in 2000 due to decreases in per
minute telecommunications rates for the Xpedite worldwide network, as well as a
new agreement with a supplier in France which improved European
telecommunication rates in particular. Lower telecommunications costs have
become the general industry trend over the past two years.

Voicecom gross profit margins were 77.2%, 79.8% and 81.1% in 2000, 1999 and
1998, respectively. Gross margins declined in 2000 primarily due to increased
network costs associated with the development of Orchestrate, increases in lower
margin business associated with the post-sale management services agreement
related to the retail calling card customer base sale, and revenue declines in
the voice messaging product customer base which is operated primarily on a fixed
cost local access network. These declines were offset in part by decreases in

19

telecommunications delivery costs. Gross margins declined in 1999 primarily due
to the expiration of the WorldCom revenue commitments, offset by lower fixed
telecommunications costs.

Premiere Conferencing gross profit margins were 81.3%, 78.3%, and 77.0% in
2000, 1999, and 1998, respectively. Gross margins increased in 2000 and 1999
primarily due to decreases in telecommunications delivery costs.

Retail Calling Card Services gross profit margins were 61.9%, 56.2% and 48.1%
in 2000, 1999 and 1998, respectively. Gross margins increased in 2000 due to the
negotiation of lower per minute telecommunications rates with the providers of
these services. Gross margins increased in 1999 due to (1) the exit of the
prepaid calling card business in the third quarter of 1998, which had inherently
lower gross margins due to the mix of this business being primarily
international, and (2) lower per minute telecommunications rates offered by its
telecommunications providers.

Direct operating costs

Consolidated direct operating costs as a percent of revenues were 15.6%, 15.1%
and 12.1% in 2000, 1999, and 1998 respectively. While direct operating costs
fell by $1.2 million in 2000 compared to 1999, as a percentage of revenue these
costs increased slightly, from 15.1% of revenue in 1999 to 15.6% of revenue in
2000. The increase in direct operating costs in 2000 as a percent of revenue is
primarily attributable to growth in the Premiere Conferencing operating segment
which has inherently higher direct operating costs as a percentage of revenue
from its attended conferencing product offering.

Selling and marketing

Consolidated selling and marketing costs as a percent of revenues were 21.5%,
23.5% and 24.6% in 2000, 1999 and 1998, respectively. These costs fell by
approximately $14.0 million in 2000 when compared to 1999, with significant
decreases at both the Voicecom and Retail Calling Card operating segments ($12.9
million and $10.6 million, respectively). Xpedite and Premiere Conferencing
experienced increases of $5.8 million and $4.8 million, respectively, when
compared to 1999 levels. At Voicecom, the decrease in direct sales and marketing
costs as a percentage of revenues in 2000 is attributable in part to a reduction
of 122 employees in the latter half of 1999 that was undertaken as part of the
plan to decentralize the Company. In addition, further sales force reductions
were made at Voicecom in 2000, as Voicecom exited the small office/home office
direct sales channel. Significant reductions in direct advertising costs
associated with Orchestrate also contributed to the decrease at Voicecom. The
decrease within the Retail Calling Card operating segment is primarily
attributable to the discontinuance of efforts to acquire new customers. The
increase at Xpedite is primarily related to the ramp up of sales and marketing
efforts relating to this operating segment's new service offerings, while the
increase at Premiere Conferencing is principally due to the significant growth
in revenue in this operating segment from 1999 to 2000.

General and administrative

Consolidated general and administrative costs as a percent of revenues were
18.1%, 21.9% and 17.8% in 2000, 1999 and 1998, respectively. Excluding
approximately $16.1 million of one-time charges in 1998, $13.1 million in 1999
and $1.2 million in 2000, consolidated general and administrative costs as a
percent of revenues were 17.8%, 19.1% and 14.2% in 2000, 1999 and 1998,
respectively.

The one-time events in 1998 consisted of $8.4 million of bad debt expense
related to bankruptcies of two wholesale calling card customers, $2.3 million of
start-up costs, primarily executive compensation, incurred in the start-up of
Orchestrate, $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.

The one-time events in 1999 consisted of 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

20

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. In connection
with this action the Company recorded $13.1 million of non-cash expense related
to the partial vesting of these grants. The Company recorded an additional non-
cash charge of $1.2 million in 2000 related to the vesting of the grants. In
2001 and 2002, the Company will be required to expense $38,000 and $12,000,
respectively, for the vesting period associated with the remaining unvested
grants.

General and administrative costs excluding one-time charges decreased to 17.8%
of revenues in 2000. The overall decrease in general and administrative costs of
$21.7 million is related to reduced corporate overhead stemming from the
Company's third quarter 1999 restructuring initiative. Revenue declines in the
Xpedite and Voicecom segments partially offset the improvement in general and
administrative costs as a percent of revenue. The significant increase in
general and administrative costs excluding one-time events in 1999 as a percent
of revenue from 14.2% to 19.1% was primarily driven by (1) significant revenue
reductions in the Voicecom and Retail Calling Card segments as outlined in the
revenue section of this discussion and (2) the continued build out of the
Company's corporate infrastructure in late 1998 and early 1999. Both of these
factors combined to outweigh gains made from the administrative reductions
realized as part of the restructuring plans of the Voice-Tel and VoiceCom
Systems acquisitions. Realizing this continued trend, management acted in the
third quarter of 1999 on an aggressive workforce reduction at its Corporate
operating segment to reverse this unfavorable trend. For a further outline of
this plan, see the restructuring, merger and other special charges section of
this discussion.

Research and development

Consolidated research and development costs as a percent of revenues were
3.2%, 2.6% and 1.2% in 2000, 1999 and 1998, respectively. From 1998 to 2000, the
Company's research and development activities focused on developing new products
and services in each of its operating segments. The increases in 2000 were
attributable to Xpedite's development of its new service offerings, messageREACH
and voiceREACH, Premiere Conferencing's continued development of ReadyConference
and VisionCast, and Voicecom's continued development of Orchestrate. Increases
in 1999 were primarily associated with Voicecom's development of Orchestrate.

Depreciation

Consolidated depreciation costs as a percent of revenues was 9.2%, 15.3% and
10.4% in 2000, 1999 and 1998, respectively. Depreciation costs in the Company's
operating segments were as follows:

. Xpedite depreciation costs were 5.1%, 5.9% and 8.4% of segment revenues in
2000, 1999 and 1998, respectively. The decrease in expense as a percent of
revenues resulted from the reduction in depreciation attributed to assets
becoming fully depreciated during the year. Increased depreciation
resulting from capital additions to Xpedite's network did not have a
significant impact on depreciation for 2000, as a large portion of these
additions occurred in the latter part of 2000. The decrease in expense as a
percent of revenues from 1998 to 1999 was primarily due to increased
business on existing capacity of Xpedite's network and the aging of the
network without significant capital additions to increase capacity.

. Voicecom depreciation costs were 15.2%, 17.4% and 12.6% of segment revenues
in 2000, 1999 and 1998, respectively. The increase in expense as a percent
of revenues from 1998 to 2000 is attributable to the revenue decreases
outlined in the revenue section of this discussion, maintaining the same
network capacity during this period of decline and placing into service the
Orchestrate network over this time period.

21

. Premiere Conferencing depreciation costs were 8.4%, 7.8% and 5.7% of
segment revenues in 2000, 1999 and 1998, respectively. The increase in
expense as a percentage of revenues in 2000 and 1999 is attributable to
capital additions required to build out the infrastructure necessary to
support the deployment and growth of its unattended conferencing service,
which management of this segment believes will continue to grow over the
next several years.

. Retail Calling Card depreciation costs were 19.0%, 87.6% and 14.1% of
segment revenues in 2000, 1999 and 1998, respectively. The decrease in
expense as a percent of revenues from 1999 to 2000 is attributable
primarily to the shortening of the useful life of telecommunications
equipment from five to seven years in the fourth quarter of 1998 to 15
months. The useful life of this substantial amount of equipment was related
to management's decision to cease actively acquiring customers in this
operating segment and eventually to sell its customer base. The increase in
expense as a percent of revenues from 1998 to 1999 is attributable to (1)
significant declines in the revenues base as outlined in the revenues
section of this discussion, and (2) management's decision in the fourth
quarter of 1998 to reduce the remaining useful lives of certain equipment
from two to five years to twelve to fifteen months, as a result of
management's decision in the third quarter of 1999 to cease acquiring new
customers in this segment and exit this business.

. Corporate depreciation costs were $2.1 million, $1.6 million and $0.2
million in 2000, 1999 and 1998, respectively. The increase in depreciation
from 1999 to 2000 resulted from shortening the useful lives of certain
purchased administrative software that was either outsourced or replaced
with less expensive alternatives. The increase in these costs from 1998 to
1999 was attributable primarily to the installation of new management
information systems, new financial management systems and increased
computer equipment purchases. The new computer equipment purchases were due
in part to the infrastructure build out at the corporate level during 1998
and early 1999. The new management information systems and financial
systems were put in place as an overall consolidation of the various legacy
systems acquired through the acquisitions of Voice-Tel, VoiceCom Systems,
Inc., ATS and Xpedite and to address Year 2000 concerns.

Amortization

Consolidated amortization as a percent of revenues was 23.6%, 21.6% and 14.7%
in 2000, 1999 and 1998, respectively. The increase in amortization expense as a
percent of revenues from 1999 to 2000 was primarily due to the shortening of the
estimated remaining useful life of Internet portal rights from three years to
one year from the WebMD co-marketing agreement. The increase in amortization
expense as a percent of revenues from 1998 to 1999 was due to (1) twelve months
in 1999 versus ten months in 1998 of amortization related to Xpedite, (2) twelve
months in 1999 versus nine months in 1998 of amortization related to ATS, in
addition to a full year of amortization under shortened lives in 1999 versus
three months in 1998, (3) a full year of amortization in 1999 under a shortened
life related to the WorldCom strategic alliance contract versus three months in
1998, (4) a full year of amortization of Voice-Tel goodwill and customer lists
under shortened lives versus three months in 1998 and (5) additional
amortization from the acquisitions of Xpedite's French affiliate in the second
quarter of 1999 and the acquisition of Intellivoice in the third quarter of
1999, both accounted for under the purchase method of accounting. The increase
in amortization expense as a percent of revenues in 2000 resulted from the
acquisition of customer lists by Xpedite and declines in revenue in both the
Xpedite and Voicecom segments.

In 2000, the Company amortized goodwill created by investments that were
accounted for under the equity method of accounting. Companies in which the
Company owns 50% or less of the equity ownership, but over which significant
influence is exercised, are accounted for under the equity method. The amount by
which the Company's investment exceeds its share of the underlying net assets is
considered to be goodwill, and is amortized over a three-year period.
Amortization related to equity investments totaled $4.9 million in 2000 and is
included in the statement of operations as amortization of goodwill-equity
investment.

Net interest expense

Net interest expense was $10.6 million, $24.7 million and $14.7 million in
2000, 1999 and 1998, respectively. Net interest expense decreased in 2000 versus
1999 primarily due to the following factors:

22

. In December 1999, PTEK utilized proceeds from the sale of a portion of its
holdings in WebMD to pay off obligations under a credit facility totaling
approximately $142.8 million. This credit facility was terminated at the
time of the pay off.

. Interest income on the average balance of marketable securities that the
Company held increased during 2000 versus 1999.

Net interest expense increased in 1999 versus 1998 primarily due to the
following factors:

. Increased average borrowings in 1999 versus 1998 under the Company's credit
facility that was assumed as part of the Xpedite acquisition in 1998. The
increase in average borrowings in 1999 was principally related to certain
international acquisitions made by Xpedite in 1999, and for capital
expenditures related to product development.

. Interest income on the average balance of marketable securities in debt and
mutual funds that the Company held decreased during 1999 versus 1998. The
reduced interest income on marketable securities was due to the Company's
liquidation of certain debt and mutual fund holdings in the early part of
1998, which was used, in part, to fund investments and general capital
expenditure needs.

Legal settlements, net

Legal settlements, net were $(1.4) million, $0.0 million and $1.5 million in
2000, 1999 and 1998, respectively. See Note 18--"Commitments and Contingencies"
of the Notes to the Consolidated Financial Statements and "Legal Proceedings"
under Item 3 of Part I of this document.

Acquired research and development costs

Acquired research and development costs of $15.5 million expensed in 1998 were
associated with the acquisition of Xpedite. This cost represents the value
assigned to research and development projects in the developmental stage, which
had not reached technological feasibility at the date of the acquisition. The
acquired research and development was valued using the income approach, which
consisted of estimating the expected after-tax cash flows attributable to this
asset over its life and converting this after-tax cash flow to present value
through discounting. See Note 8--"Acquisitions" in Notes to Consolidated
Financial Statements for additional information.

Asset Impairment-Investments

The Company continually evaluates the carrying value of its ownership
interests in investments in the PtekVentures portfolio that are accounted for
using the cost or equity method of accounting for possible impairment based on
achievement of business plan objectives and current market conditions. The
business plan objectives the Company considers include, among others, those
related to financial performance such as achievement of planned financial
results or completion of capital raising activities, and those that are not
primarily financial in nature such as the launching of technology or the hiring
of key employees.

The Company's portfolio companies operate in industries that are rapidly
evolving and extremely competitive. Recently, many Internet based businesses
have experienced difficulty in raising additional capital necessary to fund
operating losses and make continued investments that their management teams
believe are necessary to sustain operations. Valuations of public companies
operating in the Internet sector declined significantly during 2000. The
Company's accounting estimates with respect to the useful life and ultimate
recoverability of its carrying basis including goodwill in portfolio companies
could change in the near term and the effect of such changes on the financial
statements could be material. While the Company currently believes that the
recorded amount of carrying basis including goodwill as of December 31, 2000 is
not impaired, there can be no assurance that future results will

23

confirm this assessment. During the fourth quarter of 2000, the Company
determined that certain of these investments were impaired and that the
impairment was not temporary. Accordingly, the Company recorded an impairment
charge of approximately $15.0 million, which is included in the accompanying
consolidated statements of operations under "Asset impairment-investments."

Adjusted EBITDA

Consolidated Adjusted EBITDA was $66.6 million or 15.2% of revenues in 2000,
$38.8 million or 8.5% of revenues in 1999, and $61.8 million or 13.9% of
revenues in 1998.

. Xpedite Adjusted EBITDA was $55.0 or 23.5% of segment revenues, $61.2
million or 25.3% of segment revenues, and $54.1 million or 27.5% of segment
revenues in 2000, 1999, and 1998, respectively. The decrease in Adjusted
EBITDA from 1999 to 2000 was primarily due to the strength of the U.S.
dollar relative to other global currencies, increased pricing pressure in
the market for certain of Xpedite's legacy fax services, and increased
investment in sales and marketing efforts associated with the launch of new
service offerings. Additionally, pricing for certain of Xpedite's products
(real-time fax in particular) in the Asia/Pacific region deteriorated
dramatically in 2000 compared to 1999, contributing to the Adjusted EBITDA
decline. These pricing reductions were directly related to the deregulation
of telecommunications services in that region. Xpedite began the exit from
the real-time fax and telex business in certain Asian markets during the
fourth quarter of 2000. The increase in Adjusted EBITDA to $61.2 million in
1999 was related to twelve months of operating results for Xpedite versus
ten months in 1998. The decline as a percent of revenue was primarily
driven by lower Adjusted EBITDA acquisitions made in Europe in the latter
half of 1998 and the first half of 1999, along with start up costs
associated with the acquisition of a customer list in the Asia/Pacific
region of this business unit.

. Voicecom Adjusted EBITDA was $13.1 million or 11.1% of segment revenues,
$13.9 million or 11.1% of segment revenues and $51.0 million or 33.4% of
segment revenues in 2000, 1999 and 1998, respectively. EBITDA margin
remained flat as a percentage of revenue primarily due to personnel cost
reductions in the sales force during late 1999 and 2000. Also contributing
were declines in direct advertising costs associated with Orchestrate. The
decrease in Adjusted EBITDA in 1999 is attributable to (1) the expiration
of revenue commitments from the Worldcom strategic alliance contract in
which little or no telecommunications or selling, general or administrative
costs existed in this high margin offering, (2) increased research and
development costs associated with Orchestrate, (3) decreases in high margin
messaging revenues with very little or no selling, general or
administrative costs associated, such as the Amway distribution channel and
certain corporate messaging customers in which Voicecom provides only
maintenance services and (4) the bankruptcy of two significant high margin
wholesale calling card customers in which Voicecom incurred very little or
no telecommunications costs or selling, general or administrative costs.
These decreases were offset, in part, by administrative and customer
service workforce reductions as part of the restructuring plan associated
with the reorganization of the Company into CES and EES during the fourth
quarter of 1998. For a further discussion of this reorganization plan, see
the restructuring, merger and other special charges section of this
discussion. The decrease in Adjusted EBITDA in 1999 was, to a lesser
extent, caused by the same conditions which drove the decrease in 1999,
along with bad debt expenses associated with the bankruptcy of two
wholesale calling card customers.

. Premiere Conferencing Adjusted EBITDA was $14.7 million or 20.5% of segment
revenues, $9.0 million or 16.7% of segment revenues and $7.0 million or
19.0% of segment revenues in 2000, 1999 and 1998, respectively. The
increase in Adjusted EBITDA in 2000 was primarily driven by growth in
automated conferencing services, ReadyConference, which carry higher
margins than fully attended conferencing services. The increase in Adjusted
EBITDA in 1999 was primarily driven from twelve months of operations for
ATS versus nine months of operations in 1998. The decline in Adjusted
EBITDA as a percent of revenue in 1999 is due to start-up costs associated
with sales and marketing efforts in growing the segment's unattended
conferencing product offering.

24

. Retail Calling Card Adjusted EBITDA was $1.6 million or 11.7% of segment
revenues, $(5.8) million or (15.6)% of revenues and $(22.1) million or
(38.1)% of segment revenues in 2000, 1999 and 1998, respectively. The trend
to positive Adjusted EBITDA in 2000 is attributable mainly to all of the
initiatives mentioned below that improved Adjusted EBITDA between the years
1998 and 1999. The decrease in negative Adjusted EBITDA in 1999 is
attributable (1) the exiting of unprofitable prepaid calling card programs
in the third quarter of 1998, (2) management's decision in the first
quarter of 1998 to discontinue its unprofitable direct response advertising
in in-flight magazines for its Premiere Worldlink calling card and (3)
management's decision in 1999 to discontinue unprofitable direct response
advertising of its Premiere Worldlink calling card program with its co-
branding partners. In the third quarter of 1999, management decided not to
actively seek to acquire any new customers in this segment because it
determined that the cost of acquiring such customers outweighed the
revenues that these customers could generate for the Company. PTEK sold the
revenue base associated with this operating segment effective August 1,
2000.

. Corporate Adjusted EBITDA was $(17.6) million or (4.0)% of consolidated
revenues, $(39.2) million or (8.6)% of consolidated revenues, and $(28.2)
million or (6.3)% of consolidated revenues in 2000, 1999 and 1998,
respectively. Costs associated with this segment are personnel,
professional, legal and travel costs associated with managing the holding
company, managing PtekVentures' investment portfolio and exploring
strategic initiatives. Excluding one-time costs of $1.2 million in 2000,
$13.1 million in 1999 and $9.3 million in 1998, Adjusted EBITDA for those
three years would have been $(16.4) million or (3.8)% of consolidated
revenues, $(26.1) million or (5.7)% of consolidated revenues and $18.9
million or (4.2)% of consolidated revenues, respectively. One time costs in
2000 and 1999 were related to amortization and other costs associated with
the restricted stock granted in 1999, as discussed in Note 17--"Related
Party Transactions." One time costs in 1998 were associated with a note
receivable write-off associated with the bankruptcy of a strategic
wholesale calling card partner, start-up costs, primarily executive
compensation, incurred in the start-up of its Orchestrate.com, Inc.
subsidiary, stay bonuses earned in connection with the post-merger period
of the Xpedite acquisition and asset impairment and other costs. Adjusted
EBITDA improved by $21.6 million from 1999 to 2000 as a result of reduced
administrative overhead costs associated with the decentralized strategy
implemented in the third quarter of 1999. This strategy consisted of
reducing all nonstrategic overhead costs at Corporate and to push down
administrative duties to each operating segment where such costs could be
managed more efficiently. General and administrative costs related to
managing the PtekVentures investment portfolio reduced the improvement in
Adjusted EBIDTA from 1999 to 2000 by $2.0 million. The PtekVentures
investment portfolio generated gains from sales of marketable securities of
$59.7 million and $152.1 million, in 2000 and 1999, respectively, which are
not included in Adjusted EBITDA. The increase in negative Adjusted EBITDA
at the Corporate level in 1998 versus 1997 was primarily driven by the
build out of a corporate infrastructure in the latter half of 1998 and the
first half of 1999.

Effective income tax rate

In 2000, 1999 and 1998, the Company's effective income tax rate varied from
the statutory rate, primarily as a result of nondeductible goodwill amortization
associated with the Company's acquisitions in 1998 and 1999, which have been
accounted for under the purchase method of accounting. In 1998, the Company's
effective income tax rate varied from the statutory rate primarily as a result
of nondeductible goodwill amortization associated with the Company's
acquisitions, which have been accounted for under the purchase method of
accounting See Note 19--"Income Taxes" in the Notes to Consolidated Financial
Statements for additional information.

Liquidity and capital resources

Operating cash flows and working capital. Consolidated operating cash flows
were $17.9 million, $9.9 million and $22.2 million in 2000, 1999 and 1998,
respectively. Excluding payments for restructuring, mergers and other special
charge activities, operating cash flows would have been $22.3 million, $18.8
million and $37.2 million in 2000, 1999 and 1998, respectively.

25

Increased operating cash flows of $8.0 million are mainly attributable to a
decrease in interest paid and general and administrative expenses, proceeds from
the WorldCom settlement, and a decrease in restructuring payments. Offsetting
the increases to cash flow were tax payments of $17.1 million and an increase in
accounts receivable. The payment of approximately $17.1 million in income taxes
is associated primarily with the gain on the sale of WebMD and S1 shares in 1999
and 2000. The sale of these investments utilized substantially all of the
Company's domestic net operating loss carryforwards, causing the Company to be
subject to income taxes for the fiscal years ended December 31, 2000 and 1999.
Under accounting principles generally accepted in the United States, taxes paid
must be presented in the cash flows from operating activities regardless of
their sources. The Company anticipates future tax liabilities on subsequent
gains from the sale of its marketable securities.

Reduced operating cash flows from 1998 to 1999 of approximately $12.3 million
was attributable primarily to the decline in revenues from the Company's
WorldCom strategic alliance and increased interest paid on a revolving loan
facility due to increased borrowings outstanding during 1999. Increased interest
paid during 1999 versus 1998 was approximately $13.8 million.

Investing activities. Consolidated investing activities (used) provided cash
of approximately $(6.5) million, $107.2 and $21.3 million in 2000, 1999 and
1998, respectively. Investing activities in the Company's operating segments are
discussed below.

. Xpedite investing activities (used) cash of $(17.1) million, $(14.7) and
$(11.8) million in 2000, 1999 and 1998, respectively. Investing activities
in this unit for all three years were primarily expenditures related to
expansion of capacity on Xpedite's network.

. Voicecom investing activities (used) cash of $(10.1) million, $(9.5)
million and $(25.7) million in 2000, 1999 and 1998, respectively. Investing
activities in this unit for 2000 were primarily for equipment purchases to
replace dated equipment in the voice mail network, software and equipment
purchases for development of Orchestrate 2000 and expansion of its call
center IVR services with Bank of America. Investing activities in this unit
for 1999 were primarily for equipment and software purchases to develop the
latest version of Orchestrate, Orchestrate 2000, and replacement of dated
equipment in the voice mail network. In addition, this segment received
approximately $7.9 million of cash in connection with a note receivable
from a wholesale calling card customer.

. Premiere Conferencing investing activities (used) cash of $(7.1), $(9.7)
and $(7.3) million in 2000, 1999, and 1998, respectively. Investing
activities in 2000 and 1999 were primarily for the build out of the
infrastructure necessary to support the deployment and growth of its
unattended conferencing service and, in 1999, the build out of this
segment's new headquarters.

. Retail calling card investing activities (used) cash of $(11.2) million in
1998. Investing activities in 1998 were primarily for replacement of dated
switching equipment in the retail calling card network. No capital
expenditures were incurred in 2000 or 1999 due to management's decision to
exit major marketing channels in 1999 and the eventual sale of retail
calling card the third quarter of 2000.

. Corporate investing activities provided cash of $27.9 million, $141.0
million and $50.9 million in 2000, 1999 and 1998, respectively. Cash
provided in 2000 was primarily from sales of investments in Corporate's
PtekVentures investment portfolio of which a portion of those sale proceeds
were used to invest in additional PtekVentures portfolio companies and to
pay for taxes on prior and current year portfolio gains. Cash provided in
1999 was primarily from the sale of shares in WebMD. The proceeds from this
sale were used in part to pay off the Company's revolving loan facility in
December 1999. Cash provided in 1998 was from the sale of various
marketable securities, mutual fund investments and municipal obligations.
These sale proceeds were used primarily for various capital needs of the
operating segments, the acquisition of ATS and various international fax
businesses.

Financing activities. Consolidated financing activities (used) cash of
approximately $(2.4) million, $(120.9) and $(46.1) million in 2000, 1999 and
1998, respectively. Financing activities are managed in the Company's

26

Corporate operating segment. The Company's financing activities in 2000 included
$3.3 million from the Company's purchase of approximately 1.2 million shares of
its stock under a stock repurchase program, issuance of a shareholder note of
$2.8 million and reduction of $3.2 million of debt. The debt payments included
$1.2 million in foreign loans at Xpedite, $1.8 million in notes payable assumed
by the Company in connection with the Voice-Tel and VoiceCom Systems
acquisitions and $0.2 million in debt at Conferencing. Offsetting the cash used
in financing activities were proceeds from stock options totaling $6.9 million.
The Company's principal financing activity in 1999 was the repayment and
termination of its revolving loan facility on December 15, 1999. This loan
facility was paid off with proceeds from the sale of 3.5 million shares of its
investment in WebMD. The proceeds from this sale were approximately $154.4
million. Annualized interest savings from the loan facility repayment are
approximately $18.0 million. The Company's principal financing activities in
1998 were payments of $29.8 million on its revolving loan facility, $9.1 million
from the Company's purchase of approximately 1.1 million shares of its stock
under a stock repurchase program and the payment of $5.5 million of the proceeds
from the previous years employee stock options for employer taxes associated
with those employee options.

At December 31, 2000, the Company's principal commitments involve minimum
purchase requirements under supply agreements with telecommunications providers,
severance payments to former executive management under the Company's various
restructuring plans, capital lease obligations, commitments under its strategic
alliance with WebMD, and semiannual interest on the Company's convertible
subordinated notes.

On September 29, 2000 the Company entered into a credit agreement (the
"Agreement") for a one-year revolving credit facility with ABN AMRO Bank
N.V.(the "Bank" or "Agent"). The Agreement provides for borrowings of up to
$20.0 million, and is subject to certain covenants that are usual and customary
for credit agreements of this nature. The commitment to provide revolving credit
loans under the Agreement terminates 364 days from September 29, 2000, unless
the Agreement is extended. Amounts outstanding under the Agreement on the
expiration date may, at the option of the Company, either be paid in full or
converted to a one-year term loa